Why hasn’t tax competition triggered a race to the bottom? Some quantitative lessons from the EU

摘要: Abstract The integration of European financial markets in the early 1980s created an environment near-perfect capital mobility across countries that had harmonized indirect taxes but maintained large differences factor taxes. years followed witnessed several rounds competition with puzzling results. Instead dreaded “race to bottom” taxes, UK lowered its tax a rate closer those France, Germany and Italy, while changed slightly these countries. increased labor marginally, other theirs sharply. This paper shows results are consistent quantitative predictions dynamic, Neoclassical general equilibrium model incorporates key international externalities policy operating via relative prices, wealth distribution fiscal solvency. Tax is modeled as one-shot game over time-invariant dynamic payoffs status quo calibrated data. calibration preceded by empirical analysis relationship linking supply investment line evidence domestic seem respond foreign solutions games show when compete adjusting maintain solvency, there no race bottom Nash close observed In contrast, if consumption adjust triggers bottom,” this outcome entails welfare gains. Surprisingly, gains from coordination small all experiments.