Are Your Firm's Taxes Set in Warsaw? Spatial Tax Competition in Europe

Karen Crabbé and Hylke Vandenbussche ()

No 7159, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Tax competition within the EU is fiercer 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 firms 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 intensifies countries' tax reaction functions.

Keywords: corporate taxes; fiscal reaction function; Spatial tax competition (search for similar items in EconPapers)
JEL-codes: H25 H39 H77 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-pbe, nep-pub, nep-tra and nep-ure
Date: 2009-02
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Working Paper: Are your firm’s taxes set in Warsaw? Spatial tax competition in Europe (2008)
Working Paper: Are your firmÕs taxes set in Warsaw ? Spatial tax competition in Europe (2008)
Working Paper: Are your firmÕs taxes set in Warsaw? Spatial tax competition in Europe (2008)
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