Abstract:
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This paper investigates the interactions between tax policies at the international
level (OECD countries). Both contemporaneous and time-delayed tax interactions are
considered using Spatial Dynamic Panel Data model from Yu et al. (2008). Moreover,
we test if the interdependence between governments exists due to the geographic closeness
but also due to the proximity in terms of public investment levels. The results
show, on one hand, that there are positive contemporaneous but negative time-delayed
interactions. It is compatible with the existence of tax competition in a contemporaneus
way, but also with the free-riding phenomena in the time-delayed approach. On
the other hand, we show that interactions between countries are higher when they have
similar levels of public investment than for the geographical closeness. This last result
confirms the theoretical assumption that countries with close infrastructure investment
are more likely to achieve tax harmonization. However, the negative time-delayed interactions
are not consistent with this hypothesis, proving both tax and infrastructure
competition between the OECD countries still exists.
JEL Classification: E62, H54, H87
Key Words: Tax Competition; Yardstick Competition; Public Infrastructure Investment;
Strategic Interactions; Spatial Dynamic Panel Data model; OECD. |