Can Partial Fiscal Coordination Be Welfare Worsening? A model of tax competition

Abstract

Most work on tax competition argues that mobile factors tend to be undertaxed except if there is coordination of tax policies. Full coordination is not however always feasible, and as a consequence some measures of partial coordination have been proposed such as minimal witholding taxes on interest income. We show that partial coordination can be in some instances welfare worsening and that then no coordination is to be preferred.tax competition, tax coordination, witholding tax