Arbeitspapier
Tax Rates as Strategic Substitutes
This paper analytically derives the conditions under which the slope of the tax reaction function is negative in a classical tax competition model. If countries maximize welfare, we show that a negative slope (reflecting strategic substitutability) occurs under relatively mild conditions. Simulations suggest that strategic substitutability occurs under plausible parameter configurations. The strategic tax response is crucial for understanding tax competition games, as well as for assessing the welfare effects of partial tax unions (whereby a subset of countries coordinate their tax rates). Indeed, contrary to earlier findings that have assumed strategic complementarity in tax rates, we show that partial tax unions might reduce welfare under strategic substitutability.
- Language
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Englisch
- Bibliographic citation
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Series: Tinbergen Institute Discussion Paper ; No. 12-104/VI
- Classification
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Wirtschaft
Fiscal Policy
International Investment; Long-term Capital Movements
Business Taxes and Subsidies including sales and value-added (VAT)
Intergovernmental Relations; Federalism; Secession
- Subject
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Strategic Substitutes
Asymmetry
Strategic Tax Response
Tax Coordination
Kapitalertragsteuer
Steuerwettbewerb
Wohlfahrtsanalyse
Theorie
- Event
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Geistige Schöpfung
- (who)
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de Mooij, Ruud A.
Vrijburg, Hendrik
- Event
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Veröffentlichung
- (who)
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Tinbergen Institute
- (where)
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Amsterdam and Rotterdam
- (when)
-
2012
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
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Object type
- Arbeitspapier
Associated
- de Mooij, Ruud A.
- Vrijburg, Hendrik
- Tinbergen Institute
Time of origin
- 2012
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