Abstract
The EU policy against harmful tax competition aims at eliminating tax policies targeted at attracting
the internationally mobile tax base. We construct an imperfectly competitive model of costly trade
between two countries. In setting their corporate taxes, governments non-cooperatively decide whether
to discriminate between internationally mobile and immobile firms. We find the Nash equilibrium tax
regimes. When trade costs are high countries impose a uniform tax on all firms while nations will
discriminate between mobile and immobile firms when costs are low. At some trade costs, fiscal
competition results in tax discrimination despite uniform taxation being socially preferable.
Original language | English |
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Pages (from-to) | 59-66 |
Number of pages | 8 |
Journal | Regional Science and Urban Economics |
Volume | 41 |
Issue number | 1 |
DOIs | |
Publication status | Published - Jan 2011 |
Keywords
- preferential tax regimes
- trade costs
- imperfect competition
- tax competition