Are your firmÕs taxes set in Warsaw? Spatial tax competition in Europe

Karen CrabbŽ and Hylke Vandenbussche ()

No 2008081, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Tax competition within the EU is Þercer than in the rest of the OECD with tax rates falling rapidly. This paper analyzes tax responses of EU-15 countries to corporate tax changes in the EU-10 new member states as a function of their proximity to these new member states. The average corporate tax rate in the new member states has always been considerably lower than the average in the EU-15 countries. Their entry into the EU eliminated capital barriers, allowing Þrms to locate in one of the new EU-10 with full access to the European Market. Our results indicate that EU-15 countries geographically closer to the new member states respond stronger to corporate tax changes in these new member states. We use a theoretical and a spatial regression framework to test the hypothesis that distance to a low tax region intensiÞes countriesÕ tax reaction functions.

Keywords: spatial tax competition; corporate taxes; fiscal reaction function. (search for similar items in EconPapers)
JEL-codes: H25 H77 H39 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-pbe, nep-pub and nep-ure
Date: 2008-12-01

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Related works:
Working Paper: Are Your Firm's Taxes Set in Warsaw? Spatial Tax Competition in Europe (2009)
Working Paper: Are your firmÕs taxes set in Warsaw ? Spatial tax competition in Europe (2008)
Working Paper: Are your firm’s taxes set in Warsaw? Spatial tax competition in Europe (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:cor:louvco:2008081

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