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Tax haven, pollution haven or both?

Thierry Madiès (), Ornella Tarola () and Emmanuelle Taugourdeau ()
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Thierry Madiès: Université de Fribourg
Ornella Tarola: University of Rome La Sapienza

International Tax and Public Finance, 2022, vol. 29, issue 6, No 7, 1527-1560

Abstract: Abstract This paper studies the interplay between two groups of countries, large and small, which compete sequentially on corporate taxes and environmental regulations to attract imperfectly mobile firms. We show that in general, the small countries undercut the large countries in terms of corporate taxes. The small countries choose to be both tax and pollution havens when they are less concerned about the environment than the large countries are and capital integration is low. The large countries never act as both tax havens and pollution havens. Finally, we find that higher firm mobility narrows the tax gap between the large and the small countries but does not affect the optimal environmental policy: tax competition immunizes countries against the detrimental effect of globalization on emission caps.

Keywords: Tax competition; Capital integration; Cross-border pollution; Environmental regulation (search for similar items in EconPapers)
JEL-codes: H2 Q5 R3 R5 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10797-022-09745-x

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