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Tax Competition - An intertemporal perspective

Nora Paulus (), Patrice Pieretti () and Benteng Zou ()
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Nora Paulus: CREA, Université du Luxembourg
Patrice Pieretti: CREA, Université du Luxembourg

CREA Discussion Paper Series from Center for Research in Economic Analysis, University of Luxembourg

Abstract: The paper focuses on intertemporal tax competition between jurisdictions that differ in size. Given that the existing literature is mainly based on static models, it is in- teresting to investigate which new insights tax competition in an intertemporal setting may provide. In this respect, how does the fact that agents anticipate possible future changes, once they moved capital abroad, modify their behavior and the tax policy of the competing jurisdictions? Does tax competition become more intense? Are capital outflows and tax losses incurred by high tax jurisdictions exacerbated ? To answer these questions, we assume that a small and a large country compete for internationally mobile capital within a two-period model. We demonstrate that tax competition is less fierce in an intertemporal setting relative to a static one. It also appears that the tax loss of the large country induced by tax competition is higher relative to a static model. This means that tax competition becomes more deleterious for the country that suffers from capital outflows.

Keywords: Intertemporal tax competition; Mobile capital; Home attachment; Country size asymmetry (search for similar items in EconPapers)
JEL-codes: F21 H21 H73 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-ure
Date: 2018
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