What do Theories of Tax Competition Predict for Capital Taxes in EU Countries? A Review of the Tax Competition Literature

INSTITUT UNIVERSITAIRE DE HAUTES ETUDES INTERNATIONALES THE GRADUATE INSTITUTE OF INTERNATIONAL STUDIES, GENEVA HEI Working Paper No: 05/2002 What do Theories of Tax Competition Predict for Capital Taxes in EU Countries? A Review of the Tax Competition Literature Signe Krogstrup Graduate Institute of International Studies Abstract The paper reviews the theoretical literature on capital tax competition relevant for capital taxation in the European Union. The basic tax competition model a la Zodrow and Mierzkowski (1986) is presented, and the arguments of the literature are subsequently integrated into the framework of the basic tax competition model. The review includes models of tax competition where countries are assumed large, asymmetric, when there are more than one tax instrument, where there are more than one tax base, when government is assumed self- serving, and where democratic elections and political equilibrium are allowed for. Moreover, the consequences of agglomeration economies for tax competition pressures are reviewed and incorporated into the standard tax competition model. © The Author. All rights reserved. No part of this paper may be reproduced without the permission of the authors.

What do Theories of Tax Competition Predict for Capital Taxes in EU Countries? A Review of the Tax Competition Literature

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