On the desirability of tax coordination when countries compete in taxes and infrastructures

Yutao Han (), Patrice Pieretti and Benteng Zou

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: In our paper we show that when countries compete in taxes and infrastructures, coordination through a uniform tax rate or a minimum rate does not necessarily create the welfare effects observed under pure tax competition. The divergence is even worse when the competing jurisdictions differ in the quality of their institutions. If tax revenue is used to gauge the desirability of coordination, our model shows that imposing a uniform tax rate is Pareto-inferior to the non cooperative equilibrium when countries compete in taxes and infrastructures. This result is completely reversed with pure tax competition if countries are not too uneven in size. If a minimum tax rate lying between those resulting from the non-cooperative equilibrium is set, the low tax country will never be better off. Finally the paper shows that the potential social welfare gains from tax harmonization crucially depend on how heterogeneous the competing countries are.

Keywords: Tax competition; infrastructures; tax coordination; tax revenue; social welfare (search for similar items in EconPapers)
JEL-codes: C72 F21 H21 H73 H87 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://hdl.handle.net/10993/13281 (application/pdf)

Related works:
Journal Article: ON THE DESIRABILITY OF TAX COORDINATION WHEN COUNTRIES COMPETE IN TAXES AND INFRASTRUCTURE (2017)
Working Paper: On the desirability of tax coordination when countries compete in taxes and infrastructure (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:13-02

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