Tax Competition and Politics: Double-Edged Incentives Revisited

Ben Lockwood and Miltiadis Makris

No 304, Discussion Papers from University of Exeter, Department of Economics

Abstract: We re-examine, from a political economy perspective, the standard view that higher capital mobility results in lower capital taxes - a view, in fact, that is not confirmed by the available empirical evidence. We show that when a small economy is opened to capital mobility, the change of incidence of a tax on capital - from capital owners to owners of the immobile factor - may interact in such a way with political decision-making so as to cause a rise in the equilibrium tax. This can happen whether or not the fixed factor (labour) can be taxed.

Keywords: Tax; Competition (search for similar items in EconPapers)
JEL-codes: H25 H77 (search for similar items in EconPapers)
Date: 2003-09
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Persistent link: https://EconPapers.repec.org/RePEc:exe:wpaper:0304

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