On the Desirability of Tax Coordination When Countries Compete in Taxes and Infrastructure

13 Pages Posted: 14 May 2020

See all articles by Yutao Han

Yutao Han

Universite du Luxembourg

Patrice Pieretti

Universite du Luxembourg; Centre de Recherche en Économie Appliquée (CREA)

Benteng Zou

Centre de Recherche en Économie Appliquée (CREA)

Multiple version iconThere are 3 versions of this paper

Date Written: April 2017

Abstract

This article contains two distinct messages. First, when jurisdictions compete in two independent strategic variables, the decision to coordinate on one variable (a tax rate) induces a carry‐over effect on the unconstrained instrument (infrastructure expenditures). Consequently, classical results of the tax coordination literature may be qualified. A second message is that the relative flexibility of the strategic instruments, which may depend on the time horizon of the decision making, does matter. In particular, tax coordination is more likely to be detrimental (in terms of revenue and/or welfare) when countries can compete simultaneously in taxes and infrastructure, rather than sequentially. The reason is that simultaneity eliminates strategic effects between tax and nontax instruments.

JEL Classification: H21, H87, H73, F21, C72

Suggested Citation

Han, Yutao and Pieretti, Patrice and Zou, Benteng, On the Desirability of Tax Coordination When Countries Compete in Taxes and Infrastructure (April 2017). Economic Inquiry, Vol. 55, Issue 2, pp. 682-694, 2017, Available at SSRN: https://ssrn.com/abstract=3596361 or http://dx.doi.org/10.1111/ecin.12407

Yutao Han (Contact Author)

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

Patrice Pieretti

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

Centre de Recherche en Économie Appliquée (CREA) ( email )

Campus Limpertsberg
162A, avenue de la Faïencerie
Luxembourg, 1511
Luxembourg

Benteng Zou

Centre de Recherche en Économie Appliquée (CREA) ( email )

Campus Limpertsberg
162A, avenue de la Faïencerie
Luxembourg, 1511
Luxembourg

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