The role of mobility in tax and subsidy competition

• Autores: Alexander Haupt, Tim Krieger
• Localización: Documents de treball IEB, Nº. 37, 2009
• Idioma: inglés
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• Resumen

  • In this paper, we analyse the role of mobility in tax and subsidy competition. Our primary result is that increasing �relocation� mobility of firms leads to increasing �net� tax revenues under fairly weak conditions. While enhanced relocation mobility intensifies tax competition, it weakens subsidy competition. The resulting fall in the governments� subsidy payments overcompensates the decline in tax revenues, leading to a rise in net tax revenues. We derive this conclusion in a model in which two governments are first engaged in subsidy competition and thereafter in tax competition, and firms locate and potentially relocate in response to the two political choices.