The gains from preferential tax regimes reconsidered

Carl Gaigné, Ian Wooton

Research output: Contribution to journalArticle

5 Citations (Scopus)
63 Downloads (Pure)

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 languageEnglish
Pages (from-to)59-66
Number of pages8
JournalRegional Science and Urban Economics
Volume41
Issue number1
DOIs
Publication statusPublished - Jan 2011

Keywords

  • preferential tax regimes
  • trade costs
  • imperfect competition
  • tax competition

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