International Tax Competition and the Deficit Bias

46 Pages Posted: 22 Dec 2015

See all articles by Calin Arcalean

Calin Arcalean

ESADE Ramon Llull University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 2015

Abstract

I analyze the dynamic effects of tax competition on public budget deficits. I find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization. When countries differ in terms of capital mobility, further liberalization leads to external imbalances and diverging fiscal deficits while corporate tax rates converge. Consistent with theory, I find that stronger tax competition increases deficits in a sample of OECD countries, controlling for tax revenues and other standard determinants of fiscal deficits.

Keywords: international tax competition, political economy, deficit bias, redistribution

JEL Classification: E620, F620

Suggested Citation

Arcalean, Calin, International Tax Competition and the Deficit Bias (November 2015). CESifo Working Paper Series No. 5627, Available at SSRN: https://ssrn.com/abstract=2706511

Calin Arcalean (Contact Author)

ESADE Ramon Llull University - Department of Economics ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

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