Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81104
Authors: 
Han, Yutao
Pieretti, Patrice
Zou, Benteng
Year of Publication: 
2013
Series/Report no.: 
Working Papers, Center of Mathematical Economics 476
Abstract: 
In our paper, we demonstrate that when countries compete in taxes and infrastructure, coordination through a uniform tax rate or a minimum rate does not necessarily create the welfare effects observed under pure tax competition. The divergence is even worse when the competing jurisdictions differ in institutional quality. If tax revenues are used to gauge the desirability of coordination, our model demonstrates that imposing a uniform tax rate is Pareto-inferior to the non-cooperative equilibrium when countries compete in taxes and infrastructure. This result is completely reversed under pure tax competition if the countries are sufficiently similar in size. If a minimum tax rate is set within the range of those resulting from the non-cooperative equilibrium, the low tax country will never be better off. Finally, the paper demonstrates that the potential social welfare gains from tax harmonization crucially depend on the degree of heterogeneity among the competing countries.
Subjects: 
Tax competition
infrastructure
tax coordination
tax revenue
social welfare
JEL: 
H21
H87
H73
F21
C72
Document Type: 
Working Paper

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