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Tax Competition and Public Input. CEPS ENEPRI Working Papers No. 40, 1 October 2005

Bénassy-Quéré, Agnès and Gobalraja, Nicolas and Trannoy, Alain. (2005) Tax Competition and Public Input. CEPS ENEPRI Working Papers No. 40, 1 October 2005. [Working Paper]

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    Abstract

    This paper assesses the extent and policy implications of simultaneous competition among countries on both corporate tax rates and the provision of public goods used by firms as production factors (‘public factors’). First, we derive the relevant theoretical results in a unified framework where a corporate tax is used to finance a public good that raises both household utility and firm productivity. Then, the relevance of such simultaneous competition is tested using data on foreign direct investment from the US to EU member states. Both the theoretical analysis and the empirical results presented in this paper suggest that focusing on the tax side of the competition for the location of multinationals is misleading. It shows that there are grounds for the coexistence of high tax/spending countries and low tax/spending ones. Furthermore, provided multinationals are heterogeneous concerning their use of public factors, the competition for attracting them could take the form of a vertical or horizontal specialisation, whereby each government would seek to attract a certain type of activity through the adequate provision of certain public factors. In this framework, international competition could act as a vector for raising public-sector efficiency rather than as a standardisation factor.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > External relations > EU-US
    EU policies and themes > Policies & related activities > tax policy
    Subjects for EU documents: UNSPECIFIED
    EU Series: UNSPECIFIED
    ["eprint_fieldname_eusries" not defined]: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > ENEPRI Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 31 Mar 2007
    Page Range: p. 40
    Last Modified: 15 Feb 2011 17:44
    URI: http://aei.pitt.edu/id/eprint/6743

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