 Equilibrium conditions in corporate tax competition and Foreign Direct Investment flowsDimitrios Hristu-Varsakelis, Stella Karagianni and Anastasios Saraidaris Economic Modelling, 2011, vol. 28, issue 1-2, 13-21 Abstract: We consider a collection of countries which attempt to maximize their corporate tax revenue, the latter being viewed as a function of Foreign Direct Investment (FDI) inflow and the Effective Average Tax Rate (EATR) which each country sets for itself. Under a model that assumes a direct influence of tax differentials on the flow of FDI, each country's decisions are naturally 'coupled' to those of others, leading to a non-cooperative game in which countries-players compete for FDI inflows by sequentially altering their tax rates. Their decisions are made via a differential equation-based model used to predict the effect of tax rate changes on a player's share of FDI inflows. Our model, calibrated using empirical data from 12 OECD countries for the period 1982-2005, combines FDI inflow and tax-rate differentials to arrive at a "steady-state" FDI inflow share for each player, given its competitors' corporate tax rates. We explore the game's equilibrium, including the question of whether equilibrium necessarily implies a 'race to bottom', with low corporate tax rates for all players. Keywords: Corporate; tax; competition; FDI; inflows; Corporate; Income; Tax; Revenue; Effective; Average; Tax; Rates (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:28:y:2011:i:1-2:p:13-21 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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