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The gains from preferential tax regimes reconsidered

Author

Listed:
  • Carl Gaigné
  • Ian Wooton
Abstract
The EU policy against harmful tax competition aims at eliminating tax policies targeted at attracting the internationally mobile tax base. We construct an imperfectly competitive model of costly trade between two countries. In setting their corporate taxes, governments non-cooperatively decide whether to discriminate between internationally mobile and immobile firms. We find the Nash equilibrium tax regimes. When trade costs are high countries impose a uniform tax on all firms while nations will discriminate between mobile and immobile firms when costs are low. At some trade costs, fiscal competition results in tax discrimination despite uniform taxation being socially preferable.

Suggested Citation

  • Carl Gaigné & Ian Wooton, 2010. "The gains from preferential tax regimes reconsidered," Working Papers SMART 10-06, INRAE UMR SMART.
    • Handle: RePEc:rae:wpaper:rae:wpaper:201006
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    File URL: http://www6.rennes.inra.fr/smart/Media/Working-papers/WP10-06
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bofinger, Peter & Feld, Lars P. & Schmidt, Christoph M. & Schnabel, Isabel & Wieland, Volker, 2018. "Vor wichtigen wirtschaftspolitischen Weichenstellungen. Jahresgutachten 2018/19 [Setting the Right Course for Economic Policy. Annual Report 2018/19]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201819.
    2. Gaigné, Carl & Riou, Stéphane & Thisse, Jacques-François, 2012. "Are compact cities environmentally friendly?," Journal of Urban Economics, Elsevier, vol. 72(2), pages 123-136.
    3. Nelly Exbrayat & Thierry Madiès & Stéphane Riou, 2013. "Bailout policy in a globalized economy," Post-Print halshs-00945455, HAL.
    4. Andreas Hauer & Hayato Kato, 2024. "A Global Minimum Tax for Large Firms Only: Implications for Tax Competition," Discussion Papers in Economics and Business 24-06, Osaka University, Graduate School of Economics.
    5. Clemens Fuest & Samina Sultan, 2019. "How Will Brexit Affect Tax Competition and Tax Harmonization? The Role of Discriminatory Taxation," National Tax Journal, National Tax Association;National Tax Journal, vol. 72(1), pages 111-138, March.
    6. Hernández-Murillo, Rubén, 2019. "Interjurisdictional competition with adverse selection," Journal of Public Economics, Elsevier, vol. 173(C), pages 85-95.
    7. Nelly Exbrayat & Thierry Madiès & Stéphane Riou, 2020. "A Simple Model of Corporate Bailouts in a Globalized Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(4), pages 1575-1605, October.
    8. Persyn, Damiaan, 2013. "Union wage demands with footloose firms and agglomeration forces," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 142-150.
    9. Nelly Exbrayat & Carl Gaigné & Stéphane Riou, 2012. "The effects of labour unions on international capital tax competition," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(4), pages 1480-1503, November.
    10. Carl Gaigné & Stéphane Riou & Jacques-François Thisse, 2012. "Are Compact Cities Environmentally (and Socially) Desirable ?," Cahiers de recherche CREATE 2012-4, CREATE.
    11. Jota Ishikawa & Toshihiro Okubo, 2017. "Greenhouse-Gas Emission Controls and Firm Locations in North–South Trade," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 637-660, August.
    12. Ruben Hernandez-Murillo, 2014. "Interjurisdictional Competition and Location Decisions of Firms," Working Papers 2014-36, Federal Reserve Bank of St. Louis.
    13. Nelly Exbrayat & Thierry Madiès & Stéphane Riou, 2013. "Abram Bergson," Working Papers 1340, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.

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    More about this item

    Keywords

    preferential tax regimes; tax competition; imperfect competition; trade costs;
    All these keywords.

    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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