Is Tax Harmonization Useful?

It is a widely acknowledged result of the literature on international tax competition that an inefficient provision of public goods can only be avoided, if taxes are sufficiently coordinated. In this paper we use a model where governments use commodity and factor taxes in the tax competition game. We show that governments will always choose a second-best efficient tax structure in the Nash equilibrium if they have access to a residence-based capital tax and either a destination-based commodity tax or a labor tax. Moreover, we show that tax competition need not foreclose third-best efficiency in a world with a restricted tax policy toolkit.     

Tax competition and fiscal equalization under corporate income taxation

This paper challenges the view that tax base equalization by the so-called representative tax system (RTS) removes inefficient undertaxation in corporate tax competition. The innovation of the paper is that it focuses on a tax on corporate income, instead of the unit tax on capital considered in previous studies. We employ a tax competition model with fiscal equalization and show that the RTS fails to fully internalize pecuniary and fiscal externalities. As a consequence, the RTS yields inefficiently low tax rates in the Nash equilibrium of the tax competition game between governments. Tax revenue equalization performs even worse, but combined with equalization of private income it implements the efficient tax rates on corporate income.     

Tax Competition and Fiscal Equalization

This paper analyzes the relation between tax competition and fiscal equalization. In particular, it asks the question whether fiscal equalization schemes can mitigate inefficient tax competition. Two transfer schemes are considered: tax revenue and tax base equalization schemes. The paper shows that equalizing transfers may internalize fiscal externalities. In particular, in a small open economy tax base equalization yields efficient tax rates. Thus, transfer mechanisms with an explicit redistributive character do not always impair efficiency.     

地方竞争是否阻碍了地方政府债务绩效的提升？——理论框架及空间计量研究

本文从举债行为策略视角考察地方竞争对地方政府债务绩效的影响。 首先,从不同地区间举债行为策略互动的视角对地方竞争如何影响地方政府债务绩效进行理论诠释,其次,在采用Global超效率DEA方法测度地方政府债务绩效的基础上,突破空间独立性假设,运用空间杜宾模型对地方竞争影响地方政府债务绩效的效果及空间外溢性进行实证检验。研究发现,在地方效用最大化目标导向下,无论是地方税收竞争还是公共投资竞争,都对债务增速产生了较为显著的正向影响和空间外溢效应,导致地方采取主动扩大债务规模的举债行为策略。与此同时,随着债务规模的持续增长,无论是地方税收竞争还是公共投资竞争,都将对债务绩效产生“规模报酬递减”的负向影响和空间外溢效应,尤其是公共投资竞争的影响效果更加明显。进一步地,如果考虑到可能存在预算软约束现象,地方竞争还将与预算软约束行为相结合,对债务绩效产生了“使用效率递减”的负向影响。本文结论为通过债务合理使用来促进经济高质量发展,防范化解地方政府债务风险提供了政策启示。     

Tax Setting in a Federal System: The Case of Personal Income Taxation in Canada

In a decentralised tax system, the effects of tax policies enacted by one government are not confined to its own jurisdiction. First, if both the regional and the federal levels of government co-occupy the same fields of taxation, tax rate increases by one layer of government will reduce taxes collected by the other. Second, if the tax base is mobile, tax rate increases by one regional government will raise the amount of taxes collected by other regional governments. These sources of fiscal interdependence are called in the literature vertical and horizontal tax externalities, respectively. Third, as Smart (1998) shows, if equalisation transfers are present, an increase in the standard equalisation tax rate provides incentives to raise taxes to the receiving provinces. A way to check the empirical relevance of these hypotheses is to test for the existence of interactions between the regional tax rate, on the one hand, and the federal tax rate, the tax rate set by competing regions, and the standard equalisation tax rate, on the other hand. Following this approach, this paper estimates provincial tax setting functions with data on Canadian personal income taxation for the period 1982–1996. We find a significant positive response of provincial tax rates to changes in the federal income tax rate, the tax rates of competing provinces, and the standard equalisation rate (only for receiving provinces). We also find that the reaction to horizontal competition is stronger in the provinces that do not receive equalisation transfers.     

Fiscal Decentralization: A Remedy for Corruption?

This paper examines the effect of fiscal decentralization in a country on the level of corruption. Using a tax competition framework with rent-seeking behavior, it is shown theoretically that fiscal decentralization, modeled as an increase in the number of competing jurisdictions, leads to a lower level of corruption. This result is then tested using a small, cross-country data set. The empirical results are not very strong, but they suggest that the hypothesized relationship between decentralization and corruption may indeed exist.     

Tax competition and tax base equalization in the presence of multiple tax instruments

The literature on tax competition has argued that tax base equalization, which reduces regional disparities in tax bases, can serve as a means of internalizing horizontal and vertical fiscal externalities. This argument assumes that each government relies on a single tax base (a regional tax on mobile capital and a federal tax on savings). This paper considers the case in which a distortionary labor tax is also available. Internalizing fiscal externalities requires that while the regional capital tax base is fully equalized, a region’s equalization entitlement for the labor tax is positive when its tax base is “larger” than the average tax base of all regions. This efficient tax base equalization system is incompatible with the primary objective of fiscal equalization.

     

税收竞争是当代税收鼓励经济发展的基本形式

经济全球化推动税收竞争。20世纪80年代中后期世界范围内的大规模税制改革标志着税收竞争成为当代税收鼓励经济发展的基本形式;90年代中后期的税制调整是80年代中后期税收竞争的继续,是更加完善的税收竞争形式。公司所得税和关税占各国税收总收入的比重不断下降的趋势是税收竞争的显著结果;避税地税制模式是税收竞争的彻底表现。     

Does competition for capital discipline governments? The role of fiscal equalization

This paper examines how a fiscal equalization system affects the disciplining effect of competition for capital among heterogeneous regions in a decentralized economy. I build a model in which regions that are heterogeneous in initial endowments try to attract capital by competing public input that enhances the productivity of capital; meanwhile, a fiscal equalization system is imposed by the central government to reduce regional disparities in fiscal capacity. The key prediction, borne out in data from the German equalization system, is that while competition for capital strengthens discipline in the well-endowed regions, it weakens discipline in the poorly endowed regions. However, a conventional equalization transfer scheme, common to many countries, can be effective in correcting the distortion driven by the heterogeneity of initial endowments across competing regions.     

税收竞争与地区环保财政支出: 传导机制及其检验

分析税收竞争、资本流动及环保支出的关系并提出假说;在此基础上建立空间杜宾模型,并使用2007-2016年省级数据系统地考察税收竞争对政府环保支出的影响机制。研究结果表明：地区间环保支出存在显著的空间溢出效应,税收竞争与地区环保支出正相关;地区间环保支出存在明显的策略性互动;资本存量是税收竞争影响环保支出的一个主要传导渠道。     

Consumption tax competition among governments: Evidence from the United States

The paper contributes to a small but growing literature that estimates tax reaction functions of governments competing with other governments. We analyze consumption tax competition between US states, employing a panel of state-level data for 1977–2003. More specifically, we study the impact of a state’s spatial characteristics (i.e., its size, geographic position, and border length) on the strategic interaction with its neighbors. For this purpose, we calculate for each state an average effective consumption tax rate, which covers both sales and excise taxes. In addition, we pay attention to dynamics by including lagged dependent variables in the tax reaction function. We find overwhelming evidence for strategic interaction among state governments, but only partial support for the effect of spatial characteristics on tax setting. Tax competition seems to have lessened in the 1990s compared to the early 1980s.     

税收竞争理论发展综述

上世纪80年代中后期以来,税收竞争理论研究已经成为公共经济学领域研究的重要课题之一。近年来,国外对税收竞争的研究取得了众多的研究成果。而我国的研究起步较晚,仍处于介绍与评析国外理论阶段。随着全球化进程的加快,跨国公司活动的日益活跃,国家与国家之间的联系日益密切,如何充分运用税收竞争理论完善我国涉外税收制度、维护我国在对外经济交往中的税收利益、促进我国国内经济的发展将成为以后重要的研究方向。     

Tax competition, excludable public goods, and user charges

This paper provides an explanation for the increasing reliance on revenue from user charges on excludable public goods. We develop a model with many identical countries. The government of each country imposes a source-based tax on capital and supplies an excludable public good to heterogeneous households. Without tax competition, the price on the public good is zero. Tax competition induces each country to choose a positive price. The reliance on user charges turns out to be increasing in the intensity of tax competition measured by the number of countries. A coordinated decrease in user charges is shown to raise welfare in all countries.      

The welfare comparison of corrective ad valorem and unit taxes under monopolistic competition

The ad valorem versus unit tax debate has traditionally emphasized tax yield. On this criterion, ad valorem taxes outperform unit taxes in terms of welfare for a wide range of imperfect competition settings including Dixit–Stiglitz monopolistic competition. However, in a number of policy fields such as environmental, health, and trade economics, policy makers use taxes to reduce the production/consumption volume in an industry, i.e., to correct an externality rather than to improve tax yield. This paper compares the two tax instruments with respect to equal corrective effect in a Dixit–Stiglitz setting with love of variety, entry, exit, and redistribution of tax revenues. We find that unit taxes lead to more firms in the industry, less output per firm, less tax revenue, but higher welfare compared to ad valorem taxes.      

Tax Evasion and Auditing in a Federal Economy

This paper analyzes the relation between tax auditing and fiscal equalization in the context of fiscal competition. We incorporate a model of tax evasion by firms into a standard tax competition framework where regional governments use their audit rates as a strategic instrument to engage in fiscal competition. We compare the region’s choice of audit policies for three different cases: A scenario of unconfined competition without interregional transfers, a scenario with a gross revenue equalization (GRS) scheme and finally, a scenario with net revenue sharing (NRS), where not only the revenues from taxation but also the regions auditing costs are shared. Without regional transfers, fiscal competition leads to audit rates which are inefficiently low for revenue-maximizing governments. While in general GRS aggravates the inefficiency, NRS makes the decentralized choice of auditing policies more efficient.JEL Code: H26, H71, H77     

What's different about banks?

Negotiable certificates of deposit (CD's) trade in the capital market in competition with other securities like commercial paper and bankers' acceptances. If CD's must pay lenders competitive monetary interest, the reserve tax on CD's is borne by bank borrowers. Viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk. Moreover, there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with CD's.     

International tax competition: do public good spillovers matter?

We study the impact of public good spillovers on tax competition between two imperfectly integrated countries with different levels of productivity. We show that international public good spillovers, by reducing the tax gap between countries, strengthen the agglomeration of firms in the most productive country. Then we carry on a welfare analysis. We first assume that governments are engaged in a redistributive tax policy. At the non-cooperative equilibrium, the tax level in the high-productivity country is inefficiently high while it is inefficiently low in the other country. A different conclusion emerges when tax revenues are recycled in a public good provision: taxes are inefficiently low in both countries and public good spillovers increase the global welfare. Finally, for a given amount of total tax revenues, public good provision in the high-productivity country is inefficiently high compared to its level in the low-productivity country.     

Tax Mimicking and Yardstick Competition Among Local Governments in the Netherlands

This paper provides a spatial-econometric analysis of the setting of property tax rates by Dutch municipalities. We find evidence of tax mimicking: a ten percent higher property tax rate in neighboring municipalities leads to a 3.5 percent higher tax rate. Mimicking is less pronounced in municipalities governed by coalitions backed by a large majority. This points to yardstick competition as the most likely source of tax mimicking. We also find that Dutch voters seem to be able to penalize incumbents for anticipated tax rate differentials, but not for unanticipated tax rate differentials. This limits the effectiveness of yardstick competition as a mechanism to reduce political rent-seeking.JEL Code: D72, H71     

Tax Competition and International Public Goods

A well known result in the tax competition literature is that tax rates are set too low in the Nash equilibrium to finance an efficient level of public consumption goods. In this model we introduce international spillovers in public goods provision and show that such spillovers reduce, and in the limiting case of perfect spillovers, eliminate tax competition. There is, however, always underprovision of the public good in equilibrium, since larger spillovers increase the problem of free riding. In an extension to the model, we demonstrate that congestion costs may result in overprovision of the public good.     

Do tax sparing agreements contribute to the attraction of FDI in developing countries?

Measuring the effects of taxation on FDI in developing countries requires consideration of the tax sparing provision. This provision signed between developed and developing countries protects host country fiscal incentives for FDI. This paper estimates the impact of tax sparing provisions on Japanese outbound FDI between 1989 and 2000. We find evidence that the tax sparing provision influences positively the location of Japanese FDI, even after having taken into account reversal causality. JEL Classification F23 · H25 · H32 We Thank Michael Devereux, Edward Graham, Robert Lipsey, David Margolis, Claudia Rivas, Deborah Swenson, anonymous referees and seminar participants at the Franco-Korean conference in Seoul, and at the Western Economic Association conference in Vancouver for helpful discussions.