Economic integration, tax erosion, and decentralisation: an empirical analysis

Francesca Gastaldi, Paolo Liberati and Antonio Sciala' ()
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Antonio Sciala': University of Roma Tre

No 127, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: This paper addresses the issues of whether and how the degree of economic integration may affect central government tax revenues and the intensity of decentralisation. To this purpose, we empirically test the direct impact of economic integration on central tax revenues using the concept of implicit tax rates (ITRs) updated to take into account mobile and immobile capital taxation. On this basis we derive a country-specific measure of tax erosion that is used as a determinant of the decentralisation of the public sector in an Arellano-Bond environment. We find that: i) an increase of economic integration generates a downward pressure on ITRs on mobile capital, which is growing at increasing rates as far as economic integration increases; ii) the process of tax erosion gives rise to a corresponding process of increasing public sector decentralisation.

Keywords: Economic integration; Fiscal federalism; Tax competition. (search for similar items in EconPapers)
JEL-codes: F20 H77 H87 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2011-01
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0127

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