Market Access and Tax Competition

Ottaviano, Gianmarco I.P.; Van Ypersele, Tanguy

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Market Access and Tax Competition

30 Pages Posted: 6 Dec 2002

See all articles by Gianmarco I.P. Ottaviano

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation

Tanguy Van Ypersele

National Center for Scientific Research (CNRS) - Research Group in Quantitative Saving (GREQAM); Centre for Economic Policy Research (CEPR)

Date Written: November 2002

Abstract

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

Ottaviano, Gianmarco I.P. and Van Ypersele, Tanguy, Market Access and Tax Competition (November 2002). Available at SSRN: https://ssrn.com/abstract=358620