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The role of mobility in tax and subsidy competition

Listed author(s):
  • Haupt, Alexander
  • Krieger, Tim

In this paper, we analyse the role of mobility in tax and subsidy competition. Our primary result is that increasing ‘relocation’ mobility of firms leads to increasing ‘net’ tax revenues under fairly weak conditions. While enhanced relocation mobility intensifies tax competition, it weakens subsidy competition. The resulting fall in the governments’ subsidy payments over-compensates the decline in tax revenues, leading to a rise in net tax revenues. We derive this conclusion in a model in which two governments are first engaged in subsidy competition and thereafter in tax competition, and firms locate and potentially relocate in response to the two political choices.

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File URL: https://www.econstor.eu/bitstream/10419/74526/1/WGSP_DP_2013_02.pdf
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Paper provided by University of Freiburg, Wilfried Guth Endowed Chair for Constitutional Political Economy and Competition Policy in its series Discussion Paper Series with number 2013-02.

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Date of creation: 2013
Handle: RePEc:zbw:wgspdp:201302
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  12. Beate Grundig & Christian Leßmann & Anna Sophie Müller & Joachim Ragnitz & Michael Reinhard & Beate Schirwitz & Heinz Schmalholz & Marcel Thum, 2008. "Rechtfertigung von Ansiedlungssubventionen am Beispiel der Halbleiterindustrie : Gutachten im Auftrag der Sächsischen Staatskanzlei," ifo Dresden Studien, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 45.
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  14. Haupt, Alexander & Krieger, Tim, 2013. "The role of mobility in tax and subsidy competition," Discussion Paper Series 2013-02, University of Freiburg, Wilfried Guth Endowed Chair for Constitutional Political Economy and Competition Policy.
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  27. Lee, Kangoh, 1997. "Tax Competition with Imperfectly Mobile Capital," Journal of Urban Economics, Elsevier, vol. 42(2), pages 222-242, September.
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