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Does size asymmetry exacerbate the inefficiency of tax competition?

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  • Han, Yutao

    (Center for Mathematical Economics, Bielefeld University)

  • Pieretti, Patrice

    (Center for Mathematical Economics, Bielefeld University)

  • Zou, Benteng

    (Center for Mathematical Economics, Bielefeld University)

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, 2016. "Does size asymmetry exacerbate the inefficiency of tax competition?," Center for Mathematical Economics Working Papers 486, Center for Mathematical Economics, Bielefeld University.
    • Handle: RePEc:bie:wpaper:486
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    References listed on IDEAS

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    1. 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.
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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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