Spatial tax competition in the EU15
نویسنده
چکیده
Tax competition in the European Union is fierce. Especially since the entry of the new member States, tax reforms in the ”old” Europe are frequent. In this paper we formally test the presence of strategic tax setting in the old EU14 as a reaction to the tax rates in the new member states using a fiscal reaction function. We first develop a simple model of spatial tax competition that predicts an inverse relationship between distance and toughness of tax competition. Empirically we find indeed that tax competition is stronger for countries relatively closer to the low tax region of the new members like Germany and Austria than for old member States further away from the new member States such as Spain, UK and Portugal.
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