Does tax competition make mobile firms more footloose?

Ferrett, Ben and Hoefele, Andreas and Wooton, Ian (2019) Does tax competition make mobile firms more footloose? Canadian Journal of Economics, 52 (1). pp. 379-402. ISSN 0008-4085 (https://doi.org/10.1111/caje.12375)

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Abstract

We examine a two-period regional model with evolving economic geography, potentially creating incentives for firm relocation between periods. We argue that tax competition makes firms more footloose, but that this increases efficiency relative to the laissez-faire outcome. We establish that: (i) tax competition leads to efficient investment outcomes and (ii) firm mobility is greater with tax competition than with a laissez-faire regime. When relocation is costly, there can be too little mobility over time, as firms do not take into account the impact of FDI on social welfare in each country. With lump-sum taxes or transfers, firms capture these benefits and internalize them, such that tax competition leads to the efficient outcomes. When more time periods are examined, tax competition induces firm relocation sooner than in its absence.

ORCID iDs

Ferrett, Ben, Hoefele, Andreas and Wooton, Ian ORCID logoORCID: https://orcid.org/0000-0001-5084-6379;
  • Item type:Article
    ID code:63708
    Dates:
    Date
    Event
    11 February 2019
    Published
    12 January 2019
    Published Online
    27 March 2018
    Accepted
    Subjects:Social Sciences > Finance
    Department:Strathclyde Business School > Economics
    Depositing user: Pure Administrator
    Date deposited:12 Apr 2018 14:04
    Last modified:11 Nov 2024 11:57
    URI:https://strathprints.strath.ac.uk/id/eprint/63708
CORE (COnnecting REpositories)