On tax competition, public goods provision and jurisdictions' size

Pieretti, Patrice; Zanaj, Skerdilajda

doi:10.1016/j.jinteco.2011.01.005

Cited by 38 publications

(57 citation statements)

References 19 publications

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“…Contrary to research on inter-jurisdictional competition (based on taxes and public services), our model does not generate an equilibrium, which occurs when the small economy has higher taxe than its larger rival (Hindriks et al, 2008, Pieretti andZanaj, 2011). This does not occur because the small country is at a disadvantage in providing public services due to the limited capacity of its public sector.…”

Section: Propositionmentioning

confidence: 60%

“…In other words, the economic size of the small country is more sensitive to an increase in e¢ ciency ( decreases) in the Markovian scenario. 25 Consequently, ‡exibility counterbalances ine¢ ciency, and the more ine¢ cient a small country is in providing public inputs, the more valuable ‡exibility is to its long-run survival.…”

Section: Propositionmentioning

confidence: 99%

“…However, this condition becomes more restrictive in the open-loop scenario. Indeed, the absence 25 In fact, it is convenient to verify that @ b 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 of ‡exibility in policy making requires now that the mobility cost is higher than k, which exceeds the threshold k corresponding to the Markovian case. 26 …”

Section: Propositionmentioning

confidence: 99%

“…They …nd that both corporate taxes and public capital contribute signi…cantly to inward FDIs. Pieretti and Zanaj (2011) propose a two-stage game in which both a small and large jurisdiction compete for capital using taxes and public goods as policy variables. These contributions are, however, static and thus unable to provide insights into dynamic outcomes.…”

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confidence: 99%

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Asymmetric competition among nation states: A differential game approach

Han

Pieretti

Zanaj

et al. 2014

Journal of Public Economics

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This paper analyzes the impact of foreign investments on a small country's economy in the context of international competition. To that end, we model tax and public input competition within a di¤erential game framework between two unequally sized countries. The model accounts for the widely recognized characteristic that small states are more ‡exible in their political decision making than larger countries. However, we also acknowledge that small size is associated with limited institutional capacity in the provision of public services. The model shows that the long-term outcome of international competition crucially depends on the degree of capital mobility. In particular, we show that ‡exibility mitigates against -but does not eliminate -the likelihood of collapse in a small economy. Finally, we note that the bene…cial e¤ect of ‡exibility in a small state increases with its ine¢ ciency in providing public services and with the degree of international openness.

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Section: Propositionmentioning

confidence: 60%

Section: Propositionmentioning

confidence: 99%

Section: Propositionmentioning

confidence: 99%

mentioning

confidence: 99%

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Asymmetric competition among nation states: A differential game approach

Han

Pieretti

Zanaj

et al. 2014

Journal of Public Economics

Self Cite

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“…3 Although we focus on international tax competition, countries often use a variety of measures to increase their appeal for international firms. Pieretti and Zanaj (2011), for example, analyse the case where jurisdictions compete for foreign capital via both taxes and public inputs that enhance firms' productivity while Charlton (2003) looks at investment subsidies. Also, some countries give preferential treatment to highly mobile tax bases (e.g., Ireland taxes manufacturing and financial services less than other sectors).…”

Section: ---Figure 1 About Here ---mentioning

confidence: 99%

Trade integration and corporate income tax differentials

Exbrayat

Geys

2013

Int Tax Public Finance

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Building on recent contributions to the New Economic Geography literature, this paper analyses the relation between asymmetric market size, trade integration and corporate income tax differentials across countries. First, relying on Ottaviano and Van Ypersele's (2005) footloose capital model of tax competition, we illustrate that trade integration reduces the importance of relative market size for differences in the extent of corporate taxation between countries. Then, using a dataset of 26 OECD countries over the period 1982-2004, we provide supportive evidence of these theoretical predictions: i.e., market size differences are strongly positively correlated with corporate income tax differences across countries but, crucially, trade integration weakens this link. These findings are obtained controlling for the potential endogeneity of trade integration and are robust to alternative specifications. 2 "You've had a broad substantial reduction in corporate tax rates outside the US. That occurs at a time when it's much easier (...) for companies to shift investment and income to take advantage of lower tax rates overseas. (...) To have a more competitive system, you want to try to bring down the rate closer to the range of our major trading partners." (Timothy Geithner, former US Treasury Secretary, Wall Street Journal, 28-30 January 2011, 9) IntroductionLooking at the evolution of corporate tax rates in developed countries over the last three decades, two observations stand out. The first is a decline in corporate tax rates (Figure 1, (Figure 1, right-hand side). ---Figure 1 about here ---Recent studies indicate the importance of such tax differences for firm location or FDI flows (Bénassy-Quéré et al., 2005;Kammas, 2011;Brülhart et al., 2012). Empirical analyses aimed at understanding what allows some countries to sustain higher tax rates than others have, however, not followed suit. 2 Yet, such insights can have important policy implications.1 This decline is also present when looking only at countries that were OECD members throughout the 1982-2011 period. 2 While numerous studies analyse the decline in corporate tax rates (Devereux et al., 2002(Devereux et al., , 2008Davies and Voget, 2008), Gilbert et al. (2005) is the only study analysing the determinants of corporate tax rate differentials. Compared to that study, we provide a firmer theoretical rationale for the analysis, address potential endogeneity problems, control for the influence of various country-level variables, and employ a Our results support theoretical predictions from Ottaviano and Van Ypersele (2005) and Haufler and Wooton (2010). Specifically, we show that the tax gap responds positively to population size (and GDP) differences between countries and, crucially, that this relationship is significantly attenuated by trade integration. Our analysis thereby controls for the endogeneity of standard measures of trade integration by extracting the level of trade liberalisation between each country-pair from a gravity equation (Rose ...

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