Nationaløkonomisk tidsskrift,
Nationaløkonomisk Forening

Abstract: Whilst simple theoretical models of tax competition suggest that international capital mobility reduces the capital tax rate in equilibrium, empirical studies conducted in the field have produced ambiguous results. This paper argues that the puzzling empirical findings may be due to an omitted variables bias and mitigates the bias by estimating a comprehensive model for capital taxation controlling for tax export effects, productivity effects of public goods as well as agglomeration effects. The estimated impact of increased capital mobility in the OECD-countries between 1975 and 2000 was a reduction of average capital tax rates of around 10 percentage points. In the same period, however, decreasing trade barriers in the goods markets boosted economic rents in capital agglomerations triggering an increase in capital tax rates of a similar magnitude. In brief, this paper finds strong evidence of tax competition between OECD-countries and demonstrates that its effects have so far been neutralized by spill-over effects from the goods markets. The policy implications of these results are remarkable. Since agglomeration rents can be shown to be a humpshaped function of trade costs, further integration of goods markets will arguably reinforce the effects of tax competition rather than counterbalancing these effects as hitherto observed. Consequently, there would be an increased need for international policy coordination in the field of capital taxation.

Keywords: skattekonkurrence; økonomi

JEL-codes: A10

Language: Danish

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