The standard neo-classical view on tax competition. A diagrammatic survey and some deductions for small open economies

Ricardo Pinheiro-Alves

Working Papers de Gestão, Economia e Marketing (Management, Economics and Marketing Working Papers) from Universidade da Beira Interior, Departamento de Gestão e Economia (Portugal)

Abstract: This paper presents a diagrammatic survey of the standard neo-classical theory of tax competition for foreign direct investment and tax coordination between countries. It has four aims: to give a detailed view of the main theoretical and empirical results; to extract from it some general deductions for small and less developed open economies; to discuss different angles to improve the existing literature; and to put these in the context of fiscal policy in the European Union. It argues that eventual benefits brought by corporate tax harmonisation in the EU are not sufficient to compensate the risk of doing harm to small and relatively poor economies. Further research on equity issues is therefore needed before proceeding to harmonisation.

Keywords: Foreign Direct Investment; Tax competition; Tax coordination; Small countries (search for similar items in EconPapers)
JEL-codes: F21 H25 H73 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: Written 2005

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