Are your firm’s taxes set in Warsaw? Spatial tax competition in Europe

Karen Crabb? and Hylke Vandenbussche ()
Authors registered in the RePEc Author Service: Karen Crabbé ()

LICOS Discussion Papers from LICOS - Centre for Institutions and Economic Performance, K.U.Leuven

Abstract: Corporate tax rates in Europe have been falling rapidly; as a consequence tax competition within the EU is fiercer than in the rest of the OECD. This paper analyzes heterogeneity in corporate tax rate changes between EU-15 countries as a function of the proximity to the EU-10 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, in principle 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 physically closer to Central-Europe experienced more tax competition. Next we use a spatial regression framework to more formally test the hypothesis that distance to a low tax region affects countries' 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
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Downloads: (external link)
http://www.econ.kuleuven.ac.be/licos/DP/DP2008/DP216.pdf

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 firmÕs taxes set in Warsaw? Spatial tax competition in Europe (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:lic:licosd:21608

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