Public Good Differentiation and the Intensity of Tax Competition

Benjamin Zissimos and Myrna Wooders

No 710, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: We show that, in a setting where tax competition promotes efficiency, variation in the extent to which firms can use public goods to reduce costs brings about a reduction in the intensity of tax competition. This in turn brings about a loss of efficiency. In this environment, a `minimum tax' counters the reduction in the intensity of tax competition, thereby enhancing efficiency. `Split-the-difference' tax harmonization also potentially enhances efficiency but would not be agreed upon by governments because it lowers the payoff to at least one of them. This paper also presents an explanation for how traditionally high-tax countries have continued to set taxes at a relatively high rate even as markets have become more integrated.

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: 2003-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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http://www.accessecon.com/pubs/VUECON/vu07-w10.pdf Revised version, 2007 (application/pdf)

Related works:
Journal Article: Public good differentiation and the intensity of tax competition (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0710

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