Tax competition and information sharing in Europe: a signalling game Online publication date: Tue, 01-Dec-2009
by Andre Fourcans, Thierry Warin
International Journal of Economics and Business Research (IJEBR), Vol. 2, No. 1/2, 2010
Abstract: This paper provides a challenging view to the tax harmonisation issue. The literature often proposes tax harmonisation to avoid free-riding behaviours in free-trade areas and more particularly in monetary unions. Without tax harmonisation, tax autonomy may lead to a ''race to the bottom''. The model proposed here shows that tax competition may lead to stability. If a country gives the signal that 'friendly' or coordinated taxation behaviour is not its priority, the result can be a 'race to the bottom'. Conversely, if both countries signal their ability to conduct such a war, this war will not occur, and the stability of the system will be ensured.
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