14th journées Louis-André Gérard-Varet

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On the timing of Tax and Investment in fiscal competition models
jean Hindriks, Yuki Nishimura

Last modified: 2015-02-12


Tax revenue mobilization in developed and developing countries is becoming a serious issue (OECD 2014). The mobility of capital as well as the presence of multinational firms with the capacity of shifting profits limit the capacity of governments to tax capital income and domestic profits. We study a model in which asymmetric regions compete for capital with both public investments and taxes. Public investments increase the productivity of capital, and they also serve to stake out a positive advantage in the tax competition stage. We show that regions prefer to choose investments before taxes; and that sequential choice of taxes is preferable to simultaneous choice of taxes.


Profit shifting, tax competition, Endogenous timing