Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2005:4: Integration and Tax Competition: An Empirical Study of OECD Countries

Åsa Hansson () and Karin Olofsdotter ()
Additional contact information
Åsa Hansson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Karin Olofsdotter: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: This paper studies the effects of integration on capital taxation in a number of OECD countries. Unlike most previous papers on the subject, we combine key features from the new economic geography theory with the standard tax competition framework. We consider effective as well as statutory corporate tax rates and include several measures of agglomeration forces in the analysis. Our empirical findings provide some support for both models. We find that increased integration has a negative effect on corporate tax rates while agglomeration forces influence tax rates positively, though the latter result is sensitive to how agglomeration is measured.

Keywords: tax competition; new economic geography; economic integration

JEL-codes: F12; F15; H72

45 pages, First version: January 21, 2005. Revised: February 9, 2005.

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