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INTERNATIONAL TAX COMPETITION AND THE DEFICIT BIAS
Author(s) -
Arcalean Calin
Publication year - 2017
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12358
Subject(s) - economics , tax competition , deficit spending , monetary economics , competition (biology) , fiscal deficit , tax revenue , corporate tax , international economics , tax rate , fiscal policy , indirect tax , tax reform , macroeconomics , value added tax , public economics , tax avoidance , ecology , biology , debt
I analyze the dynamic effects of tax competition on public budget deficits. I find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization. When countries differ in terms of capital mobility, further liberalization leads to external imbalances and diverging fiscal deficits while corporate tax rates converge. Consistent with theory, I find that stronger tax competition increases deficits in a sample of OECD countries, controlling for tax revenues and other standard determinants of fiscal deficits. ( JEL E62, F62)