Federal Tax Competition – How Does the Institutional Structure of a Country Change Tax Outcomes?

17 Pages Posted: 3 Mar 2012

See all articles by Lisa Tillmann

Lisa Tillmann

affiliation not provided to SSRN

Berthold U. Wigger

Karlsruhe Institute of Technology

Date Written: May 2012

Abstract

The interrelations of taxation and federal structure have been extensively analysed from various perspectives. The present paper looks at two competing countries of different institutional structures. It examines how the tax rates set at each level of both countries vary in a given setting, when a federal and a unitary country compete for mobile tax base, or both countries are organised as federations. The paper discusses whether or not tax rates set in every jurisdiction will be too high or too low in equilibrium. The externalities triggered by a tax regime change are analysed and the respective impact on revenues is considered. The results essentially hinge on the relative strategic interaction of tax rates, as well as the elasticity of the tax base with respect to the tax rate.

Suggested Citation

Tillmann, Lisa and Wigger, Berthold U., Federal Tax Competition – How Does the Institutional Structure of a Country Change Tax Outcomes? (May 2012). Scottish Journal of Political Economy, Vol. 59, No. 2, May 2012, Available at SSRN: https://ssrn.com/abstract=2015154 or http://dx.doi.org/10.1111/j.1467-9485.2011.00574.x

Lisa Tillmann (Contact Author)

affiliation not provided to SSRN

No Address Available

Berthold U. Wigger

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

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