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Relaxing Tax Competition through Public Good Differentiation

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Author Info
Ben Zissimos () (Department of Economics, Vanderbilt University)
Myrna H. Wooders () (Department of Economics, Vanderbilt University)

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Abstract

This paper argues that, because governments are able to relax tax competition through public good differentiation, traditionally high-tax countries have continued to set taxes at a relatively high rate even as markets have become more integrated. The key assumption is that there is variation in the extent to which firms can use public good provision to reduces costs. We show that, in a setting where tax competition promotes efficiency, governments are able to use this variation to relax the forces of tax competition, which reduces efficiency. In this environment, a `minimum tax' counters the relaxation of tax competition, thereby enhancing efficiency, and `split the difference' tax harmonization also enhances efficiency.

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File URL: http://www.vanderbilt.edu/Econ/wparchive/workpaper/vu06-w01R.pdf
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0601.

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Date of creation: Jan 2006
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Handle: RePEc:van:wpaper:0601

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Related research
Keywords: Asymmetric equilibrium; core-periphery; tax competition; tax harmonization;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
R50 - Urban, Rural, and Regional Economics - - Regional Government Analysis - - - General

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ben Zissimos & Myrna Wooders, 2003. "Public Good Differentiation and the Intensity of Tax Competition," Working Papers 0710, Department of Economics, Vanderbilt University. [Downloadable!]
    Other versions:
  2. C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 89-111, June. [Downloadable!] (restricted)
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