Tax Competition and Foreign Capital

This paper derives welfare equivalence of double taxation rules in a tax competition model with discriminatory home taxes and the ability to finance subsidiary operations with host country capital. For a more general model, we provide sufficient conditions on the number of host sectors and factors that support double-tax-rule equivalence. Examples violating these conditions help identify economic factors under which a home country has strict preferences over double taxation rules. If the home tax rate can influence host factor prices, the home country weakly prefers deductions over credits as in the pure-home-equity financing case.     

A Note on Intertemporal Fiscal Competition and Redistribution

This paper studies fiscal competition among jurisdictions in a dynamic framework, where the degree of mobility of private capital across jurisdictions boundaries is perfect. The optimal tax on mobile capital is a source tax that taxes away factor rents. Further we show that taxation of mobile capital can redistribute income in favor of the immobile factor labor. This is because the factor rents generated by public inputs and appropriated by mobile capital exceed the efficient level of public expenditure for investments. JEL Code: H21, H23, H42, H71     

Education, Mobility of Labour and Tax Competition

We show that wage-taxfinanced subsidies encourage investment in risky education andoffer welfare gains. Tax competition and labour mobility maylead to substantial erosion of regional taxation. On the otherhand, mobility insures against region-specific shocks encouraginginvestment in education. Thus, welfare effects on the educatedand the owners of the fixed factor may go in either direction.Tax competition is especially fierce if the governments careabout the owners of the fixed factor. Elimination of their interestsfrom the governments' objective functions results in a Pareto-improvementin a federation with tax competition.     

Barriers to Trade and Imperfect Competition: The Choice of Commodity Tax Base

Recent work has started to analyze the choice of international commodity tax base under conditions of imperfect competition. This paper focuses on the effects of changing levels of trade barriers in a model where firms engage in duopoly competition and governments set commodity taxes non-cooperatively. It is shown that the consumption base (destination principle) dominates the production base (origin principle) when trade costs are high, but the ranking of the two tax bases is reversed for low levels of trade costs. We conclude that the case for origin-based commodity taxes becomes stronger when barriers to trade fall.     

Optimal International Taxation and Growth Rate Convergence: Tax Competition vs. Coordination

Optimal international taxation and its implications for convergence in long run income growth rates are analyzed in the context of an endogenously growing world economy with perfect capital mobility. Under tax competition (i) the residence principle will maximize national welfare; (ii) the optimal long run tax rate on capital incomes from various sources will be zero in all countries; and (iii) long term per capita income growth rates will be equalized across countries. Under tax coordination, (i) becomes irrelevant while (ii) and (iii) will continue to hold. In other words, optimal tax policies are growth-equalizing with and without international policy coordination. This revised version was published online in July 2006 with corrections to the Cover Date.     

A Note on the Composition of Public Expenditure under Capital Tax Competition

Keen and Marchand ( Journalof Public Economics, 1997, 66, 33–53) argue that undercapital tax competition, the composition of public expenditureis inefficient in that too much is spent on public inputs benefitinglocal business and too little on public goods benefiting residents.Their result depends on labor immobility. This note shows thatthe Keen-Marchand argument may not hold if both labor and capitalare mobile. An interesting case is identified where capital taxationdoes not distort the mix of public goods and public inputs, eventhough the overall level of public expenditure is inefficientlylow.     

Tax Principles,Product Differentiation and the Nature of Competition

We analyze the choice between the origin and destination principles of taxation when there is product differentiation and Bertrand competition. If taxes are redistributed to consumers and demand is linear the origin principle dominates the destination principle whatever the degree of product differentiation and extent of economic integration. With nonlinear demand the origin principle dominates if there is sufficient economic integration. When the social value assigned to tax revenue is higher than the private value, the destination principle dominates for intermediate values of product differentiation and economic integration. The same results are also shown to hold with Cournot competition. JEL Code: F12, H20     

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.     

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.     

Capital Mobility and Source-Based Taxation of Capital Income in Small Open Economies

This paper examines the taxation of capital income in a small open economy that faces a highly elastic supply of internationally mobile capital and increasing tax competition. The analysis considers a wide variety of additional factors that affect the determination of capital income taxation policy, including the desire to tax economic rents earned by foreign and domestic firms, the desire to take advantage of any treasury transfer effects, the role played by transfer pricing and other financial accounting manipulations by foreign multinationals, the need for a backstop to the personal income tax and various political concerns. The paper evaluates several potential income and consumption-based tax reforms in this context. JEL Code: H21, H25, H87     

Tax coordination with different preferences for public goods: Conflict or harmony of interest?

The paper analyzes strategic commodity taxation in a model with trade in a single private good that is simultaneously imported by consumers of a high-tax country and exported by its producers. Conditions for the existence of a Nash equilibrium are given, and an asymmetry is introduced through different preferences for public goods. Two tax coordination measures are discussed—a minimum tax rate and a coordinated increase in the costs of cross-border shopping. It is shown that tax coordination generally benefits the high-tax country while the low-tax country will gain only if the intensity of tax competition is high in the initial equilibrium or if governments are pricesensitive toward the effective marginal costs of public good supply.     

Tax Competition, Income Differentials and Local Public Services

This paper examines strategic tax setting between fiscal authorities in the presence of mobile workers who locate across these jurisdictions in response to differing tax structures and congestable local public amenities. We find that the nature of the tax setting outcomes depend crucially on the proximity between cities. For distant cities with the same size populations, the pressure on tax rates of a more mobile workforce depends on the whether mobile workers are net beneficiaries or net contributors. If mobile workers are either high or low income earners, cities lower tax rates. If mobile workers are middle income earners, cities raise tax rates. For close or neighbouring cities, workers locate in one of the cities and tax rates and local public amenities are dispersed.     

Some Equity and Efficiency Considerations of International Tax Competition

The paper uses a dynamic 2-country equilibrium model with imperfections in the labour market calibrated for the US and EU economy to investigate dynamic efficiency and equity aspects of international tax competition. We focus on tax policy where governments can only decide on the levels of corporate and labour taxes, given a constant share of government consumption and transfers in GDP and a constant VAT rate. We find that the welfare effect of a tax shift from capital to labour depends heavily on the distortionary nature of labour taxes. In contrast to existing results we find substantial positive international spillover effects of corporate tax reduction in one country, with long term gains outweighing short term losses. Results are very different, however, if one goes beyond the representative agent framework. According to our results, a tax switch is most likely not Pareto improving since net wages tend to decline in both regions even in the long run.     

Tax Competition and Tax Coordination in the European Union

This paper examines the tax competition literature and attempts to draw out its implications for the debate on corporate tax coordination within the EU. It begins with the early basic tax competition model, which derives conditions under which underprovision of public services occurs and tax harmonization unambiguously improves welfare for all states in the union. The paper then turns to a wide variety of extensions of this model, some of which reinforce its results and others that yield rather different conclusions. The analysis concludes by considering the implications of the tax competition literature for the debate on EU corporate tax coordination, drawing on some recent efforts to synthesize this vast literature by estimating the efficiency costs of tax competition and simulating the efficiency gains from various tax coordination palns.     

Interjurisdictional Tax Competition in a Federal System of Overlapping Revenue Maximizing Governments

Academic literature in public finance has focused on interjurisdictional tax competition—namely among similar types of local governments—but has leaved vertical externalities arising from interactions between two overlapping governments sharing the same tax base aside. The purpose of this paper is to provide a simple model within which interjurisdictional tax competition and vertical interactions between two overlapping governments that share the same tax base can be analyzed simultaneously. We find that interjurisdictional tax competition reduces the global tax rate set by both overlapping governments (federal and local) but is unable to solve completely the distortion arising from vertical externalities. The model is also extended to allow for government subsidies to industrial capital. We give sufficient conditions for capital subsidies to be more efficient to attract capital when they are granted at a federal level rather than at a local level.     

结合逃税的最优税收理论研究评述

最优税收理论主要研究税制的最优设计问题,而逃税理论主要致力于政府的最优执行问题,最近出现了将这两种理论结合起来的研究趋势。结合逃税的最优税收理论,包括最优所得税和最优商品税等内容,研究结果表明:结合逃税的最优税收理论并不能得出比标准最优税收理论更为明确的政策结论,其还有待于进一步的研究和发展。     

税收竞争和税收套利对国际税收制度的挑战

当前被动投资的税收竞争、主动投资的税收竞争和税收套利等问题阻碍了单一税收原则和受惠原则的实践运用。本文介绍了税收竞争和税收套利对国际税收制度的挑战,并以OECD成员国的应对为例,阐述了OECD成员国不断与时俱进修订税收法规的历程,试图引起人们关注国际税收制度的完善。     

税收增速减缓与地方税收竞争——基于省际面板数据的考察

本文通过理论分析明确了地方政府税收竞争对税收增长的影响机制。以此为基础,利用我国省际面板数据所做的实证研究显示,地方政府的税收竞争强度每提高0.01,全部税收、中央税收征收额和地方税收征收额分别下降0.64、0.71、0.60个百分点。为了进一步缓解地方政府经济增长激励与维护税法严肃性之间的矛盾,中央政府应逐步提高财产税收入所占的比重,将地方政府的税收竞争主要限制在财产税范围内。     

国际税收竞争、资本管制与企业所得税负担调整

在经济全球化的背景下,为争夺国际资本,各国都实行了相当优惠的公司所得税政策。但是,减税等国际税收竞争措施的作用是不确定的,一国应采取的国际税收竞争战略与其国家规模、资本管制政策等因素密切相关。面对近年来引进外国直接投资(FDI)增速放缓和逐步放松资本管制的大背景,我国必须抓住内外资企业所得税制度合并的有利时机,合理调整我国企业所得税负担。     

The Importance of Asymmetric Tax Policy and Dangers of Aggregation

Existing tax policies have many complex features that make distinctions across goods, factors, and financial structures that distort economic allocations. Their importance is ignored when tax policy is summarized by an “effective” tax rate. In fact, the losses due to asymmetries are often larger than the losses due to the level of taxation.