Market Access and Tax Competition
30 Pages Posted: 6 Dec 2002
Date Written: November 2002
In this Paper, we show that with international externalities, different country sizes, imperfect competition and trade costs, tax competition for mobile firms is efficiency enhancing with respect to the free market outcome. Nonetheless, while the latter entails too many firms in the larger country, the former has too many firms in the smaller one. Under both scenarios the resulting inefficiencies in international specialization and trade flows vanish when trade costs are low enough. Otherwise, only international tax coordination can implement the efficient spatial distribution of firms.
Keywords: Tax competition, trade, capital mobility, monopolistic competition
JEL Classification: F12, F22, H23, R13, R23
Suggested Citation: Suggested Citation