|Haufler, Andreas; Lülfesmann, Christoph (January 2013): Reforming an Asymmetric Union: On the Virtues of Dual Tier Capital Taxation. Discussion Papers in Economics 2013-1|
The tax competition for mobile capital, in particular the reluctance of small countries to agree on measures of tax coordination, has ongoing political and economic fallouts within Europe. We analyse the effects of introducing a two tier structure of capital taxation, where the asymmetric member states of a union choose a common, federal tax rate in the first stage, and then non-cooperatively set local tax rates in the second stage. We show that this mechanism effectively reduces competition for mobile capital between the members of the union. Moreover, it distributes the gains across the heterogeneous states in a way that yields a strict Pareto improvement over a one tier system of purely local tax choices. Finally, we present simulation results, and show that a dual structure of capital taxation has advantages even when side payments are feasible.
|Item Type:||Paper (Discussion Paper)|
|Keywords:||capital tax competition, dual tier taxation, international unions|
Economics > Munich Discussion Papers in Economics
Economics > Chairs > Seminar for Economic Policy
|Subjects:||300 Social sciences > 330 Economics|
|JEL Classification:||H25, H77, H87|
|Deposited On:||18. Jan 2013 20:48|
|Last Modified:||24. Feb 2016 03:55|
Alesina, A., Angeloni, I., Etro, F. (2005). International unions. American Economic Review 95, 602-615.
Barba Navaretti, G., Venables, A. (2004). Multinational Firms in the World Economy. Princeton University Press.
Besley, T., Coate, S. (2003). Centralized versus decentralized provision of local public goods: A political economy analysis. Journal of Public Economics 87, 2611-2637.
Bettendorf, L., Devereux, M.P., van der Horst, A., Loretz, S., de Mooij, R. (2010). Corporate tax harmonization in the EU. Economic Policy 63, 537-590.
Bucovetsky, S. (1991). Asymmetric tax competition. Journal of Urban Economics 30, 167-181.
Bucovetsky, S., Smart, M. (2006). The efficiency consequences of local revenue equalization: tax competition and tax distortions. Journal of Public Economic Theory 8, 119-144.
Buettner, T. (2006). The incentive effects of fiscal equalization transfers on tax policy. Journal of Public Economics 90, 477-497.
Cassette, A., Paty, S. (2008). Tax competition among Eastern and Western European countries: with whom do countries compete? Economic Systems 32, 307-325.
Conconi, P., Perroni, C., Riezman, R. (2008). Is partial tax harmonization desirable? Journal of Public Economics 92, 254-267.
Davies, R., Voget, J. (2011). Tax competition in an expanding European Union. GEE Paper No. 33. Portuguese Ministry of Economics, Lisbon.
Devereux, M.P., Lockwood, B., Redoano, M. (2008). Do countries compete over corporate tax rates? Journal of Public Economics 92, 1210-1235.
European Commission (2011). Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB). Document COM (2011) 121/4. Brussels.
Grubert, H., Mutti, J. (2000). Do taxes in uence where U.S. corporations invest? National Tax Journal 53, 825-839.
Harstad, B. (2007). Harmonisation and side payments in political cooperation. Amer- ican Economic Review 97, 871-889.
Haufler, A., Wooton, I. (2006). The effects of regional tax and subsidy coordination on foreign direct investment. European Economic Review 50, 285-305.
Hindriks, J., Peralta, S., Weber, S. (2008). Competing in taxes and investment under fiscal equalization. Journal of Public Economics 92, 2392-2402.
Janeba, E., Wilson, J.D. (2011). Optimal fiscal federalism in the presence of tax competition. Journal of Public Economics 95, 1302-1311.
Kanbur, R., Keen, M. (1993). Jeux sans frontières: Tax competition and tax coordination when countries differ in size. American Economic Review 83, 877-892.
Keen, M. (1993). The welfare economics of tax co-ordination in the European Community: A survey. Fiscal Studies 14, 15-36.
Keen, M. (2001). Preferential regimes can make tax competition less harmful. National Tax Journal 54, 757-762.
Keen, M., Kotsogiannis, C. (2002). Does federalism lead to excessively high taxes? American Economic Review 92, 363-370.
Keen, M., Smith, S. (1996). The future of value added tax in the European Union. Economic Policy 23, 375-420.
Kessler, A., Lülfesmann, C., Myers, G.M. (2002). Redistribution, fiscal competition and the politics of economic integration. Review of Economic Studies 69, 899-923.
Konrad, K. (2009). Non-binding minimum tax rates may foster tax competition. Eco- nomics Letters 102, 109-111.
Konrad. K., Schjelderup, G. (1999). Fortress building in global tax competition. Jour- nal of Urban Economics 46, 156-167.
Köthenbürger, M. (2002). Tax competition and fiscal equalization. International Tax and Public Finance 9, 391-408.
Lockwood, B. (2002). Distributive politics and the costs of centralization. Review of Economic Studies 69, 313-337.
Nicodème, G. (2009). On recent developments in fighting harmful tax practices. National Tax Journal 62, 755-771.
Oates, W. (1972). Fiscal Federalism. Harcourt Brace Jovanovich, New York.
OECD (2011). Revenue Statistics 1965-2010. www.sourceoecd.org
Romalis, J. (2007). Capital taxes, trade costs, and the Irish miracle. Journal of the European Economic Association 5, 459-469.
Ruding Committee (1992). Report of the committee of independent experts on company taxation. Brussels and Luxembourg.
Sørensen, P.B. (2004). International tax coordination: regionalism versus globalism. Journal of Public Economics 88, 1187-1214.
Wang, Y.-Q. (1999). Commodity taxes under fiscal competition: Stackelberg equilibrium and optimality. American Economic Review 89, 974-981.
Wildasin, D. (2011). Fiscal competition for imperfectly-mobile labor and capital. A comparative dynamic analysis. Journal of Public Economics 95, 1312-1321.
Wilson, J.D. (1991). Tax competition with interregional differences in factor endowments. Regional Science and Urban Economics 21, 423-451.
Wrede, M. (2000). Shared tax sources and public expenditure. International Tax and Public Finance 7, 163-175.
Available Versions of this Item
- Reforming an Asymmetric Union: On the Virtues of Dual Tier Capital Taxation. (deposited 18. Jan 2013 20:48) [Currently Displayed]