The general idea is that tax changes in one jurisdiction lead to similar changes in others. Tax competition reconsidered, journal of public economic. Dynamic capital tax competition under the source principle. Tax competition reconsidered tax competition reconsidered dhillon, amrita. Wilson 1987 shows that in such a framework, capital taxation creates an ine. Corporate income tax and the international challenge in. Tax competition and strategic delegation with interregional. International capital market and repeated tax competition. The theory of international tax competition and coordination. How socialization attenuates tax competition british. They do not, however, allow us to conclude that taxes and public spending are too low in some overall sense.
It is argued, however, that tax competition must occur under empirically reasonable conditions. What do theories of tax competition predict for capital. Demographics and tax competition in political economy. Nash equilibrium in tax and public investment competition. It focuses on the taxation of capital income, stressing that issues arise not only in relation to movements of productive capital. International tax competition and the deficit bias, economic. A deadweight loss consideration with stanislaw wellisz. International tax competition university of california. The theory of taxation for developing countries english. The amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms. Interestingly, some certain interaction between interregional tax competition and intraregional political competition can result in the optimal provision of public goods.
The optimal provision of public goods by toshihiro ihori and c. Tax competition with interregional differences in factor endowments, regional science and. Wilson, a theory of interregional tax competition, 19 journal of urban economics 296 1986. I find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization. The sixth imf japan highlevel tax conference for asian countries. Yang institute of economics, academia sinica department of public finance, national chengchi university march 2008. The economics of locationbased tax incentives, harvard institute of economic research working papers 1932, harvard institute of economic research. Theory of public finance in a federal state the last few decades have seen a substantial increase in the mobility of capital and population between the individual jurisdictions of longestablished federal states such as canada, germany, and the united states and among the formerly independent member countries of the european union.
Interregional tax competition and intraregional political. This paper catalogs a series of theorems relating logconcavity andor logconvexity of probability density. The evidence suggests that there is a systematic international comovement of tax. The optimal provision of public goods under representative democracy, journal of urban economics, elsevier, vol. Pdf tax competition with interregional differences in. Optimal property taxation in the presence of interregional capital mobility, journal of urban economics, 18, 4772 1985. Voting over selfishly optimal income tax schedules with taxdriven migrations, with darong dai, july, 2018revised january, 2020. We analyze nash equilibrium in fiscal competition with tax and public investment between symmetric regions. Jan 01, 2017 international tax competition and the deficit bias international tax competition and the deficit bias arcalean, calin 20170101 00. Citations of a theory of interregional tax competition. If very specific assumptions are made about the production technology output per worker is a quadratic function of the capitallabor ratio, peoples preferences identical within any jurisdiction. Introduction governments rely heavily on taxes to fund their operations. The theory of taxation for developing countries english abstract.
The combination of highly mobile capital, inadequacies in existing tax laws and a total change of international business environment have led to the fundamental problem in international tax law labeled by the oecd as the problem of beps base erosion and profit shifting, along with severe competition among countries to attract investments and. Such a claim represents a fundamental challenge to the basic theory of fiscal federalism. Inefficiency in public production is also explicitly modeled. Sorry, we are unable to provide the full text but you may find it at the following locations. An exact definition of tax competition is provided, and both the existence and nonexistence of tax competition are shown to be theoretically possible.
This chapter surveys the theory of international tax competition and coordination, which, matching the increasing policy importance of the. National tax journal, september 20, 66 3, 745774 what do we know about corporate tax competition. However, research has shown that institutional and political constraints limit competition. The theory of international tax competition and coordination michael keen and kai a. The optimal provision of public goods toshihiro ihori department of economics, university of tokyo c. Regional science and urban economics 21 303 kanbur, ravi, and michael keen. Curriculum vita john douglas wilson personal information.
Theories of tax competition national tax association. Interregional tax competition and intr aregional political competition. That exercise forms the basis for section 4 of this paper. This paper studies tax competition between two regions that tax interregionally mobile capital to finance local public goods. Theory of public finance in a federal state dietmar wellisch. If the business transactions subject to tax are entirely domestic, a country. This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of.
Forum on mobility and tax analysis theories of tax competition. Journal of urban economics 19, 296315 1986 a theory of interregional tax competition john d. Our results show that the larger the capital supply elasticity to interest rates, the easier it is for interregional tax coordination within a country to be achieved. Competition and discipline yiting li department of economics, national taiwan university, taipei, taiwan. Chapter thetheoryofinternationaltax competitionandcoordination. We show that given the opposite strategic nature of tax strategic complement and public investment strategic substitute, there is possibility of multiple equilibria. Assuming that competition takes place only among neighbours as in the empirical literature is at odds with the theoretical approaches where all jurisdictions compete simultaneously. George break 1967 the mobility of individual economic units among different localities places. This paper explores the claim that the setting of environmental standards needs to be centralized in order to avoid a competitive race to the bottom. The effects of tax competition theoretical and applied economics. We find that if strategic substitute effect dominates strategic complement effect, then both regions have first mover. Emerging marjets instiute, beijing normal university, beijing 100875, china. Curriculum vita john douglas wilson personal information office address.
We propose an infinitely repeated game of tax competition with an endogenous capital supply. Although statutory tax rates have dramatically declined, revenues collected from corporate taxation are fairly stable and there is so far no evidence of a racetothebottom. Konrad july 09, 2014 abstract this chapter surveys the theory of international tax competition and coordination, which, matching the increasing policy importance of the topic, has grown substantially over the last thirty years. What do theories of tax competition predict for capital taxes. A theory of interregional tax competition, journal of urban economics, elsevier, vol. This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of public goods under representative. But the theory of interjurisdictional competition, although diverse in approach and findings, does not provide a fully compelling basis for this proposition. A general equilibrium model is constructed to study tax competition, where local governments compete for capital by holding down property tax rates and public expenditure levels. In contrast to hoyts 1991 finding that the extent to which public goods are undersupplied is monotonically increasing in the number of competing regions, we show that the relationship between the level. International tax competition and the deficit bias international tax competition and the deficit bias arcalean, calin 20170101 00. The ambiguous results from economic tax theory and the institutional setting have constrained strong eu policy action in the area of. What do theories of tax competition predict for capital taxes in eu countries. Forum on mobility and tax analysis theories of tax. The seminal papers by wilson 1986 and zodrow and mieszkowski 1986 from now on referred to as wzm model adhere to the notion of benevolent governments.
Since intraregional political competition and interregional tax competition work well, they suggest that the optimal provision of public goods may be realized, unlike the standard tax competition model by wilson 14 and zodrow and mieszkowski 15. Despite the welldeveloped empirical literature on local tax competition, little is known about the actual spatial structure of intermunicipal competition. Our paper also studies the tax competition in a political economy model. This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of public goods. A theory of interregional tax competition sciencedirect. The competitive and welfare effects of longterm contracts with network externalities and bounded rationality, with dawen meng, revised and resubmitted to economic theory. Empirical work has analysed whether tax competition or. An exact definition of tax competition is provided, and both the. Challenges of international taxation for developing countries. Available formats pdf please select a format to send. However, their analysis is of symmetrical tax competition and political competition. There is considerable evidence showing that countries.
Pdf a theory of interregional tax competition1 john. In this paper we use a survey conducted among mayors in. Forum on mobility and tax analysis 269 abstract a central message of the tax competition literature is that independent governments engage in wasteful competition for scarce capital through reductions in tax rates and public expendi. This chapter surveys the theory of international tax competition and coordination, which, matching the increasing policy importance of the topic, has grown substantially over the last thirty years. Leviathan and capital tax competition in federations, journal of public economic theory, association for public economic theory, vol. If the business transactions subject to tax are entirely domestic, a country wields considerable power to implement a tax system and collect the designated taxes. Research on interregional tax competition and its influencing. Interregional tax competition and intraregional political competition. School of government, beijing normal university, beijing 100875, china. We also investigate whether countries react differently immediately after watershed tax reforms such as the 1986 us tax reform act or the 1984 uk tax reform.
This is important as a potential interregional complementarity of spending on street infrastructure might interfere with our interpretation of spending competition. Corporate tax competition and coordination in the european. Jun 01, 2007 tax competition reconsidered tax competition reconsidered dhillon, amrita. Mieszkowski, pigou, tiebout, property taxation and the. So, we see that tax policy is more complicated than it once was. Tax competition is the quintessential example of policy interdependence. The economic consequences of tax competition have been extensively investigated in a number of literatures. Challenges of international taxation for developing countries wang jianfan director general of tax policy department, mof, p. Interregional tax competition and intr aregional political. This book, which presents a modern theory of public finance, brings together many of the most distinguished economists who have written on the subject. Other interregional externalities arise as a result of. Tax competition with interregional differ ences in factor endowments.
Tax competition and tax coordination vthen countries differ in size. A theory of interregional tax competition, journal of urban economics, 19, 296315 1986. Tax policy has farreaching implications for economic development and public administration. A theory of interregional tax competition econpapers. Additionally, there is an important question in the. We test the leadership role of the united states, the united kingdom, and germany, and find support for a us leadership role. The economics and empirics of tax competition econstor. Wilson indiana university received january 27,1984. A theory of interregional tax competition ideasrepec. In the nash equilibrium, residents of a relatively small region, measured by population size, are better off than. What does the tax competition models predict for capital taxation in. Others point out that tax competition between countries bears no relation to competition between companies in a market.
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