IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v84y2011i1p124-130.html
   My bibliography  Save this article

On tax competition, public goods provision and jurisdictions' size

Author

Listed:
  • Pieretti, Patrice
  • Zanaj, Skerdilajda

Abstract

In this paper, we analyze competition among jurisdictions to attract foreign capital through low taxes and public inputs that enhance firms' productivity. The competing jurisdictions are different in size and mobility of capital is costly. We find that for moderate mobility costs, small economies can attract foreign capital by supplying higher levels of public goods than larger jurisdictions, without practicing tax undercutting. The classical result that small jurisdictions are attractive because they engage in tax dumping is recovered only for high mobility costs of capital.

Suggested Citation

  • Pieretti, Patrice & Zanaj, Skerdilajda, 2011. "On tax competition, public goods provision and jurisdictions' size," Journal of International Economics, Elsevier, vol. 84(1), pages 124-130, May.
  • Handle: RePEc:eee:inecon:v:84:y:2011:i:1:p:124-130
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022-1996(11)00009-2
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June.
    2. Hindriks, Jean & Peralta, Susana & Weber, Shlomo, 2008. "Competing in taxes and investment under fiscal equalization," Journal of Public Economics, Elsevier, vol. 92(12), pages 2392-2402, December.
    3. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
    4. Wilson John Douglas, 1995. "Mobile Labor, Multiple Tax Instruments, and Tax Competition," Journal of Urban Economics, Elsevier, vol. 38(3), pages 333-356, November.
    5. Hindriks, Jean & Myles, Gareth D., 2013. "Intermediate Public Economics," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262018691, April.
    6. Pedro P. Barros & Luís Cabral, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-371, May.
    7. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
    8. Jack Mintz & Henry Tulkens, 2006. "Commodity Tax Competition Between Member States of a Federation: Equilibrium and Efficiency," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 449-489, Springer.
    9. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-338, May.
    10. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
    11. Streeten, Paul, 1993. "The special problems of small countries," World Development, Elsevier, vol. 21(2), pages 197-202, February.
    12. Zissimos, Ben & Wooders, Myrna, 2008. "Public good differentiation and the intensity of tax competition," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1105-1121, June.
    13. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    14. Matsumoto, Mutsumi, 1998. "A note on tax competition and public input provision," Regional Science and Urban Economics, Elsevier, vol. 28(4), pages 465-473, July.
    15. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," European Economic Review, Elsevier, vol. 50(7), pages 1891-1907, October.
    16. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-892, September.
    17. Justman, Moshe & Thisse, Jacques-Francois & van Ypersele, Tanguy, 2002. "Taking the bite out of fiscal competition," Journal of Urban Economics, Elsevier, vol. 52(2), pages 294-315, September.
    18. Nigar Hashimzade & Jean Hindriks & Gareth D. Myles, 2006. "Solutions Manual to Accompany Intermediate Public Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582694, April.
    19. David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
    20. repec:bla:reviec:v:8:y:2000:i:2:p:360-71 is not listed on IDEAS
    21. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, vol. 35(2), pages 229-240, March.
    22. Marceau, Nicolas & Mongrain, Steeve & Wilson, John D., 2010. "Why do most countries set high tax rates on capital?," Journal of International Economics, Elsevier, vol. 80(2), pages 249-259, March.
    23. Haufler, Andreas & Wooton, Ian, 1997. "Tax competition for foreign direct investment," Discussion Papers, Series II 329, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    24. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
    25. Nico A. Hansen & Anke S. Kessler, 2001. "The Political Geography of Tax H(e)avens and Tax Hells," American Economic Review, American Economic Association, vol. 91(4), pages 1103-1115, September.
    26. Jack Mintz & Henry Tulkens, 1984. "Commodity Tax Competition Between Member States of a Federation," Working Paper 558, Economics Department, Queen's University.
    27. George R. Zodrow & Peter Mieszkowski, 2019. "Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 17, pages 525-542, World Scientific Publishing Co. Pte. Ltd..
    28. Agnès Bénassy-Quéré & Nicolas Gobalraja & Alain Trannoy, 2007. "Tax and public input competition [‘Tax competition and economic geography’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 22(50), pages 386-430.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Krishanu Karmakar & Jorge Martinez-Vazquez, 2014. "Fiscal Competition versus Fiscal Harmonization: A Review of the Arguments," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1431, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    2. Yutao Han & Patrice Pieretti & Benteng Zou, 2017. "On The Desirability Of Tax Coordination When Countries Compete In Taxes And Infrastructure," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 682-694, April.
    3. Braid, Ralph M., 2013. "State and local tax competition in a spatial model with sales taxes and residential property taxes," Journal of Urban Economics, Elsevier, vol. 75(C), pages 57-67.
    4. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
    5. Braid, Ralph M., 2005. "Tax competition, tax exporting and higher-government choice of tax instruments for local governments," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1789-1821, September.
    6. Brueckner, Jan K. & Saavedra, Luz A., 2001. "Do Local Governments Engage in Strategic Property-Tax Competition?," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(2), pages 203-230, June.
    7. Keuschnigg, Christian & Loretz, Simon & Winner, Hannes, 2014. "Tax Competition and Tax Coordination in the European Union: A Survey," Working Papers in Economics 2014-4, University of Salzburg.
    8. Leonzio Rizzo, 2006. "Le inefficienze della competizione fiscale: una rassegna dei principali modelli teorici," Economia politica, Società editrice il Mulino, issue 1, pages 89-120.
    9. Gaëtan Nicodème, 2006. "Corporate tax competition and coordination in the European Union: What do we know? Where do we stand?," European Economy - Economic Papers 2008 - 2015 250, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    10. Braid, Ralph M., 2000. "A Spatial Model of Tax Competition with Multiple Tax Instruments," Journal of Urban Economics, Elsevier, vol. 47(1), pages 88-114, January.
    11. Yutao Han & Xi Wan, 2019. "Who benefits from partial tax coordination?," The World Economy, Wiley Blackwell, vol. 42(5), pages 1620-1640, May.
    12. Yongzheng Liu, 2016. "Do government preferences matter for tax competition?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(2), pages 343-367, April.
    13. Zodrow, George R, 2003. "Tax Competition and Tax Coordination in the European Union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 651-671, November.
    14. Kempf, Hubert & Rota-Graziosi, Grégoire, 2010. "Endogenizing leadership in tax competition," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 768-776, October.
    15. Apolte, Thomas, 2001. "How Tame Will Leviathan Become in Institutional Competition? Competition among Governments in the Provision of Public Goods," Public Choice, Springer, vol. 107(3-4), pages 359-381, June.
    16. Amrita Dhillon & Myrna Wooders & Ben Zissimos, 2007. "Tax Competition Reconsidered," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(3), pages 391-423, June.
    17. Miniaci Raffaele & Panteghini Paolo M. & Rivolta Giulia, 2022. "The estimation of reaction functions under tax competition," German Economic Review, De Gruyter, vol. 23(2), pages 301-339, May.
    18. Rosella Levaggi & Paolo M. Panteghini, 2021. "Public expenditure spillovers: an explanation for heterogeneous tax reaction functions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(3), pages 497-514, June.
    19. Timothy P. Hubbard & Justin Svec, 2015. "A Model of Tradeable Capital Tax Permits," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(6), pages 916-942, December.
    20. Luz Amparo Saavedra, 2000. "Do Local Governments Engage in Strategic Property- Tax competition?," Borradores de Economia 139, Banco de la Republica de Colombia.

    More about this item

    Keywords

    Tax competition Public goods competition Spatial competition Mobile capital Country size;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:84:y:2011:i:1:p:124-130. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.