An exact definition of tax competition is provided, and both the existence and nonexistence of tax competition are shown to be theoretically possible. Tax competition with interregional differ ences in factor endowments. This book, which presents a modern theory of public finance, brings together many of the most distinguished economists who have written on the subject. International capital market and repeated tax competition. The optimal provision of public goods by toshihiro ihori and c.
The theory of international tax competition and coordination. Challenges of international taxation for developing countries. 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. International tax competition university of california. Challenges of international taxation for developing countries wang jianfan director general of tax policy department, mof, p. Tax policy has farreaching implications for economic development and public administration. Wilson indiana university received january 27,1984. I find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization. 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. This paper 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. Pdf tax competition with interregional differences in. 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.
Theory of public finance in a federal state dietmar wellisch. The economic consequences of tax competition have been extensively investigated in a number of literatures. Our paper also studies the tax competition in a political economy model. The theory of international tax competition and coordination michael keen and kai a. The general idea is that tax changes in one jurisdiction lead to similar changes in others. Emerging marjets instiute, beijing normal university, beijing 100875, china. This is important as a potential interregional complementarity of spending on street infrastructure might interfere with our interpretation of spending competition. Nash equilibrium in tax and public investment competition.
But the theory of interjurisdictional competition, although diverse in approach and findings, does not provide a fully compelling basis for this proposition. Leviathan and capital tax competition in federations, journal of public economic theory, association for public economic theory, vol. International tax competition and the deficit bias international tax competition and the deficit bias arcalean, calin 20170101 00. Competition and discipline yiting li department of economics, national taiwan university, taipei, taiwan. It is argued, however, that tax competition must occur under empirically reasonable conditions. What do theories of tax competition predict for capital taxes in eu countries. The supermodularity of the tax competition game request pdf.
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. An exact definition of tax competition is provided, and both the. In the nash equilibrium, residents of a relatively small region, measured by population size, are better off than. Empirical work has analysed whether tax competition or. A theory of interregional tax competition ideasrepec. Voting over selfishly optimal income tax schedules with taxdriven migrations, with darong dai, july, 2018revised january, 2020. Interregional tax competition and intr aregional political. This paper studies tax competition between two regions that tax interregionally mobile capital to finance local public goods. A theory of interregional tax competition sciencedirect. Interregional tax competition and intraregional political competition. Interregional tax competition and intr aregional political competition. Dynamic capital tax competition under the source principle.
We show that given the opposite strategic nature of tax strategic complement and public investment strategic substitute, there is possibility of multiple equilibria. George break 1967 the mobility of individual economic units among different localities places. The ambiguous results from economic tax theory and the institutional setting have constrained strong eu policy action in the area of. Jan 01, 2017 international tax competition and the deficit bias international tax competition and the deficit bias arcalean, calin 20170101 00. Others point out that tax competition between countries bears no relation to competition between companies in a market. 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. The economics and empirics of tax competition econstor. The optimal provision of public goods under representative democracy, journal of urban economics, elsevier, vol.
Yang institute of economics, academia sinica department of public finance, national chengchi university march 2008. Interregional tax competition and intraregional political. We find that if strategic substitute effect dominates strategic complement effect, then both regions have first mover. Chapter thetheoryofinternationaltax competitionandcoordination. A general equilibrium model is constructed to study tax competition, where local governments compete for capital by holding down property tax rates and public. Introduction governments rely heavily on taxes to fund their operations. School of government, beijing normal university, beijing 100875, china. Tax competition reconsidered tax competition reconsidered dhillon, amrita. What does the tax competition models predict for capital taxation in.
Corporate income tax and the international challenge in. 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. However, their analysis is of symmetrical tax competition and political competition. The optimal provision of public goods toshihiro ihori department of economics, university of tokyo c.
International tax competition and the deficit bias, economic. This chapter surveys the theory of international tax competition and coordination, which, matching the increasing policy importance of the. Interestingly, some certain interaction between interregional tax competition and intraregional political competition can result in the optimal provision of public goods. The theory of taxation for developing countries english. Journal of urban economics 19, 296315 1986 a theory of interregional tax competition john d. 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. Additionally, there is an important question in the. We analyze nash equilibrium in fiscal competition with tax and public investment between symmetric regions. A theory of interregional tax competition, journal of urban economics, elsevier, vol. Theories of tax competition national tax association. Tax competition reconsidered, journal of public economic. The evidence suggests that there is a systematic international comovement of tax. Wilson, a theory of interregional tax competition, 19 journal of urban economics 296 1986. What do theories of tax competition predict for capital taxes.
Optimal property taxation in the presence of interregional capital mobility, journal of urban economics, 18, 4772 1985. We propose an infinitely repeated game of tax competition with an endogenous capital supply. Other interregional externalities arise as a result of. It focuses on the taxation of capital income, stressing that issues arise not only in relation to movements of productive capital. Corporate tax competition and coordination in the european. Available formats pdf please select a format to send.
Regional science and urban economics 21 303 kanbur, ravi, and michael keen. Sorry, we are unable to provide the full text but you may find it at the following locations. They do not, however, allow us to conclude that taxes and public spending are too low in some overall sense. The sixth imf japan highlevel tax conference for asian countries. This paper catalogs a series of theorems relating logconcavity andor logconvexity of probability density. Tax competition and strategic delegation with interregional. So, we see that tax policy is more complicated than it once was. 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. Forum on mobility and tax analysis theories of tax.
If the business transactions subject to tax are entirely domestic, a country. Forum on mobility and tax analysis theories of 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. Wilson 1987 shows that in such a framework, capital taxation creates an ine. What do theories of tax competition predict for capital. 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. 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. This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of public goods. There is considerable evidence showing that countries. 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. National tax journal, september 20, 66 3, 745774 what do we know about corporate tax competition.
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. 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. Jun 01, 2007 tax competition reconsidered tax competition reconsidered dhillon, amrita. This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of. Such a claim represents a fundamental challenge to the basic theory of fiscal federalism. That exercise forms the basis for section 4 of this paper. Research on interregional tax competition and its influencing. 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. Curriculum vita john douglas wilson personal information. Pdf a theory of interregional tax competition1 john. 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.
The competitive and welfare effects of longterm contracts with network externalities and bounded rationality, with dawen meng, revised and resubmitted to economic theory. Tax competition and tax coordination vthen countries differ in size. 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. The economics of locationbased tax incentives, harvard institute of economic research working papers 1932, harvard institute of economic research. Curriculum vita john douglas wilson personal information office address. Inefficiency in public production is also explicitly modeled. Tax competition with interregional differences in factor endowments, regional science and. A theory of interregional tax competition econpapers. A deadweight loss consideration with stanislaw wellisz.
Tax competition is the quintessential example of policy interdependence. A theory of interregional tax competition, journal of urban economics, 19, 296315 1986. However, research has shown that institutional and political constraints limit competition. The effects of tax competition theoretical and applied economics. Despite the welldeveloped empirical literature on local tax competition, little is known about the actual spatial structure of intermunicipal competition. 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. The theory of taxation for developing countries english abstract. Research on interregional tax competition and its influencing factors in chinaempirical evidence from the dynamic spatial durbin model. Citations of a theory of interregional tax competition. Mieszkowski, pigou, tiebout, property taxation and the. In this paper we use a survey conducted among mayors in. Demographics and tax competition in political economy. How socialization attenuates tax competition british.
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