Relaxing Tax Competition through Public Good Differentiation

Benjamin Zissimos and Myrna Wooders

No 601, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: This paper argues that, because governments are able to relax tax competition through public good differentiation, traditionally high-tax countries have continued to set taxes at a relatively high rate even as markets have become more integrated. The key assumption is that there is variation in the extent to which firms can use public good provision to reduces costs. We show that, in a setting where tax competition promotes efficiency, governments are able to use this variation to relax the forces of tax competition, which reduces efficiency. In this environment, a `minimum tax' counters the relaxation of tax competition, thereby enhancing efficiency, and `split the difference' tax harmonization also enhances efficiency.

Keywords: Asymmetric equilibrium; core-periphery; tax competition; tax harmonization (search for similar items in EconPapers)
JEL-codes: C72 H21 H42 H73 R50 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://www.accessecon.com/pubs/VUECON/vu06-w01R.pdf Revised version, 2006 (application/pdf)

Related works:
Working Paper: Relaxing Tax Competition through Public Good Differentiation (2005)
Working Paper: Relaxing Tax Competition through Public Good Differentation (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0601

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