Corporate income tax competition and efficient tax base equalization

The literature on tax competition argues that the representative tax system (RTS), which is a standard form of tax base equalization, can internalize interregional externalities due to capital mobility. Although this conventional view holds when per unit tax on capital is imposed, it does not hold w...

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Bibliographic Details
Published in:Economics of governance 2023-03, Vol.24 (1), p.109-118
Main Authors: Matsumoto, Mutsumi, Ogawa, Hikaru
Format: Article
Language:English
Subjects:
Capital stock
Competition
Cooperation
Corporate income tax
Corporate income taxes
Debt financing
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Efficiency
Environmental policy
Equilibrium
Externality
Fiscal policy
Income taxes
International Political Economy
Labor supply
Mobility
Original Paper
Political Theory
Production functions
Profit maximization
Public Administration
Public Finance
Public policy
Regions
State court decisions
Tax base
Tax rates
Tax revenues
Taxation
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Summary:The literature on tax competition argues that the representative tax system (RTS), which is a standard form of tax base equalization, can internalize interregional externalities due to capital mobility. Although this conventional view holds when per unit tax on capital is imposed, it does not hold when corporate income is subject to tax. This paper proposes an efficient tax base equalization system under which each region’s tax base is evaluated by the average factor return of all regions, not by each region’s factor return (as in RTS). By investigating the nature of externalities arising from non-cooperative tax policy, we explain the workings of our “average-return” tax base equalization system.
ISSN:1435-6104
1435-8131
DOI:10.1007/s10101-022-00288-9