International tax competition: do public good spillovers matter?

Nelly Exbrayat (), Thierry Madies () and Stephane Riou ()
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Nelly Exbrayat: CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique
Thierry Madies: Departement d'Economie Politique - Departement d'Economie Politique - Albert-Ludwigs-Universität Freiburg = University of Freiburg

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Abstract: We study the impact of public good spillovers on tax competition between two imperfectly integrated countries with different levels of productivity. We show that international public good spillovers, by reducing the tax gap between countries, strengthen the agglomeration of firms in the most productive country. Then we carry on a welfare analysis. We first assume that governments are engaged in a redistributive tax policy. At the non-cooperative equilibrium, the tax level in the highproductivity country is inefficiently high while it is inefficiently low in the other country. A different conclusion emerges when tax revenues are recycled in a public good provision: taxes are inefficiently low in both countries and public good spillovers increase the global welfare. Finally, for a given amount of total tax revenues, public good provision in the high-productivity country is inefficiently high compared to its level in the low-productivity country.

Keywords: cerdi (search for similar items in EconPapers)
Date: 2010
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Published in International Tax and Public Finance, 2010, 17 (5), pp.479-500

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Journal Article: International tax competition: do public good spillovers matter? (2010)
Working Paper: International tax competition: do public good spillovers matter ? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00539235

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