A Dual System of Corporate Taxation in the EU
Project Leader
Department
Economics
Participating Scientists
Christoph Lülfesmann (Simon Fraser University, Vancouver)
Project Summary
The tax competition for mobile capital, in particular the reluctance of small countries to agree on measures of tax coordination, has ongoing political and economic fallouts within Europe. This project analyses the effects of introducing a two tier structure of
capital taxation, where the asymmetric member states of a union choose a common, federal tax rate in the first stage, and then
non-cooperatively set local tax rates in the second stage.
We show that this mechanism effectively reduces competition for mobile capital between the members of the union. Moreover, it distributes the gains across the heterogeneous states in a way that yields a strict Pareto improvement over a one tier system of purely local tax choices. We also discuss the effects of diverging capital endowments within the union and capital flows to third countries.
Term
2010 - 2011
Research Results
forthcoming