International Tax Competition and the Deficit Bias

22 Pages Posted: 21 Nov 2016

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: January 2017

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.

JEL Classification: E62, F62

Suggested Citation

Arcalean, Calin, International Tax Competition and the Deficit Bias (January 2017). Economic Inquiry, Vol. 55, Issue 1, pp. 51-72, 2017, Available at SSRN: https://ssrn.com/abstract=2872429 or http://dx.doi.org/10.1111/ecin.12358

Calin Arcalean (Contact Author)

ESADE Ramon Llull University - Department of Economics ( email )

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

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