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This paper examines the endogenous choice of the government’s tax instrument between the unit and ad valorem taxes under tax competition with unemployment. Governments seek to maximize their objective functions that are the weighted sum of employment and revenue levels. Considering the tax competition model, a high fixed wage rate generates not only unemployment but also employment externalities. This effect can be either positive or negative because of the presence of capital freely mobile among regions. Without unemployment, the revenue-maximizing governments choose unit tax as their tax instruments to avoid revenue loss from intense tax competition under ad valorem taxes. However, with unemployment, positive employment externalities generate additional benefits to use ad valorem taxes for stimulating employment. Therefore, the present study shows that one region chooses an ad valorem tax and the other selects a unit tax, or both governments use ad valorem taxes depending on employment externalities., Japanese translation: http://hdl.handle.net/2237/0002003769

In a model of cross-border shopping with monopolistic competition, we examine the relative merits of an ad valorem (ADV) tax and a unit (specific) tax. Our focus is on the effects of the opening of borders that enables consumption outside the country of the residence. The result shows that the increased cross-border shopping may strengthen or weaken the superiority of either of the two tax methods, depending on the relative weight that the government places on tax revenue and welfare. Specifically, while cross-border shopping always increases the welfare of all countries in ADV tax competition, welfare increases only when the governments place a large weight on tax revenue in unit tax competition. Cross-border shopping lowers welfare when governments with high weight on welfare compete in unit tax.

This article presents the normative case for global tax governance. Contrary to an influential part of the literature, national tax policy choices cause significant externalities for other nation-states. Focusing on business taxation, the article shows that tax competition undermines the integrity and distributive principles of domestic tax systems and aggravates the inequality between developed and developing countries. Further, it demonstrates that the effects of international tax competition are unjust irrespective of whether a globalist or less demanding internationalist perspective on justice is adopted. The minimum requirement of justice is to devise global rules that ensure that national tax systems remain capable of implementing distributive justice as they see fit. Finally, the article presents and discusses a concrete proposal for the global governance of business tax competition, namely, unitary taxation with formula apportionment.

This paper shows that a small country can have an incentive to tax inbound FDI even in a setting with perfect competition and free entry that is compatible with the Diamond–Mirrlees (Am Econ Rev 61(1):8–27, 1971) framework. While firms make no aggregate profits worldwide due to free entry in this setting, they make taxable profits in foreign production locations because their costs are partly incurred in their home countries. These profits are not perfectly mobile because firm productivity varies across locations. Consequently, the host country does not bear the entire burden of a tax on foreign firms, giving rise to an incentive to tax foreign investors. The standard zero optimal tax result can be recovered in this model under an apportionment system that ensures zero economic profits in each location.

This study employs a Keynesian-type model of the global economy to investigate the impact of savings rate, openness, and population size on equilibrium tax rates and tax revenues in a world economy. Within the model, the marginal propensity to consume is represented by a matrix specifying each country’s income distribution. This study reveals that equilibrium tax rates are higher in countries with a higher rate of savings, greater level of openness, and smaller population size. If an infinitely large number of identical and highly integrated competing countries exist, then a system with indirect taxation has a lower equilibrium tax rate and higher tax revenues than a system with direct taxation. If a country with direct taxation and a country with indirect taxation compete, then the latter country has an advantage.

We study the dynamic effects of fiscal reforms on migration and tax evasion in an international context with two asymmetric countries. Given an initial international distribution of honest and dishonest taxpayers, the tax system (e.g., tax rates and degrees of progressivity) and the salary in each country, individuals decide where to reside and how much time to spend working. The model allows us to study in a dynamic setting how the distribution of honest and dishonest earners is geographically affected by fiscal reforms (e.g., variations in tax rates) and auditing efforts (e.g., probability of auditing and fines) of different countries. We show that various dynamic long term scenarios can be generated. The particular convergence of the model depends crucially on the initial geographic distribution of dishonest agents. This implies that tax reforms that have been successful in reducing tax evasion in one country may produce very different results in others, if initial conditions are significantly different. Chaotic cyclical behavior may also arise if individual propensity to migrate is sufficiently high.

The European Court of Justice (ECJ) has become an influential player in the field of direct taxation in the European Union (EU) in the past 20 years. However, it is unclear whether or not the ECJ's decisions and the corresponding reactions by the member states actually contribute to tax neutrality in economic terms and, therefore, to the achievement of the internal market. In 2006, the ECJ limited the applicability of specific tax rules in the EU that are intended to prohibit the excessive use of low-tax countries by multinationals. Our counterfactual analysis shows that the court's restriction of so-called controlled foreign company rules and the related second-round reactions by some member states – i.e. the introduction of low-tax regimes for income from acquired intellectual properties (IP boxes for acquired IP) – cast doubt on the seemingly positive effects the ECJ has on reducing tax distortions. In addition, we demonstrate that the restricted applicability of IP boxes as endorsed by the OECD and the European Commission would strengthen tax neutrality in Europe.

Fiscal policies of state and local governments are determined in an environment of strategic interaction. The public economics literature has classified several features of these interactions that describe how governments' taxation and expenditure policies are interrelated. One form of strategic interaction that has received little attention occurs between different types of local governments that have overlapping boundaries. These entities share either part or all of their tax bases with each other and therefore are jointly constrained by voters' willingness to be taxed on that base. This paper explores the strategic interactions between counties and school districts by testing for reactions to how the property tax is used in overlapping jurisdictions. I implement GMM Instrumental Variables model that utilizes county non-salary benefits and general obligation debt expenditures to identify the county property tax levy, the impact of county property taxes on school district property levies is then estimated in a second stage regression. The results reveal a positive cross-tier tax elasticity indicating a yardstick type of strategic interaction among overlapping local jurisdictions.

Tax effort is a measure of a government’s effort to collect taxes. This study explores what impacts both vertical and horizontal incentives have on local governments’ tax efforts in China. For consistency with the literature, we first include typical economic and institutional factors in our analysis. We find that the effects of economic factors on local tax efforts are significant, but the effects of institutional factors tend to be weak. Fiscal decentralization, as a vertical incentive, has a significantly positive effect on tax efforts at the provincial level. Meanwhile, fiscal interaction, as a horizontal incentive, is also taken into account in a spatial specification to explain tax competition among local governments. The results show that local tax effort in China also depends on the horizontal incentive. Hence, to improve local tax effort, the central government should let the locals have more autonomy in collecting taxes and evaluate local tax effort by referring to tax collection in adja...

Multinational companies (MNCs) have historically used corporate subsidiaries to isolate income earned in lower-taxed jurisdictions from tax in a higher-rate home country. This planning technique has been long accepted as a strategy to lower the MNC’s effective tax rate and maintain shareholder value. A recently study, however, demonstrates that this is an inefficient, and possibly inappropriate, strategy. This article conducts a comprehensive empirical benchmarking analysis by applying cluster analysis to empirically identify peer groups of MNCs operating in the pharmaceutical industry. We find that most firms consistently fall into the same cluster, providing evidence that income shifting can be benchmarked by industry sector. We also find special cases where firms should be excluded from the benchmark.

This study examines asymmetric tax competition under representative democracy systems. The findings show that the degree of asymmetry between countries affects the result of elections in each country, where the citizens select a policy-maker to set a tax rate for the country. In particular, under certain conditions, a decisive voter in the election can select a citizen whose share of the country's capital is higher than the decisive voter's own share.

Globalization affects national government fiscal policy; therefore, the recent policy debates focus on international fiscal competition. The national tax policies pay special attention to multinational companies, which are highly mobile and able to avoid taxes. The trend of tax rate cutting and tax base broadening (“the race to the bottom”) means that tax completion is one of the most important topics in the professional public. There are two main instruments to avoid the multinational companies' profit shifting; decreasing the corporate tax rates or the implementation of anti-avoidance rules. While tax policy implementation affects multiple stakeholders, a thorough, empirically tested and publicly aligned impact assessment procedure should be carried out. The main idea of this article is to analyze the procedure of impact assessment for tax policy in Slovenia, focusing mainly on the example of the interest tax shield, verifying the impact of the tax policy (thin capitalization rule) implemented in 2005 and offering recommendations for future tax policy. The results revealed that the Slovenian procedure for impact assessment concerning tax policy is used to fulfill formal compliance requirements. Such a declaratory and theoretical level of usage cannot contribute to effective results for tax policy. This turned out to be proved by the data from the financial reports of foreign companies operating in Slovenia for the tax policy instrument (thin capitalization). Contrary to expectations, the amount of debt to parent companies has on average increased, causing a capital to debt (to parent company) ratio considerably lower than the tax rules have restricted. The recommendations therefore are concentrated on a thorough quantitative and qualitative analysis of specific policy challenge. The globalization trend has affected tax policies all over the world, causing tax competition among countries. Multinational companies (MNCs) are very mobile and able to avoid taxes, so the tax code is one of the important factors in investment decisions. In this manner, the national tax policy can either decrease the corporate tax rates or implement anti-avoidance rules. The main article objectives are focused on a review of the existing procedure for tax policy evaluation, including the analysis of the impact of the thin capitalization rule on MNCs operating in Slovenia. The article finally provides recommendations for the tax instrument implementation of thin capitalization in general. The research methodology in based on a systematic literature review concerning the procedure for tax policy evaluation, while the second part employs statistical analysis including the Friedman test to evaluate the effectiveness of the thin capitalization rule and its impacts on foreign direct investment (FDI) in Slovenia. The research findings reveal a rather loose procedure considering the evaluation of the future impacts of tax policies, whereas the tax policy evaluation is addressed on the regulatory and declaratory level, while in practice it is often based on inertia, intuition, and incomplete recommendations from international organizations and supranational bodies. © 2017 Wiley Periodicals, Inc.

In this work, we simulate the effects of the tax autonomy of the Austrian states on the levels of public employment in each state. We show that depending on the strength of the public sector lobby, tax autonomy would require a reduction of employment in the public sector of between 25 and 35% of the current level. We also show that tax autonomy increases welfare levels by 1–1.5%; that is, the positive change in the disposable income of the workers more than offsets the welfare loss resulting from the lower provision of public goods. Finally, we show that the reduction of public employment is superior in terms of welfare to an alternative scenario in which employment levels are held constant but the wage levels in the public sector are adjusted.

In an effort to attract new investors and retain existing producers, governments use corporate tax rates as a policy tool for industrial recruitment, resulting in inter-state tax competition. Foreign direct investment (FDI) growth and GDP growth are the two policy outcomes gauged in inter-state tax competition. The assumption is that lower corporate taxes lead to increases in FDI, which results in capital formation that generates GDP growth. This 60-nation panel study tests that assumption through examining economic indicators contingent on taxation, such as FDI and mergers and acquisitions among multinational corporations between 1999 and 2009. The results suggest that reduced corporate tax rates can increase FDI but decrease annual GDP growth. The main policy implication is that tax competition may attract investment, but may not promote overall economic growth, offering support for value-extraction theories.

This article estimates tax reaction function of local governments competing with other governments to provide the insight for tax policy decision makers. Employing a panel of county-level data in all the states from 1970 to 2006, this article analyzes sales tax competition between county governments. In addition to a static model, this article pays more attention to dynamics in tax reaction function estimated by general methods of moments containing lagged dependent variables in the reaction function. Focusing on county governments, this article finds evidence for strategic interaction, an interaction that has positive effects on the setting of tax rates in a county.

This paper considers optimal fiscal equalisation in a federation that competes with other federations for business tax base. It formalises the argument that, under certain circumstances, federations have an incentive to foster tax competition among their subunits in order to attract tax base from other federations. We show that optimal fiscal equalisation serves the purpose of redistributing income from rich to poor subunits and of choosing an optimal level of tax competition. The latter is chosen as a trade-off between three goals. First, decentralised tax rate setting has positive fiscal externalities within the federation and, thus, tax rates are inefficiently low. Second, in the presence of hold-up problems in investment, tax rates may be inefficiently high. Then, tax competition serves as a commitment device for low future tax rates and is, thus, welfare enhancing. Third, generous fiscal equalisation within the federation is a commitment to not aggressively compete with subunits outside the federation for tax base; as a consequence, with optimal equalisation, equilibrium tax rates are higher within and outside the federation—and even higher than in the case of centralised (i.e. federal level) tax rate setting.

In this paper, we revisit the combined effect of horizontal and vertical tax externalities in a federal context, extending the theoretical framework of Keen and Kotsogiannis (Am Econ Rev 92(1):363–370, 2002) by allowing for ad valorem and residence-based taxation. When taxes are levied ad valorem rather than per-unit firstly, we find the interaction between both types of externalities is more ambiguous than commonly understood. As a result, and contrary to earlier findings, fiscal equalisation mechanisms such as the representative transfer system (RTS) fail to fully internalise the tax externalities. Given these limitations, we derive the conditions under which a standard RTS will either: (1) at least nudge politicians in the right direction; (2) realise no welfare gains at all; (3) considerably overshoot the second-best efficiency mark causing welfare loss. Lastly, we find that when taxation is residence-based rather than source-based, a different kind of competition emerges where tax cuts are aimed at stimulating outward factor flows, rather than attracting inward flows.

Patent boxes are tax incentive schemes aimed at stimulating research and development (R&D) in firms by providing favourable tax rates to profits that can be linked to a specific immaterial asset, such as a patent. Because these profits are often hard to separate from other firm profits, patent boxes have been argued to be prone to tax shifting of firms, and tax competition between nations, as they might shift the location of the profits without affecting the location of R&D activities. Whether or not this occurs may also depend on conditions set in the patent box. We evaluate the innovation box policy instrument in the Netherlands, which is essentially a patent box, but without the formal requirement of a patent. We ask whether the innovation box has an effect on local R&D investment of the firm ('additionality'), thereby putting the hypothesis of tax shifting to the test. We find that the innovation box indeed has a positive effect on R&D investment, but the average firm that uses the policy tends to use only a part of the tax advantage for extra R&D investment.

This paper analyses the effects of tax competition on environmental product quality, pollution and welfare in a two-country, vertically differentiated, international duopoly, in which consumers are environmentally conscious. The firm in each country chooses first the environmental quality of its product (which reflects the emissions generated in the production process) and then the price. In equilibrium one country will be more polluted than the other because firms choose different levels of environmental quality of their products. We find that a country’s optimal commodity tax is higher if the domestic firm is the more polluting supplier. Furthermore, non-cooperative commodity tax rates are inefficiently high in equilibrium. This is because, in this framework with environmentally aware consumers, commodity taxes affect the choice of firms regarding their emissions. Therefore, a domestic tax reduction not only raises the profits of the foreign firm but also lowers its emission levels, resulting in higher welfare for the other country. We also analyse the optimal cooperative and non-cooperative commodity and emission taxes with border tax adjustments. With these two policy instruments available, commodity taxes are higher.

The studies on capital tax competition have assumed that the governments compete for mobile capital in unit tax, and this assumption is partially justified by Lockwood (2004) , which proves that unit tax competition is always welfare superior to ad valorem tax competition within a framework of symmetric tax competition. This paper presents the reexamination of governments' choice on tax method in the framework of asymmetric tax competition. The results show that asymmetric countries do not compete in the same tax instrument, as assumed in the literature. The capital importing countries compete in ad valorem tax, while the capital exporting countries compete in unit tax.

When a dozen new countries joined the European Union in the mid-2000s, political tensions spiked over disparities in corporate income tax rates. Since the time of enlargement, leaders have tried repeatedly to enhance corporate tax coordination within the EU, as a result of fears of downward pressure on corporate tax rates and states’ weakening ability to collect revenues. At the same time, leaders from new member states in Eastern Europe with low corporate tax rates have contended that regional efforts to coordinate tax policies are not worthwhile, given that corporate tax competition is a global phenomenon. This article argues that corporate tax competition is more acute at the regional than the global level. While corporate tax rates are falling inside and outside the EU, we demonstrate using a large multiyear, multiregional data set that Eastern European countries have extremely low corporate tax rates relative to other EU and non-EU countries, even when controlling for multiple domestic economic and political factors. These findings support the potential efficacy of pursuing regional corporate tax reform to address the downward spiraling of rates in the EU.

We model a timing game in tax competition where the initial capital is unevenly endowed within the country and the tax policies are determined under a majority voting regime. The model is characterized by a novel feature: The decisive voter imports capital at the individual level, while the country exports it at the national level. The paper finds that governments endogenously choose to play a sequential-move game, which is unlikely to associate with full capital ownership in the tax competition literature.

The concept of tax competition has been successfully applied in an analysis conducted in several European countries, but so far it has not been systematically tested either in Poland or in other countries of Central and Eastern Europe. There are two types of competition discussed in the article: classic competition for mobile tax base and ‘yardstick competition’, in which local politicians compete for political capital being related to the comparison of tax rates with neighbouring municipalities. It is expected that in Poland the ‘yardstick competition’ is more important from the classic competition for the mobile tax base.

We analyze the impact of locally dominant firms—i.e. firms that contribute a sizeable share to municipalities’ revenues—on local business tax rates. We argue that these firms have considerable political power locally even if they are not large in the regional or national perspective. These locally dominant firms can use their political power to voice their concerns directly vis-a-vis the local government—a channel of influence that is hardly available in municipalities with an atomistic structure of tax payers. We hypothesize that municipalities with locally dominant firms will set lower tax rates than municipalities in which tax-payers’ concentration is low. We test the impact of tax-payers’ concentration on local business tax rates using data from 423 municipalities in the German state Hesse between 1998 and 2005. The estimation technique accounts for spatial lags and autoregressive disturbances. Results support our central hypothesis: the higher the tax-payers’ concentration, the lower the municipal business tax rates.

Firms generating larger surpluses on average pay higher wages. We study the effect of this rent-sharing between firms and workers on international tax competition. In our model, firms in a large country can shift surplus to a tax haven. In the benchmark case firms only have a tax incentive for profit shifting as shifted surplus is fully taken into account in the wage bargaining. In this case rent-sharing decreases the competitive pressure on the large country and leads to higher equilibrium tax rates. When workers do not observe the full surplus shifted, a wage incentive arises. Profit shifting then becomes more attractive as it reduces the surplus bargained over with workers. If this effect is sufficiently strong, rent-sharing increases the competitive pressure on the large country, which implies a lower equilibrium tax rate.

This paper explores a striking form of tax policy interdependence that can be observed in the German federation. Though municipalities enjoy discretion in setting the local business tax rate, large fractions of municipalities – in some states even the majority – set identical tax rates. Our analysis shows that this tax-rate “bunching” is not the result of federal or state-level institutions. Possible explanations rest on partial coordination and yardstick competition. The role of the former is exemplified by the finding that small jurisdictions and jurisdictions sharing the same county are more likely to engage in “bunching”. Yardstick competition seems also relevant since jurisdictions for which strategic tax-setting should be associated with larger gains and lower cost are in fact more likely to set identical tax rates.

We investigate the impact of a political regime shift affecting consumers, business interests and lobby contributions when countries engage in tax competition in capital and a polluting resource. When consumers have more influence than resource owners, the resource tax rate and public spending rise while environmental damages, lobbying contribution, and the capital tax rate fall. This response can spillover to other countries leading to lower welfare. Capital tax harmonization improves welfare of consumers and resource owners. Resource tax harmonization and governance harmonization both reduce the influence of lobbying and improve consumer welfare but resource owners are worse off.

As part of the fight against tax elusion and harmful tax competition, the European Commission has used the versatility of the Community legislation on State aid to supervise the tax ruling practices of the Member States in relation to the aggressive tax planning strategies implemented by multinational groups. In this context the aim of this work is to analyse the interpretation given to the criteria of “economic advantage” and “selectivity” by the Commission in the decisions on certain tax ruling practices as State aid, highlighting the peculiarities of this interpretation as regards the traditional explication of these criteria generally invoked by the Commission. This work also studies some of the problems arising from these decisions from the perspective of aid recovery. Finally, it reflects on the suitability and the limits of the general prohibition of State aid in tackling the problem of base erosion and profit shifting.

This paper examines the relationship between tax competition and fiscal equalization in a standard tax competition model with repeated actions, in which regions differ in per capita capital endowments and production technologies. In particular, it asks how a fiscal equalization scheme affects the tax cooperation condition. It shows that when the scale of fiscal equalization scheme increases, capital exporter is more (and capital importer is less) cooperative in implementing tax coordination. The paper also demonstrates that the best cooperative tax rate – the one that provides the strongest potential for voluntary cooperation – takes a positive value and increases with the scale of fiscal equalization.

Local sales tax rates influence the location of retail activity. This paper develops a theory and empirical identification strategy for studying sales tax competition with “multiple federations,” as exemplified by multiple counties each containing several cities. In addition to strategic interactions with nearby cities and a city’s own county, city tax rates are influenced by the tax rates of neighboring counties. Cities react heterogeneously to own-county sales tax rates depending on distance to the county border. Using data on the driving time to county borders and a comprehensive cross-section of local sales tax rates, I exploit variation in proximity to county borders to identify vertical fiscal competition. Cities located near county borders react more intensely to their county’s tax rate in comparison to towns at the interior. An increase in the neighboring county tax rate raises city tax rates in nearby counties.

Standard models of horizontal strategic capital tax competition predict that, in a Nash equilibrium, tax rates are inefficiently low due to externalities - capital infl ow to one state corresponds to capital out ow for another state. Researchers often suggest that the federal government impose Pigouvian taxes to correct for these effects and achieve efficiency. We propose an alternative incentive-based regulation: tradeable capital tax permits. Under this system, the federal government would require a state to hold a permit if it wanted to reduce its capital income tax rate from some pre-determined benchmark. These permits would be tradeable across states. We show that, if the federal government sets the correct number of total permits, then social efficiency is achieved. We discuss the advantages of this system relative to the canonical suggestion of Pigouvian taxes.

Tax competition scholars are increasingly recognizing that states compete with each other not only by manipulating tax rates but also by adopting tax incentives. However, there is a comparative lack of empirical literature exploring why states adopt different types of tax incentives. This article draws on the literatures on tax competition and policy diffusion to develop hypotheses about what factors motivate states to adopt business tax incentives, paying particular attention to the influence of other adopting states. It uses event history analysis methods to test hypotheses regarding the adoption of four state tax incentive policies: investment tax credits, apportionment formula changes, research and development tax credits, and job creation tax credits. Regression results show that factors that influence adoption decisions are largely inconsistent across the four incentive types. However, analyses of duration dependence find evidence consistent with the idea that states are “racing to the bottom.”

Many developing countries use tax incentives to attract foreign direct investment, sacrificing immediate revenue from foreign capital, even though the effects of tax incentives on investment, growth, and revenue are empirically dubious. This leads to the puzzle of why states adopt tax incentives. Extant studies of tax incentive adoption overlook the fact that many countries have decentralized fiscal authority, allowing subnational governments to offer tax incentives. Public finance scholars argue that fiscal federalism intensifies tax competition among regions. Hence, drawing on the public finance scholarship, one may ask: Does fiscal decentralization lead to a race to the top among subnational governments and an oversupply of tax incentives in a country? This article argues that fiscal decentralization affects tax incentives in complex ways. When subnational governments are authorized to set tax policies, their politicians have economic and political incentives to engage in tax competition for mo...

World Conference on Technology, Innovation and Entrepreneurship --MAY 28-30, 2015 -- Istanbul, TURKEY, WOS: 000380509900065, Countries make reductions in direct tax rates to attract foreign investments. In order to avoid this situation leading to an unfair tax competition, instead of decreasing the corporation tax wholly, tax incentives for industrial property rights which contribute innovation are prefered. The dynamism of industrial property rights is higher compared to the other production factors and it is more susceptible to tax incentives. Lately, countries have begun tax incentive applications called either "patent box regime" or "innovation box regime" in order to attract innovative international companies to themselves. For the first time in 1973, "patent box regime" began to be implemented in Ireland and spread rapidly. In this content, this application was entered into force in such counties: France (2000), Hungary (2003), Belgium and the Netherlands (2007), Spain, Luxembourg and China (2008), Malta (2010), Liechtenstein (2011), England (2013), Portugal, Italy and Turkey (2014). Patent box regime is a promoting factor which proposes low taxation for the earnings from directly commercialized patents and from the other industrial property rights. In addition, its structure is result-oriented and incites innovation. In this study, "patent box regime", a kind of a tax incentive which is provided by the countries in order to enhance their international competitive capacities in the field of innovation, will be examined. In this content, the applications in Turkey and in the European Union will be discussed comparatively and potential difficulties in the application will be mentioned. (C) 2015 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

Under the influence of globalization there is a gradual vector change in taxation in countries - from purely internal to taking account of global economic interests. Tax authorities around the world are beginning to coordinate their efforts such as the gradual standardization of tax reporting, tax issues in the framework of international corporations are paid more attention. This indicates gradual changes in the global system of taxation and perspective function transformation of the state in collecting taxes. Globalization gradually opens borders of national economies and leads to unprecedented growth opportunities for all participations of international economic environment. One such opportunity is the tax competition that enables to select the tax-attractive sites for production, financial assets that are characterized by stability and transparency of the tax system and low tax rates. In addition, the development of computer technology and the emergence of so-called "fiscal termites" mechanisms for tax evasion are becoming more diverse, complicating tax collection by state authorities of the country. The solution to these problems is seen in increasing coordination between the tax authorities of countries and the creation of the World Tax Organization.

The primary purpose of this paper is to study the relationship between worker flows and local wage taxes. It is motivated by results of theoretical analysis on asymmetric tax competition for mobile labor. A sample of 176 localities in metropolitan areas of Pennsylvania is examined. The Two Stage Least Squares estimation results show that inter-jurisdictional worker flow has an important effect on the determination of local wage tax rates. On the other hand, effect of wage tax rates on worker flow is not significant, but other factors including population, per capita income and per capita capital stock do have significant effects.

This paper strives to merge two strands of the literature. The first group of papers compares ad valorem and unit taxes in a tax competition framework in terms of welfare. The second group of papers regards capital income taxes as a conjunction of taxes on pure profits and taxes on capital income. We find that, given decreasing returns to scale, there always exists a level of the share of deductible capital costs strictly smaller than one, such that for all values larger than this threshold, an ad valorem tax regime unambiguously Pareto-dominates a unit tax regime.

The study is dedicated to identify the main factors determining the propensity of local authorities to compete for the access to the limited as well as mobile sources of local tax revenue. The success of such an activity should be discussed in relation to the stabilization of local budget revenues; hence it seems that the barriers of leaving tax jurisdiction could be better index to evaluate of the efficiency of local tax policy. The theoretical approach is based on the assumption that, if central government provides limitations of the right to improve local tax policy means (the scope of local tax jurisdiction), the local governments should focus on both the efficient acquiring the sources of tax revenues, and the stabilization of tax revenues in the future, in particular by the implementation of the barriers of leaving tax jurisdiction. The paper suggests studying a propensity to tax competition. The article formulates desideratum of the efficiency of spending on acquiring the sources of tax revenue, in particular, the need to identify the barriers to leave tax jurisdiction is suggested. The first and foremost way to build the barrier to leave tax jurisdiction could be reducing tax liabilities by local tax authorities, in particular by introducing local tax reliefs and local tax exemptions, as well as lowering local tax rates. Hence, the model of local authorities’ competition for local tax resources could be proposed. The empirical studies are dedicated to identify the actual propensity of Polish local government to execute the legal ability to impose tax policy instruments. The inquiry is based on comparing the fiscal consequences of implementing local tax policy within two groups of local authorities: small towns and countries (gminas) and medium-size towns and big cities (cities with powiat status). The period under investigation contains 14 fiscal years, started 2000 and finished in 2013. The method is based on the analysis of the structure and tendency of fiscal consequences of the decisions of local tax authorities.

In this article, we examine the effects of changes in property tax rates and school spending on residential and business property value growth in southeast Michigan. We use panel data for 152 communities in the five counties surrounding Detroit between the years 1983 and 2002, a period during which state government mandated major changes to school finance. Using the mandated changes to identify causality, we find that: (1) residential property values are more responsive to school spending changes than property tax rate changes; (2) business property values are more responsive to tax rate changes than school spending changes; and (3) business property values are more sensitive to changes in tax rates as compared to residential property. We also examine tax competition effects on property value growth, showing that tax competition plays an important role in property value growth in the southeast Michigan region.

Heterogeneous firm productivity raises the question of whether governments should pursue ‘pick-the-winner’ strategies by subsidizing highly productive firms more (or taxing them less) than their less productive counterparts. We study this issue in a setting where governments can set differentiated effective tax rates in an oligopolistic industry in which firms with two productivity levels co-exist. We show that the optimal structure of tax differentiation depends critically on the feasible level of the corporate profit tax, which in turn depends on the degree of international tax competition. When tax competition is weak and optimal profit tax rates are high, favoring high-productivity firms is indeed the optimal policy. When tax competition is aggressive and profit taxes are low, however, the optimal tax policy reverses and favors low-productivity firms.

The paper examines the long run changes in the tax revenue structure in developed countries. We are particularly focused on the testing of a potential shit from taxation on mobile tax bases to less mobile ones, which could be seen as one of the results of rising tax competition. We assume that a decrease in corporate tax revenues is compensated for by higher tax revenues from taxing work and property. Our dataset consists of panel date from 22 OECD countries within the period 1965 to 2012. We tested the potential causalities within the tax mix using Granger causality tests as well as the DOLS and FMOLS panel cointegration techniques in order to reveal possible long run causalities. As far as we know, these techniques have not before been used in this fi eld. Long-run inverse causalities between corporate tax and personal tax revenue as well as corporate tax revenue and indirect taxes are found. Our results could have several important implications for the tax policies in developed countries.

The main objective of this study is to quantify the impact caused by changes in federal tax on the tax policy of the Brazilian states, considering the presence of horizontal tax competition between states. Using panel data covering 26 Brazilian states plus the Federal District during the period 1995–2009, two models were estimated representing the average reaction of the states in response to changes in federal tax rates. In the first model, both levels of government act simultaneously, whereas in the second model, reaction is sequential, with the federal government acting as the leader in defining its effective tax rates. The results indicate a positive and significant response of states to increases in the federal tax rate, resulting in an over-taxation of the common tax base and higher tax rates. Additional tests show that the first model is the most suitable to represent the problem analysed. Objetivo principal desse trabalho é quantificar qual o impacto provocado por mudanças no imposto federal sobre a política tributária dos estados, considerando a presença de competição tributária horizontal entre os estados. Utilizando um painel de dados que abrange os 26 estados brasileiros mais o Distrito Federal no período 1995–2009, foram estimados dois modelos que representam a reação média dos estados em resposta a mudanças nas alíquotas do governo federal. No primeiro modelo ambos os níveis de governo agem simultaneamente, enquanto que no segundo a reação é sequencial com o governo federal atuando como líder na definição de suas alíquotas efetivas. Os resultados apontam para uma resposta positiva e significante dos estados à aumentos na alíquota tributária federal resultando em uma sobretaxação da base tributária comum e alíquotas elevadas. Testes adicionais mostram que o primeiro modelo é o mais indicado para representar o problema analisado.

As a consequence of globalization, countries competitively undercut their corporate tax rates in order to lure and boost foreign capital investments. This context induces a race to the bottom in corporate income taxes and threatens the corporate tax revenues collection. This paper aims to establish if there is a paradox in relation to the corporate tax rate and corporate-tax-to-GDP-ratio in the European Union (the corporate tax rates reduction did not cause a corporate-tax-to-GDP-ratio drop), as this trend was observed by researchers. In order to assess the outcome of corporate tax competition as it is reflected by the firms’ behavioural responses, a panel data for EU countries was used. The findings do not confirm that the downward pressures on corporate tax rates are not translated in a fall in corporate revenues over the time.

The welfare effect of the existence of tax havens on high-tax countries has not been conclusive in the theoretical literature. Some papers show that the existence of tax havens is harmful to high-tax countries, while other studies argue that the opposite could occur. We aim to address a question: Do these welfare-reducing or welfare-enhancing properties still hold in the presence of lobbying? We find that the welfare-enhancing property does not hold, provided that the policy-maker attaches a sufficiently large weight to the political contribution received. Moreover, we point out that the cooperation among high-tax countries in restricting the international tax planning activity can lead to a lower level of social welfare in all high-tax countries.