Working Paper: CEPR ID: DP3638
Authors: Gianmarco I.P. Ottaviano; Tanguy Van Ypersele
Abstract: In this Paper, we show that with international externalities, different country sizes, imperfect competition and trade costs, tax competition for mobile firms is efficiency enhancing with respect to the free market outcome. Nonetheless, while the latter entails too many firms in the larger country, the former has too many firms in the smaller one. Under both scenarios the resulting inefficiencies in international specialization and trade flows vanish when trade costs are low enough. Otherwise, only international tax coordination can implement the efficient spatial distribution of firms.
Keywords: Capital Mobility; Monopolistic Competition; Tax Competition; Trade
JEL Codes: F12; F22; H23; R13; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax competition (H26) | efficiency (D61) |
| tax competition (H26) | firm distribution (L20) |
| trade costs (F19) | inefficiencies in international specialization and trade flows (F12) |
| tax competition (H26) | inefficiencies in international specialization and trade flows (F12) |
| trade costs (F19) | firm distribution (L20) |