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German Working Papers in Law and Economics
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Volume 2001

AUTHOR:
Rosaria Alfano

TITLE:
Tax competition in EU scenario: an empirical application

SUGGESTED CITATION:
Rosaria Alfano (2001) "Tax competition in EU scenario: an empirical application", German Working Papers in Law and Economics: Vol. 2001: Article 7.
http://www.bepress.com/gwp/default/vol2001/iss1/art7


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ABSTRACT:

The taxation of income creates huge difficulties in an open economy; each government tries to take advantage by undercutting the tax levels of other governments or offering superior levels of public services. The purpose of this work is to take into account the complexity of the interrelations which play a determining role in theoretical and empirical scenarios in which tax competition is operating. We consider the theoretical models of inter-jurisdictional tax competition that analyse the games played by two or more independent selfish jurisdictions in which each country sets its tax rates as the strategic variables. These games may take place in a co-operative or non co-operative environment and also they have to be considered as repeated games. Considering tax base mobility across UE countries we investigate the empirical models that show how this phenomenon is sensitive to the tax rate differentials. across countries Therefore, given the existence of spatial and temporal interdependence among the different tax rates applied by each country, we use the longitudinal data technique for pooling time series of cross section. Finally, we show that tax, GDP and gross real interest rate explain a large part of international investment flow across EU countries after the liberalisation of capital mobility.




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