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The Role of Mobility in Tax and Subsidy Competition

Alexander Haupt () and Tim Krieger

No 2555, CESifo Working Paper Series from CESifo

Abstract: In this paper, we analyse the role of mobility in tax and subsidy competition. Our primary result is that increasing ‘relocation’ mobility of firms leads to increasing ‘net’ tax revenues under fairly weak conditions. While enhanced relocation mobility intensifies tax competition, it weakens subsidy competition. The resulting fall in the governments’ subsidy payments over-compensates the decline in tax revenues, leading to a rise in net tax revenues. We derive this conclusion in a model in which two governments are first engaged in subsidy competition and thereafter in tax competition, and firms locate and potentially relocate in response to the two political choices.

Keywords: tax competition; subsidy competition; capital and firm mobility; foreign direct investment (search for similar items in EconPapers)
JEL-codes: F21 H25 H71 H87 (search for similar items in EconPapers)
Date: 2009
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Related works:
Working Paper: The role of mobility in tax and subsidy competition (2013) Downloads
Working Paper: The role of mobility in tax and subsidy competition (2009) Downloads
Working Paper: The role of mobility in tax and subsidy competition (2009) Downloads
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