Who benefits from tax competition in the European Union?

Leon Bettendorf (), Joeri Gorter and Albert Van der Horst ()

CPB Documents from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: Statutory tax rates have declined in the European Union in the recent decades. An applied general equilibrium model on corporate taxation sheds light on the economic and welfare implications of tax rate reforms. Domestic distortions proof highly relevant as even unilateral reductions of the corporate income tax rate might reduce welfare if the labour tax rate has to be increased. Profit shifting induces countries to underbid each others tax rates, but this effect is sizable only if two countries are closely linked. The harmful external effects of CIT rate reductions are limited, which reduces the need for European coordination of CIT rates.

Keywords: corporate income taxation; tax competition; applied general equilibrium model (search for similar items in EconPapers)
JEL-codes: C68 E62 F23 H25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pbe
Date: 2006-08
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Persistent link: http://EconPapers.repec.org/RePEc:cpb:docmnt:125

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