CORPORATE TAX GAMES WITH CROSS‐BORDER EXTERNALITIES FROM PUBLIC INFRASTRUCTURE |
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| Authors: | Gerda Dewit Kate Hynes Dermot Leahy |
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| Institution: | 1. 353‐1‐7083776353‐1‐7083934;2. Lecturer, Department of Economics, Finance and Accounting, National University of Ireland Maynooth, Maynooth, Ireland;3. 353‐1‐7168386;4. Lecturer, School of Economics, University College Dublin, Dublin 4, Ireland;5. 353‐1‐7083786353‐1‐7083934;6. Senior Lecturer, Department of Economics, Finance and Accounting, National University of Ireland Maynooth, Maynooth, Ireland |
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| Abstract: | We construct a model of corporate tax competition in which governments also use public infrastructure investment to attract foreign direct investment, thus enhancing their tax bases. In doing so, we allow for cross‐border infrastructural externalities. Depending on the externality, governments are shown to strategically over‐ or underinvest in infrastructure. We also examine how tax cooperation influences investment in infrastructure and find that welfare may be lower under tax cooperation than under tax competition; this is the case when infrastructure is very effective in raising the tax base and generates a large negative cross‐border externality. (JEL F23, H40) |
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