Dynamic Tax Competition, final, 16 March 2018.pdf (868.12 kB)
Download fileDoes tax competition make mobile firms more footloose?
journal contribution
posted on 2018-04-13, 09:56 authored by Ben FerrettBen Ferrett, Andreas Hoefele, Ian WootonWe 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