Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/74948 
Year of Publication: 
2008
Series/Report no.: 
LICOS Discussion Paper No. 216
Publisher: 
Katholieke Universiteit Leuven, LICOS Centre for Institutions and Economic Performance, Leuven
Abstract: 
Corporate tax rates in Europe have been falling rapidly; as a consequence tax competition within the EU is fiercer than in the rest of the OECD. This paper analyzes heterogeneity in corporate tax rate changes between EU-15 countries as a function of the proximity to the EU-10 new member states. The average corporate tax rate in the new member states has always been considerably lower than the average in the EU-15 countries. Their entry into the EU eliminated capital barriers, in principle allowing firms to locate in one of the new EU-10 with full access to the European Market. Our results indicate that EU-15 countries physically closer to Central-Europe experienced more tax competition. Next we use a spatial regression framework to more firmally test the hypothesis that distance to a low tax region affects countries' tax reaction functions.
Subjects: 
Spatial tax competition
Corporate taxes
fiscal reaction function
JEL: 
H25
H77
H39
Document Type: 
Working Paper

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