Tax Competition and Asymmetric Countries

Anton Jevcak

doi:10.15388/ekon.2004.17396

Abstract

This paper explores the consequences of a difference in the levels of public inputs accumulated over time in a small open economy model where capital tax revenues are used exclusively for the provision of public inputs, while the government sets the capital tax rate in way to maximise its country’s national income. It is shown that in this case the optimal capital tax rate in a country is a decreasing function of its stock of accumulated public inputs. The model thus implies that capital tax harmonisation could actually be detrimental to the so-called core EU member states as it could fix their capital tax rates at an in-optimally high levels and thus hinder their ability to dampen undesirable capital out- flows.

Highlights

The latest enlargement of the EU brought together a group of countries which are more heterogeneous sthan ever before
Apart from having significantly different levels of per capita GDP these countries offer potential foreign investors different levels of the so-called industrial public goods/publicly provided inputs while charging diverse tax rates. This increased heterogeneity might be seen as a reason for corporate tax harmonisation in the EU, as it might be argued that the need for a "fair" framework for capital investment competition within the internal market has increased
It might be argued that the increased heterogeneity makes it more difficult to find a single tax rate or a lower bound on corporate tax rates suitable for the whole EU

Summary

Anton Jevcak

This paper explores the consequences of a difference in the levels of public inputs accumulated over time in a small open economy model where capital tax revenues are used exclusively for the provision of public inputs, while the government sets the capital tax rate in way to maximise its country's national income. It is shown that in this case the optimal capital tax rate in a country is a decreasing function of its stock of accumulated public inputs. The model implies that capital tax harmonisation could be detrimental to the so-called core EU member states as it could fix their capital tax rates at an in-optimally high levels and hinder their ability to dampen undesirable capital outflows

Introduction

Using a production function of the form Y

Using again the production function of the

Conclusion

MOKESČIŲ KONKURENCIJA IR ASIMETRIŠKOS ŠALYS