The role of international public goods in tax cooperation

Kammas, Pantelis and Philippopoulos, Apostolis (2009): The role of international public goods in tax cooperation.

Abstract

We provide a quantitative assessment of the welfare cost of tax competition or, equivalently, the welfare benefit of international tax policy cooperation. We use a simple multi-country general equilibrium model of a world economy, in which there are two types of cross-country spillovers: the first one is generated by international capital mobility and the second by the presence of an international public good. In the absence of international public goods, although welfare in the non-cooperative case is typically lower than in the cooperative case, the welfare difference is negligible quantitatively. Things change drastically, both quantitatively and qualitatively, once we introduce international public goods. Now, there can be big benefits from cooperation and welfare effects cease to be monotonic.

• Item Type: MPRA Paper
• Language: English
• Keywords: Capital mobility; Tax competition; Public goods; Welfare
• Subjects: H - Public Economics > H4 - Publicly Provided Goods; H - Public Economics > H2 - Taxation, Subsidies, and Revenue

References

Alesina, A. and Wacziarg, R. (1999). Is Europe is going too far? Carnegie-Rocherster Conference Papers on Public Policy, 51, 1-42.

Bjorvatn, K. and Schjelderup, G. (2002). Tax competition with international public goods. International Tax and Public Finance, 9, 111-120.

Cooper, R. and John, A. (1988). Coordinating coordination failures in Keynesian models. Quarterly Journal of Economics, 103, 441-463.

Devereux, M., Lockwood , B. and Redoano, M. (2008). Do countries compete over corporate tax rates? Journal of Public Economics, 92, 5-6, 1210-1235.

Kammas, P. and Philippopoulos, A. (2007). How Harmful is International Tax Competition? in Regionalisation, Growth, and Economic Integration, edited by G. Korres. Physica-Verlag HD, Springer.

Mendoza, E. and Tezar, L. (2005). Why Hasn't Tax Competition Triggered a Race to the Bottom? Some Quantitative Lessons from the EU, Journal of Monetary Economics, 52, 163-204.

Persson, T. and Tabellini, G. (1992). The politics of 1992: Fiscal policy and European integration, Review of Economic Studies, 59, 689-701.

Persson, T. and Tabellini, G. (1995). Double-edged incentives: institutions and policy coordination, in Handbook of International Economics, volume 3, edited by G. Grossman and K. Rogoff. North-Holland, Amsterdam.

Philippopoulos, A. and Economides, G. (2003). Are Nash tax rates too low or too high? The role of endogenous growth in models with public goods, Review of Economic Dynamics, 6, 37-53.

Razin, A. and Sadka, E., editors, (1999). The Economics of Globalization: Policy Perspectives from Public Economics. Cambridge University Press, Cambridge.

Sørensen, P., (2004). International tax coordination: Regionalism versus globalism, Journal of Public Economics, 88, 1187-1214.

Tabellini, G. (2003). Principles of policymaking in the EU: An economic perspective, CESifo Economic Studies, 49, 75-102.