Are Your Firm's Taxes Set in Warsaw? Spatial Tax Competition in Europe

Katholieke Universiteit Leuven, LICOS Discussion Paper No. 216/2008

26 Pages Posted: 18 Mar 2009

See all articles by Karen Crabbe

Karen Crabbe

KU Leuven - Department of Economics

Hylke Vandenbussche

Catholic University of Leuven (KUL), CEPR

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2008

Abstract

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.

Keywords: Spatial tax competition, Corporate taxes, fiscal reaction function

JEL Classification: H25, H77, H39

Suggested Citation

Crabbe, Karen and Vandenbussche, Hylke, Are Your Firm's Taxes Set in Warsaw? Spatial Tax Competition in Europe (November 1, 2008). Katholieke Universiteit Leuven, LICOS Discussion Paper No. 216/2008, Available at SSRN: https://ssrn.com/abstract=1361530 or http://dx.doi.org/10.2139/ssrn.1361530

Karen Crabbe

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium

Hylke Vandenbussche (Contact Author)

Catholic University of Leuven (KUL), CEPR ( email )

Faculty of Economics
Naamsestraat 69
B-3000 Leuven, 3000
Belgium
+32 16 326 920 (Phone)
+32 16 326 732 (Fax)

HOME PAGE: https://www.sites.google.com/site/vandenbusschehylke/home-1

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