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Strategic fiscal interaction among OECD countries

By Pantelis Kammas

Abstract

This paper investigates whether OECD countries compete with each other for mobile factors by using various fiscal (tax-spending) policy instruments. We use a panel dataset of 20 OECD countries over the 1982-2000 period. There is evidence that international capital inflows (FDI) are affected by fiscal policy at home and abroad. Also, there is evidence of fiscal competition for mobile factors which takes place via capital tax rates. More precisely, we find that domestic capital tax rates react: (i) positively to changes in capital tax rates and (ii) negatively to changes in public investment spending in neighbouring countries. In contrast, evidence of such a strategic interdependence over public investment spending decisions is not established

Topics: F02, H2, H4, ddc:330, Capital mobility, tax competition, welfare
Publisher: Brussels: Economics and Econometrics Research Institute (EERI)
Year: 2009
OAI identifier: oai:econstor.eu:10419/142543
Provided by: EconStor

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