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Tax competition and harmonization where tastes for public goods differ

Author

Listed:
  • Zineb Abidi

    (ERUDITE, TEPP (FR CNRS 3435), University Paris-Est-Créteil)

  • Emmanuelle Taugourdeau

    (CNRS, CREST)

Abstract

This paper analyzes how differences in countries’ preferences for public goods affect the stability of coalitions. In a three-country framework, we show how heterogeneity in public goods preferences can shape countries’ decisions to sign up for capital tax rate harmonization agreements (partial or full). In the context of asymmetric preferences, we identify situations in which these discrepancies make harmonization either cost-effective or harmful. We find that countries with similar preferences have an incentive to commit to capital tax harmonization. However, partial harmonization is only stable if the difference in preferences with the outsider is relatively large. A sufficiently high level of capital supply is also required to limit the effects of tax competition on the outsider.

Suggested Citation

  • Zineb Abidi & Emmanuelle Taugourdeau, 2024. "Tax competition and harmonization where tastes for public goods differ," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(4), pages 953-979, August.
    • Handle: RePEc:kap:itaxpf:v:31:y:2024:i:4:d:10.1007_s10797-023-09781-1
    DOI: 10.1007/s10797-023-09781-1
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    Keywords

    Tax competition; Tax harmonization; Public goods; Heterogeneous preferences;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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