How Will Brexit Affect Tax Competition and Tax Harmonization? The Role of Discriminatory Taxation

23 Pages Posted: 16 Feb 2018

See all articles by Clemens Fuest

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich; Ludwig-Maximilians-University, Munich; Center for Economic Studies (CES)

Samina Sultan

Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES)

Date Written: January 11, 2018

Abstract

This paper develops a model of tax competition with three countries, which initially form a union where countries refrain from using different tax rates in different sectors of the economy. We study the impact of one country leaving the union. We show that the introduction of discriminatory taxation in one country increases tax policy heterogeneity within the remaining union. Moreover, the incentives for the two remaining countries to harmonize their tax rates decline. We discuss these results in the context of the debate about the tax policy implications of Brexit.

Keywords: international taxation, tax competition, preferential tax regimes

JEL Classification: H200, H730

Suggested Citation

Fuest, Clemens and Sultan, Samina, How Will Brexit Affect Tax Competition and Tax Harmonization? The Role of Discriminatory Taxation (January 11, 2018). CESifo Working Paper Series No. 6807. Available at SSRN: https://ssrn.com/abstract=3124127

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich

Poschinger Str. 5
Munich, DE 81679
Germany
++89-9224-1430 (Phone)

Ludwig-Maximilians-University, Munich ( email )

Schackstrasse 4 / II
Munich, DE 80539
Germany

Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, DE 80539
Germany
++89 2180-2748 (Phone)
++89 2180-17845 (Fax)

Samina Sultan (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, 80539
Germany

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