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Does tax competition make mobile firms more footloose?

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journal contribution
posted on 13.04.2018, 09:56 by Ben FerrettBen Ferrett, Andreas Hoefele, Ian Wooton
We examine a two-period regional model with evolving economic geography, potentially creating incentives for firm relocation between periods. We argue that tax competition makes firms more footloose, but that this increases efficiency relative to the laissez-faire outcome. We establish that: (1) tax competition leads to efficient investment outcomes; and (2) firm mobility is greater with tax competition than with a laissez-faire regime. When relocation is costly, there can be too little mobility over time, as firms do not take into account the impact of FDI on social welfare in each country. With lump-sum taxes or transfers, firms capture these benefits and internalize them, such that tax competition leads to the efficient outcomes. When more time periods are examined, tax competition induces firm relocation sooner than in its absence.

History

School

  • Business and Economics

Department

  • Economics

Published in

Canadian Journal of Economics / Revue Canadienne d'Économique

Volume

52

Issue

1

Pages

379-402

Citation

FERRETT, B.E., HOEFELE, A. and WOOTON, I., 2018. Does tax competition make mobile firms more footloose?. Canadian Journal of Economics / Revue Canadienne d'Économique, 52 (1), pp.379-402.

Publisher

© Canadian Economics Association. Published by Wiley

Version

AM (Accepted Manuscript)

Publisher statement

This is the peer reviewed version of the following article: FERRETT, B.E., HOEFELE, A. and WOOTON, I., 2018. Does tax competition make mobile firms more footloose?. Canadian Journal of Economics / Revue Canadienne d'Économique, 52 (1), pp.379-402, which has been published in final form at https://doi.org/10.1111/caje.12375. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.

Acceptance date

27/03/2018

Publication date

2019-01-12

Copyright date

2019

Notes

This paper is in closed access until 12 January 2021

ISSN

0008-4085

Language

en