Working Paper: CEPR ID: DP6843
Authors: Richard Baldwin; Toshihiro Okubo
Abstract: We model international tax competition allowing for agglomeration forces and heterogeneous firms. This provides a new perspective since a tax schedules have different effects on the international relocation decision of small and large firms (large firms are endogenously more sensitive to tax competition) and these decisions affect industry productivity in addition to the usual effects. The model allows us to study rate-lowering base-widening reforms. We show it is generally possible to design such a reforms that raises revenue without losing firms.
Keywords: Agglomeration; Heterogeneous Firms; Tax Reform
JEL Codes: H32; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax Reforms (H29) | Firm Relocation (R30) |
| Tax Reforms (H29) | Industry Productivity (L69) |
| Larger Firms (L25) | Sensitivity to Tax Competition (H26) |
| Sensitivity to Tax Competition (H26) | Firm Relocation (R30) |
| Tax Reforms (H29) | Revenue Increase (H29) |
| Firm Relocation (R30) | Average Industry Productivity (L69) |
| Firm Heterogeneity (D21) | Understanding Tax Reform Impact (H29) |