Are Your Firm's Taxes Set in Warsaw? Spatial Tax Competition in Europe
KU Leuven - Department of Economics
Université Catholique de Louvain, IRES, CORE, LICOS-KUL and CEPR; Catholic University of Leuven (KUL), LICOS & CEPR
November 1, 2008
Katholieke Universiteit Leuven, LICOS Discussion Paper No. 216/2008
Tax competition within the EU is fiercer than in the rest of the OECD with tax rates falling rapidly. This paper analyzes heterogeneity in corporate tax rate changes between EU-15 countries as a function of the proximity to the EU-10 new member states. The average corporate tax rate in the new member states has always been considerably lower than the average in the EU-15 countries. Their entry into the EU eliminated capital barriers, allowing firms to locate in one of the new EU-10 with full access to the European Market. Our results indicate that EU-15 countries geographically closer to Central-Europe experienced more tax competition. We use a spatial regression framework to empirically test the hypothesis that distance to a low tax region affects countries' tax reaction functions.
Number of Pages in PDF File: 26
Keywords: Spatial tax competition, Corporate taxes, fiscal reaction function
JEL Classification: H25, H77, H39working papers series
Date posted: March 18, 2009
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 1.562 seconds