International Tax Competition and the Deficit Bias

Calin Arcaelan

No 5627, CESifo Working Paper Series from CESifo

Abstract: I analyze the dynamic effects of tax competition on public budget deficits. I find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization. When countries differ in terms of capital mobility, further liberalization leads to external imbalances and diverging fiscal deficits while corporate tax rates converge. Consistent with theory, I find that stronger tax competition increases deficits in a sample of OECD countries, controlling for tax revenues and other standard determinants of fiscal deficits.

Keywords: international tax competition; political economy; deficit bias; redistribution (search for similar items in EconPapers)
JEL-codes: E62 F62 (search for similar items in EconPapers)
Date: 2015
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