Abstract
The linkage between tax competition and foreign capital inflow in Europe is unambiguous for the majority of economists, yet its long-term rationale is not when modeling Western and Eastern Europe as a central versus periphery tax rivalry case. Tax competition might benefit peripheral regions versus central regions in the short term. However, peripheral regions' decision makers have incomplete information on long-term optimal taxes, and this fact routed them to engage in methodical tax rivalry among themselves and against central regions. This reality would make short-term tax advantages in the peripheral Europe either disappear in the long-term or exert negligible weight on investment decision at best.
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