Market Access and Tax Competition

Gianmarco Ottaviano and Tanguy van Ypersele

No 3638, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this Paper, we show that with international externalities, different country sizes, imperfect competition and trade costs, tax competition for mobile firms is efficiency enhancing with respect to the free market outcome. Nonetheless, while the latter entails too many firms in the larger country, the former has too many firms in the smaller one. Under both scenarios the resulting inefficiencies in international specialization and trade flows vanish when trade costs are low enough. Otherwise, only international tax coordination can implement the efficient spatial distribution of firms.

Keywords: Tax competition; Trade; Capital mobility; Monopolistic competition (search for similar items in EconPapers)
JEL-codes: F12 F22 H23 R13 R23 (search for similar items in EconPapers)
Date: 2002-11
New Economics Papers: this item is included in nep-geo and nep-ure
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Citations: View citations in EconPapers (22)

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