Tax competition and fiscal equalization under corporate income taxation

Caterina Liesegang and Marco Runkel ()

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: This paper challenges the view that tax base equalization by the so-called representative tax system (RTS) removes inefficient undertaxation in corporate tax competition. The innovation of the paper is that it focuses on a tax on corporate income, instead of the unit tax on capital considered in previous studies. We employ a tax competition model with fiscal equalization and show that the RTS fails to fully internalize pecuniary and fiscal externalities. As a consequence, the RTS yields inefficiently low tax rates in the Nash equilibrium of the tax competition game between governments. Tax revenue equalization performs even worse, but combined with equalization of private income it implements the efficient tax rates on corporate income.

Date: 2018
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Citations: View citations in EconPapers (6)

Published in International Tax and Public Finance 2 25(2018): pp. 311-324

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Related works:
Journal Article: Tax competition and fiscal equalization under corporate income taxation (2018)
Working Paper: Tax Competition and Fiscal Equalization under Corporate Income Taxation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenar:62848

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