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Does size asymmetry exacerbate the inefficiency of tax competition?

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  • Han, Yutao
  • Pieretti, Patrice
  • Zou, Benteng

Abstract

Many authors demonstrate that the tax gap resulting from tax competition increases with the size asymmetry of the competing countries. Consequently, increasing country-size disparities exacerbates the inefficiency of tax competition. The aim of this note is to show that this classical view has no general validity, if we consider that countries compete not only in taxes, but also in the provision of infrastructure. The simple model we develop for this purpose demonstrates that the effect of size disparity on efficiency depends crucially on the degree of international capital mobility.

Suggested Citation

  • Han, Yutao & Pieretti, Patrice & Zou, Benteng, 2014. "Does size asymmetry exacerbate the inefficiency of tax competition?," Economics Letters, Elsevier, vol. 122(1), pages 16-18.
    • Handle: RePEc:eee:ecolet:v:122:y:2014:i:1:p:16-18
    DOI: 10.1016/j.econlet.2013.10.026
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    More about this item

    Keywords

    Tax competition; Social welfare; Inefficiency; Infrastructure;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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