Do government preferences matter for tax competition?

Yongzheng Liu

International Tax and Public Finance, 2016, vol. 23, issue 2, 343-367

Abstract: This paper explores how government preferences affect capital tax decisions of a country. We develop a model in which governments, differentiating in their preferences for economic development and income equality, compete for mobile capital over corporation taxes. The key prediction of the model, borne out in data from OECD countries over the years 1990–2012, is that an increase in government preferences for pursuing economic development relative to income equality makes countries’ horizontal tax reactions stronger. Unlike the existing studies, our result contributes to the tax competition literature by highlighting the importance of government preferences in determining the extent of tax competition among countries and so offering a novel explanation for the widely observed heterogeneous tax policies across countries. Copyright Springer Science+Business Media New York 2016

Keywords: Tax competition; Government preferences; Asymmetric tax reactions; H25; R11; R50 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Working Paper: Do Government Preferences Matter for Tax Competition? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:23:y:2016:i:2:p:343-367

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DOI: 10.1007/s10797-015-9367-y

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