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Federal TAX Competition – How does the Institutional Structure of a Country change Tax Outcomes?
Author(s) -
Tillmann Lisa,
Wigger Berthold U.
Publication year - 2012
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2011.00574.x
Subject(s) - tax competition , economics , tax reform , ad valorem tax , indirect tax , value added tax , tax credit , tax rate , direct tax , international economics , tax revenue , monetary economics , jurisdiction , public economics , microeconomics , political science , law
The interrelations of taxation and federal structure have been extensively analysed from various perspectives. The present paper looks at two competing countries of different institutional structures. It examines how the tax rates set at each level of both countries vary in a given setting, when a federal and a unitary country compete for mobile tax base, or both countries are organised as federations. The paper discusses whether or not tax rates set in every jurisdiction will be too high or too low in equilibrium. The externalities triggered by a tax regime change are analysed and the respective impact on revenues is considered. The results essentially hinge on the relative strategic interaction of tax rates, as well as the elasticity of the tax base with respect to the tax rate.