We set up a simple political economy model where economic integration raises the profitability of multinational firms. In this setting redistributive taxation may rise following economic integration, if the effects of the widened income gap dominate the higher excess burden of the tax

Haufler, Andreas

Klemm, Alexander

Schejederup, Guttorm

English

We set up a simple political economy model where economic integration raises the
profitability of multinational firms. In this setting redistributive taxation may rise
following economic integration, if the effects of the widened income gap dominate the higher excess burden of the tax

Schjelderup, Guttorm

NHH Brage

Economic integration and redistributive taxation

Open Access LMU

Andreas Haufler und Alexander Klemm und GuttormSchejederup:Economic integration and redistribuitive taxationMunich Discussion Paper No. 2006-16Department of EconomicsUniversity of MunichVolkswirtschaftliche FakultätLudwig-Maximilians-Universität MünchenOnline at http://epub.ub.uni-muenchen.de/912/Economic integration and redistributive taxation ∗Andreas HauflerUniversity of MunichAlexander KlemmInternational Monetary FundGuttorm SchjelderupNorwegian School of Economics and Business Administration and CESifoApril 2006AbstractWe set up a simple political economy model where economic integration raises theprofitability of multinational firms. In this setting redistributive taxation may risefollowing economic integration, if the effects of the widened income gap dominatethe higher excess burden of the tax.Keywords: redistributive taxation; profit shiftingJEL Codes: H20; F23.∗We are indebted to Agnar Sandmo and Erling Steigum for valuable comments on an earlier draft.The usual disclaimer applies The views expressed in this paper are those of the authors and should notbe interpreted as the views of the institutions with which they are affiliated.1 IntroductionIt has been argued that increasing capital mobility will lead governments to undercuteach other’s capital income tax rates, resulting in underprovision of public goods as wellas relatively higher taxes on immobile factors (see Wilson, 1999 for a survey). Empiricalevidence in support of the theoretical predictions is mixed, however. On the one handstatutory corporate tax rates have been significantly reduced since the 1980s, but on theother hand tax bases have simultaneously been broadened. As a consequence, effectivetax rates on profits have fallen by much less than statutory rates and in several coun-tries they have not fallen at all (see Devereux, Griffith and Klemm, 2002). Moreover,econometric studies provide some evidence of a negative relationship between corporatetax rates and different measures of economic integration. This relationship, however, isgenerally not robust to the precise specification used in the empirical model (see Rodrik,1997; Bretschger and Hettich, 2002; Slemrod, 2004). The effect of economic integrationon the level of public good supply is even less in accordance with the standard tax com-petition model. Rodrik (1998) as well as several empirical studies in the political scienceliterature (see Swank and Steinmo, 2002 for a recent synthesis) find that globalisationincreases, rather than reduces, the total size of the welfare state.One possible reason for this divergence between theoretical and empirical results isthat tax base mobility and economic integration have been accompanied by changes inthe primary distribution of factor incomes. Economic integration, therefore, may increasethe profits of multinational firms, either because it reduces the cost of intra-firm tradeor because it allows the firm to produce with cheaper inputs (Helpman and Krugman,1985). While the effect of economic integration on the profitability of multinationalfirms, in particular, has been an important topic in the international trade literature (e.g.Markusen, 2002), the existing literature on international taxation has usually taken thedistribution of gross-of-tax factor earnings as given. This also applies to political economymodels where the working majority is able to partly offset the downward pressure oncapital tax rates, but economic integration still leads, in equilibrium, to an unambiguousdecline in the level of redistributive taxation (Persson and Tabellini, 1992; Gottschalkand Peters, 2003.).In this paper we incorporate rising profitability of a multinational firm, caused byeconomic integration, into a simple political economy model with an internationallymobile profit tax base. Our stylized model allows to derive reduced-form expressionfor the optimal redistributive tax rate in the political-economic equilibrium. In thisframework globalisation increases both the redistributive gains, but also the efficiency1costs of taxation from the perspective of the median voter. Hence economic integrationhas a fundamentally ambiguous effect on the redistributive tax rate in the politicaleconomy equilibrium.2 The modelWe consider a small open economy with two types of individuals, rich capitalists (indexR) and poor workers (index P ). Each individual exogenously supplies one unit of thenumeraire good labour so that wage income equals unity for both the rich and the poor.Poor individuals receive wage income only, whilst rich individuals receive additional profitincome (pi) from a multinational firm. The profit income is initially taken as exogenous,but will later be endogenised and linked to economic integration. The home countrylevies a proportional, comprehensive income tax (t) on wage and profit incomes. Therepresentative firm can shift a share β of its profits to a low-tax country, which has a taxrate t∗ < t. It is costly to engage in transfer pricing and the costs of profit shifting areconvex in the total amount of profits shifted; C (α, β, pi) = (β pi)2 /2 α, where 1/α > 0 isa parameter for the costs of profit shifting.The after-tax income of the rich household isIR = [1 + (1− β) pi] (1− t) + βpi(1− t∗)− (β pi)22α, (1)where the first term is the after-tax income from wages and profit income reported athome, the second term is after-tax income from profits reported abroad, and the lastterm gives the costs of income shifting. Maximizing (1) with respect to the share ofprofits shifted to the low tax country (β) yieldsβ =α (t− t∗)pi. (2)Poor workers make up the majority of voters, and we normalize the total populationto unity. There are µ workers and (1−µ) capitalists, where 1 > µ > 0.5. The proportionalincome tax falls on the wage income of both income groups and on the share of profitincome of the rich that is reported domestically. Using the multinational firm’s optimaltax avoidance policy (2), total and per capita tax revenues areT = t {1 + (1− µ) [pi − α (t− t∗)]} . (3)A representative poor individual derives utility from her after-tax income (1− t) anda quasi-private public good. There are no economies of scale in the provision of the publicgood, thus making our results comparable for countries of different size. Both the private2and the public good enter the poor individual’s utility function linearly.1 The constantmarginal benefit of the public good is γ < 1, implying that the poor individual suffersa utility loss when one unit of her private consumption is exchanged for one unit of thepublic good. With these specifications, and using (3), the utility of a poor individual isUP = (1− t) + γt {1 + (1− µ) [pi − α (t− t∗)]} . (4)Given that the median voter is a poor individual, the equilibrium policy maximizesUP with respect to the proportional income tax t. This yields an equilibrium tax rate oft =γ [1 + (1− µ)(pi + α t∗)]− 12α γ (1− µ) . (5)The equilibrium tax rate is positive, if the value of additional units of the public goodthat is financed by the tax contributions of the rich, γ(1−µ)(pi+αt∗), exceeds the utilityloss for the poor individual of transforming one unit of private income into one unit ofthe public good (γ − 1 < 0). This is assumed in what follows.Our simple model yields several comparative static results.2 In particular, changingtax base mobility, as given by the ease with which multinationals can shift profits betweenjurisdictions (α), yields∂t∂α=1− γ[1 + (1− µ)pi]2γ(1− µ)α2 =t∗ − 2t2α< 0, (6)since t∗ < t. Hence lower costs of profit shifting reduce the equilibrium tax rate.On the other hand, the effect of an exogenous change in profit income on the tax rateis∂t∂pi=12α> 0. (7)Thus an increase multinational profit income unambiguously raises the redistributivegains from the proportional income tax. These effects are summarized inProposition 1 The equilibrium level of a redistributive income tax is rising in (i) thecost parameter for profit shifting (1/α); (ii) the level of profit income (pi).The next section combines these two effects and links them to economic integration.1A well-defined optimal tax rate is obtained in our model, despite the linearity of the objectivefunction in both arguments, because the excess burden of taxation is strictly convex in the tax rate.2It is directly inferred from (5) that the home country’s optimal tax rate will rise if either the foreigntax rate t∗ rises, or if the preference parameter for public goods (γ) is increased.33 Economic integrationA standard effect analysed in the tax competition literature is that economic integrationincreases the mobility of the capital tax base. In our setting this corresponds to anincrease in α, which lowers the costs of shifting profits to the foreign country.3 Theincreased mobility of the capital tax base is not the only effect of globalisation, however.A common result in the modern trade literature is that economic integration increasesthe profits of multinational firms, either because it reduces the cost of intra-firm tradeor because it allows the firm to produce with cheaper inputs, in particular lower costs oflabour (Helpman and Krugman, 1985).The simplest way to capture these effects is to consider a monopolist who sells outputat price p in its home market. Inverse demand is given by the linear function p = a−(x+x∗), where a > 0 is a market size parameter and aggregate output can either be producedat home (x) or abroad (x∗). In each country, one unit of (internationally immobile) labourproduces one unit of output. The exogenous wage rates and therefore the unit costs ofproduction are w in the home country and w∗ abroad, where w∗ < w. Producing abroadadds extra transport costs for the firm. By analogy to the costs of profit shifting, wemodel these costs as being quadratic in the volume of foreign production, D = (x∗)2/2α.4Hence the transaction costs of producing abroad are reduced by economic integration.The monopolist’s profits are then given by pi = (a − x − x∗)(x + x∗) − wx − w∗x∗ −(x∗)2/(2α). Differentiating yields the profit-maximizing levels of production at home andabroad, x = [a− w − 2α(w − w∗)]/2, x∗ = α(w − w∗). Substituting this back into theprofit function yields maximized profits p˜i = (a− w)2/4 + α (w − w∗)2/2.The effect of economic integration on the multinational firm’s profits are then givenby∂p˜i∂α=(w − w∗)22. (8)Hence economic integration increases both the level and the elasticity of the multinationalfirm’s profits. Following a common procedure in the literature (see Gresik, 2001), weassume that the profit shifting decision can be separated from the decision of where toproduce. In this case the effects on the optimal redistributive tax rate can simply be3For example, it may be argued that the representative firm in our model undertakes both domesticand foreign operations. As integration proceeds, a larger share of profits derives from internationaloperations, where profits can be shifted abroad.4Transport costs are interpreted in a wide sense, including administrative hurdles and informationcosts. The assumption that these costs are convex in the size of the foreign production unit correspondsto some of the findings in the new theory of the multinational firm (e.g. Marin and Verdier, 2003).4added up. Using (6), (7) and (8), the total effect is given bydtdα=∂t∂α+∂t∂pi∂p˜i∂α=2(t∗ − 2t) + (w − w∗)24α(9)The first effect in equation (9) is the direct effect of increased tax base mobility, whichis unambiguously negative. The second effect, which works through the change in theprofit level of the multinational firm, is instead positive. Hence economic integrationmay either raise or lower the redistributive tax rate chosen by the median voter. Theincreased sensitivity of the tax base will be the dominant effect of economic integration ifthe international tax differential is large and the motive for international profit shiftingis accordingly strong. In contrast, if the international wage differential is large, then theincreased profitability of the multinational firm will be the principal effect of economicintegration. Our results are summarised inProposition 2 Economic integration will tend to increase the redistributive income taxrate, if (i) the tax differential between the home and the foreign country is small; and(ii) the wage differential between the domestic and the foreign country is large.4 ConclusionThe possibility that economic integration may increase the tax rate is not present instandard models of tax competition, where the effects of globalisation are confined to in-creased tax base mobility (e.g. Persson and Tabellini, 1992). Here we have incorporated,in the simplest possible way, the stylized fact that economic integration is simultaneouslyaccompanied by an increase in the gross profitability of firms. Despite the simplicity ofour model, this additional model element introduces a fundamental ambiguity into therelationship between economic integration and the level of redistributive taxation. Thisfinding may provide a simple way to reconcile the results from the theoretical tax com-petition literature with the mixed empirical findings quoted in the introduction. Forempirical work this suggests that a robustly negative effect of globalisation on the redis-tributive tax rate can only be expected, if the level of pre-tax profitability is controlledfor.5ReferencesBretschger, L. and F. Hettich (2002), Globalisation, capital mobility and tax compe-tition: Theory and evidence for OECD countries. European Journal of PoliticalEconomy 18, 695-716.Devereux, M. P., R. Griffith, and A. Klemm (2002), Corporate income tax reforms andinternational tax competition. Economic Policy 35, 451-495.Gottschalk, S. and W. Peters (2003), Redistributive taxation in the era of globalization.International Tax and Public Finance 10, 453-468.Gresik, T. (2001), The taxing task of taxing transnationals. Journal of EconomicLiterature 39, 800-838.Helpman, E. and P. Krugman (1985), Market structure and foreign trade. MIT Press,Cambridge.Marin, D. and T. Verdier (2003), Globalization and the ‘New Enterprise’. Journal ofthe European Economic Association 1, 337-344.Markusen, J. (2002), Multinational firms and the theory of international trade. MITPress, Cambridge.Persson, T. and G. Tabellini (1992), The politics of 1992: Fiscal policy and Europeanintegration. Review of Economic Studies 59, 689-701.Rodrik, D. (1997), Has globalisation gone too far? Institute for International Eco-nomics, Washington, D.C.Rodrik, D. (1998), Why do more open economies have bigger governments? Journal ofPolitical Economy 106, 997-1032.Slemrod, J. (2004), Are corporate tax rates, or countries, converging? Journal of PublicEconomics 88, 1169-1186.Swank, D. and S. Steinmo (2002), The new political economy of taxation in advancedcapitalist democracies. American Journal of Political Science 46, 642-655.Wilson, J.D. (1999), Theories of tax competition. National Tax Journal 52, 269-304.6

Economic integration and redistribuitive taxation

HSN Open Archive

EconStor (ZBW Kiel)

We set up a simple political economy model where economic integration raises the
profitability of multinational firms. In this setting redistributive taxation may rise
following economic integration, if the effects of the widened income gap dominate the higher excess burden of the tax

NORA - Norwegian Open Research Archives

Economic integration and redistributive taxation ∗Andreas HauflerUniversity of MunichAlexander KlemmInternational Monetary FundGuttorm SchjelderupNorwegian School of Economics and Business Administration and CESifoApril 2006AbstractWe set up a simple political economy model where economic integration raises theprofitability of multinational firms. In this setting redistributive taxation may risefollowing economic integration, if the eﬀects of the widened income gap dominatethe higher excess burden of the tax.Keywords: redistributive taxation; profit shiftingJEL Codes: H20; F23.∗Corresponding author: Andreas Haufler, Department of Economics, University of Munich,Akademiestr. 1/II, D-80799 Munich, Germany. Phone: +49-89-2180-3858; fax: +49-89-2180-6296;e-mail: Andreas.Haufler@lrz.uni-muenchen.de.We are indebted to Agnar Sandmo and Erling Steigum for valuable comments on an earlier draft. Theusual disclaimer applies The views expressed in this paper are those of the authors and should not beinterpreted as the views of the institutions with which they are aﬃliated.1 IntroductionIt has been argued that increasing capital mobility will lead governments to undercuteach other’s capital income tax rates, resulting in underprovision of public goods as wellas relatively higher taxes on immobile factors (see Wilson, 1999 for a survey). Empiricalevidence in support of the theoretical predictions is mixed, however. On the one handstatutory corporate tax rates have been significantly reduced since the 1980s, but on theother hand tax bases have simultaneously been broadened. As a consequence, eﬀectivetax rates on profits have fallen by much less than statutory rates and in several coun-tries they have not fallen at all (see Devereux, Griﬃth and Klemm, 2002). Moreover,econometric studies provide some evidence of a negative relationship between corporatetax rates and diﬀerent measures of economic integration. This relationship, however, isgenerally not robust to the precise specification used in the empirical model (see Rodrik,1997; Bretschger and Hettich, 2002; Slemrod, 2004). The eﬀect of economic integrationon the level of public good supply is even less in accordance with the standard tax com-petition model. Rodrik (1998) as well as several empirical studies in the political scienceliterature (see Swank and Steinmo, 2002 for a recent synthesis) find that globalisationincreases, rather than reduces, the total size of the welfare state.One possible reason for this divergence between theoretical and empirical results isthat tax base mobility and economic integration have been accompanied by changes inthe primary distribution of factor incomes. Economic integration, therefore, may increasethe profits of multinational firms, either because it reduces the cost of intra-firm tradeor because it allows the firm to produce with cheaper inputs (Helpman and Krugman,1985). While the eﬀect of economic integration on the profitability of multinationalfirms, in particular, has been an important topic in the international trade literature (e.g.Markusen, 2002), the existing literature on international taxation has usually taken thedistribution of gross-of-tax factor earnings as given. This also applies to political economymodels where the working majority is able to partly oﬀset the downward pressure oncapital tax rates, but economic integration still leads, in equilibrium, to an unambiguousdecline in the level of redistributive taxation (Persson and Tabellini, 1992; Gottschalkand Peters, 2003.).In this paper we incorporate rising profitability of a multinational firm, caused byeconomic integration, into a simple political economy model with an internationallymobile profit tax base. Our stylized model allows to derive reduced-form expressionfor the optimal redistributive tax rate in the political-economic equilibrium. In thisframework globalisation increases both the redistributive gains, but also the eﬃciency1costs of taxation from the perspective of the median voter. Hence economic integrationhas a fundamentally ambiguous eﬀect on the redistributive tax rate in the politicaleconomy equilibrium.2 The modelWe consider a small open economy with two types of individuals, rich capitalists (indexR) and poor workers (index P ). Each individual exogenously supplies one unit of thenumeraire good labour so that wage income equals unity for both the rich and the poor.Poor individuals receive wage income only, whilst rich individuals receive additional profitincome (π) from a multinational firm. The profit income is initially taken as exogenous,but will later be endogenised and linked to economic integration. The home countrylevies a proportional, comprehensive income tax (t) on wage and profit incomes. Therepresentative firm can shift a share β of its profits to a low-tax country, which has a taxrate t∗ < t. It is costly to engage in transfer pricing and the costs of profit shifting areconvex in the total amount of profits shifted; C (α,β,π) = (β π)2 /2α, where 1/α > 0 isa parameter for the costs of profit shifting.The after-tax income of the rich household isIR = [1 + (1− β)π] (1− t) + βπ(1− t∗)− (β π)22α, (1)where the first term is the after-tax income from wages and profit income reported athome, the second term is after-tax income from profits reported abroad, and the lastterm gives the costs of income shifting. Maximizing (1) with respect to the share ofprofits shifted to the low tax country (β) yieldsβ =α (t− t∗)π. (2)Poor workers make up the majority of voters, and we normalize the total populationto unity. There are μ workers and (1−μ) capitalists, where 1 > μ > 0.5. The proportionalincome tax falls on the wage income of both income groups and on the share of profitincome of the rich that is reported domestically. Using the multinational firm’s optimaltax avoidance policy (2), total and per capita tax revenues areT = t {1 + (1− μ) [π − α (t− t∗)]} . (3)A representative poor individual derives utility from her after-tax income (1− t) anda quasi-private public good. There are no economies of scale in the provision of the publicgood, thus making our results comparable for countries of diﬀerent size. Both the private2and the public good enter the poor individual’s utility function linearly.1 The constantmarginal benefit of the public good is γ < 1, implying that the poor individual suﬀersa utility loss when one unit of her private consumption is exchanged for one unit of thepublic good. With these specifications, and using (3), the utility of a poor individual isUP = (1− t) + γt {1 + (1− μ) [π − α (t− t∗)]} . (4)Given that the median voter is a poor individual, the equilibrium policy maximizesUP with respect to the proportional income tax t. This yields an equilibrium tax rate oft =γ [1 + (1− μ)(π + α t∗)]− 12α γ (1− μ) . (5)The equilibrium tax rate is positive, if the value of additional units of the public goodthat is financed by the tax contributions of the rich, γ(1−μ)(π+αt∗), exceeds the utilityloss for the poor individual of transforming one unit of private income into one unit ofthe public good (γ − 1 < 0). This is assumed in what follows.Our simple model yields several comparative static results.2 In particular, changingtax base mobility, as given by the ease with which multinationals can shift profits betweenjurisdictions (α), yields∂t∂α=1− γ[1 + (1− μ)π]2γ(1− μ)α2 =t∗ − 2t2α< 0, (6)since t∗ < t. Hence lower costs of profit shifting reduce the equilibrium tax rate.On the other hand, the eﬀect of an exogenous change in profit income on the tax rateis∂t∂π=12α> 0. (7)Thus an increase multinational profit income unambiguously raises the redistributivegains from the proportional income tax. These eﬀects are summarized inProposition 1 The equilibrium level of a redistributive income tax is rising in (i) thecost parameter for profit shifting (1/α); (ii) the level of profit income (π).The next section combines these two eﬀects and links them to economic integration.1A well-defined optimal tax rate is obtained in our model, despite the linearity of the objectivefunction in both arguments, because the excess burden of taxation is strictly convex in the tax rate.2It is directly inferred from (5) that the home country’s optimal tax rate will rise if either the foreigntax rate t∗ rises, or if the preference parameter for public goods (γ) is increased.33 Economic integrationA standard eﬀect analysed in the tax competition literature is that economic integrationincreases the mobility of the capital tax base. In our setting this corresponds to anincrease in α, which lowers the costs of shifting profits to the foreign country.3 Theincreased mobility of the capital tax base is not the only eﬀect of globalisation, however.A common result in the modern trade literature is that economic integration increasesthe profits of multinational firms, either because it reduces the cost of intra-firm tradeor because it allows the firm to produce with cheaper inputs, in particular lower costs oflabour (Helpman and Krugman, 1985).The simplest way to capture these eﬀects is to consider a monopolist who sells outputat price p in its home market. Inverse demand is given by the linear function p = a−(x+x∗), where a > 0 is a market size parameter and aggregate output can either be producedat home (x) or abroad (x∗). In each country, one unit of (internationally immobile) labourproduces one unit of output. The exogenous wage rates and therefore the unit costs ofproduction are w in the home country and w∗ abroad, where w∗ < w. Producing abroadadds extra transport costs for the firm. By analogy to the costs of profit shifting, wemodel these costs as being quadratic in the volume of foreign production, D = (x∗)2/2α.4Hence the transaction costs of producing abroad are reduced by economic integration.The monopolist’s profits are then given by π = (a−x−x∗)(x+x∗)−wx−w∗x∗−(x∗)2/(2α).Diﬀerentiating yields the profit-maximizing levels of production at home and abroad,x = [a − w − 2α(w − w∗)]/2, x∗ = α(w − w∗). Substituting this back into the profitfunction yields maximized profits π˜ = (a− w)2/4 + α (w − w∗)2/2.The eﬀect of economic integration on the multinational firm’s profits are then givenby∂π˜∂α=(w − w∗)22. (8)Hence economic integration increases both the level and the elasticity of the multinationalfirm’s profits. Following a common procedure in the literature (see Gresik, 2001), weassume that the profit shifting decision can be separated from the decision of where toproduce. In this case the eﬀects on the optimal redistributive tax rate can simply be3For example, it may be argued that the representative firm in our model undertakes both domesticand foreign operations. As integration proceeds, a larger share of profits derives from internationaloperations, where profits can be shifted abroad.4Transport costs are interpreted in a wide sense, including administrative hurdles and informationcosts. The assumption that these costs are convex in the size of the foreign production unit correspondsto some of the findings in the new theory of the multinational firm (e.g. Marin and Verdier, 2003).4added up. Using (6), (7) and (8), the total eﬀect is given bydtdα=∂t∂α+∂t∂π∂π˜∂α=2(t∗ − 2t) + (w − w∗)24α(9)The first eﬀect in equation (9) is the direct eﬀect of increased tax base mobility, whichis unambiguously negative. The second eﬀect, which works through the change in theprofit level of the multinational firm, is instead positive. Hence economic integrationmay either raise or lower the redistributive tax rate chosen by the median voter. Theincreased sensitivity of the tax base will be the dominant eﬀect of economic integration ifthe international tax diﬀerential is large and the motive for international profit shiftingis accordingly strong. In contrast, if the international wage diﬀerential is large, then theincreased profitability of the multinational firm will be the principal eﬀect of economicintegration. Our results are summarised inProposition 2 Economic integration will tend to increase the redistributive income taxrate, if (i) the tax diﬀerential between the home and the foreign country is small; and(ii) the wage diﬀerential between the domestic and the foreign country is large.4 ConclusionThe possibility that economic integration may increase the tax rate is not present instandard models of tax competition, where the eﬀects of globalisation are confined to in-creased tax base mobility (e.g. Persson and Tabellini, 1992). Here we have incorporated,in the simplest possible way, the stylized fact that economic integration is simultaneouslyaccompanied by an increase in the gross profitability of firms. Despite the simplicity ofour model, this additional model element introduces a fundamental ambiguity into therelationship between economic integration and the level of redistributive taxation. Thisfinding may provide a simple way to reconcile the results from the theoretical tax com-petition literature with the mixed empirical findings quoted in the introduction. Forempirical work this suggests that a robustly negative eﬀect of globalisation on the redis-tributive tax rate can only be expected, if the level of pre-tax profitability is controlledfor.5ReferencesBretschger, L. and F. Hettich (2002), Globalisation, capital mobility and tax compe-tition: Theory and evidence for OECD countries. European Journal of PoliticalEconomy 18, 695-716.Devereux, M. P., R. Griﬃth, and A. Klemm (2002), Corporate income tax reforms andinternational tax competition. Economic Policy 35, 451-495.Gottschalk, S. and W. Peters (2003), Redistributive taxation in the era of globalization.International Tax and Public Finance 10, 453-468.Gresik, T. (2001), The taxing task of taxing transnationals. Journal of EconomicLiterature 39, 800-838.Helpman, E. and P. Krugman (1985), Market structure and foreign trade. MIT Press,Cambridge.Marin, D. and T. Verdier (2003), Globalization and the ‘New Enterprise’. Journal ofthe European Economic Association 1, 337-344.Markusen, J. (2002), Multinational firms and the theory of international trade. MITPress, Cambridge.Persson, T. and G. Tabellini (1992), The politics of 1992: Fiscal policy and Europeanintegration. Review of Economic Studies 59, 689-701.Rodrik, D. (1997), Has globalisation gone too far? Institute for International Eco-nomics, Washington, D.C.Rodrik, D. (1998), Why do more open economies have bigger governments? Journal ofPolitical Economy 106, 997-1032.Slemrod, J. (2004), Are corporate tax rates, or countries, converging? Journal of PublicEconomics 88, 1169-1186.Swank, D. and S. Steinmo (2002), The new political economy of taxation in advancedcapitalist democracies. American Journal of Political Science 46, 642-655.Wilson, J.D. (1999), Theories of tax competition. National Tax Journal 52, 269-304.6

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Economic integration and redistribuitive taxation

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