The Economics and Empirics of Tax Competition: A Survey

CEGE Center for European, Governance and Economic Development Research Discussion Paper No. 163

28 Pages Posted: 9 Jul 2013

See all articles by Thushyanthan Baskaran

Thushyanthan Baskaran

University of Goettingen (Göttingen)

Mariana Lopes da Fonseca

University of St. Gallen

Date Written: July 7, 2013

Abstract

We survey the theoretical and empirical literature on local and international tax competition in Economics. Based on this survey, we discuss whether EU countries should harmonize tax policies to prevent a “race to the bottom”. Much of the evidence suggests that tax competition does not lead to significant reductions in tax revenues. Therefore, we conclude that tax coordination is in all likelihood unnecessary to prevent inefficiently low levels of taxation in the EU. But since the evidence against adverse effects of tax competition is not unambiguous, we also discuss whether intergovernmental transfers might be a less invasive means than outright tax harmonization to prevent a race to the bottom.

Keywords: Tax competition, Tax coordination, European Union, Fiscal federalism

JEL Classification: F59, H26, H77

Suggested Citation

Baskaran, Thushyanthan and Lopes da Fonseca, Mariana, The Economics and Empirics of Tax Competition: A Survey (July 7, 2013). CEGE Center for European, Governance and Economic Development Research Discussion Paper No. 163, Available at SSRN: https://ssrn.com/abstract=2290689 or http://dx.doi.org/10.2139/ssrn.2290689

Thushyanthan Baskaran (Contact Author)

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Mariana Lopes da Fonseca

University of St. Gallen ( email )

Bodanstrasse 8
SIAW-HSG
St.Gallen, 9000
Switzerland

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