Is Targeted Tax Competition Less Harmful than its Remedies?

24 Pages Posted: 20 Nov 2001

See all articles by Eckhard Janeba

Eckhard Janeba

University of Mannheim - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Michael Smart

University of Toronto - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 2001

Abstract

Some governments have recently called for international accords restricting the use of preferential taxes targeted to attract mobile tax bases from abroad. Are such agreements likely to discourage tax competition or conversely cause it to spread? We study a general model of competition for multiple tax bases and establish conditions for a restriction on preferential regimes to increase or decrease tax revenues. Our results show that restrictions are most likely to be desirable when tax bases are on average highly responsive to a coordinated increase in tax rates by all governments, and when tax bases with large domestic elasticities are also more mobile internationally. Our analysis allows us to reconcile the apparently contradictory results, derived from analyzing special cases, of the previous literature.

Keywords: Preferential Taxation, Tax Competition, Multiple Tax Bases

JEL Classification: H21, H73

Suggested Citation

Janeba, Eckhard and Smart, Michael, Is Targeted Tax Competition Less Harmful than its Remedies? (October 2001). CESifo Working Paper Series No. 590. Available at SSRN: https://ssrn.com/abstract=288944

Eckhard Janeba (Contact Author)

University of Mannheim - Department of Economics ( email )

L7, 3-5
D-68131 Mannheim
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Michael Smart

University of Toronto - Department of Economics ( email )

150 St. George Street
Institute for Policy Analysis
Toronto, Ontario M5S 3G7
Canada
416-978-5119 (Phone)
416-978-6713 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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