EU regional policy and tax competition

Becker J, Fuest C


Abstract
The European Union (EU) provides coordination and financing of trans-European transport infrastructures, i.e. roads and railways, which link the EU member states and reduce the cost of transport and mobility. This raises the question of whether EU involvement in this area is justified by inefficiencies of national infrastructure policies. Moreover, an often expressed concern is that policies enhancing mobility may boost tax competition. We analyze these questions using a model where countries compete for the location of profitable firms. We show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition. In contrast, with regard to union-periphery infrastructure, the union has an interest in a coordinated reduction of investment expenditures. Here, the effects on tax competition are ambiguous. Our results provide a rationale for EU-Level regional policy that supports the development of intra-union infrastructure. (C) 2009 Elsevier B.V. All rights reserved.

Keywords
European Union Infrastructure Regional policy Tax competition foreign direct-investment economic-integration fiscal competition countries coordination efficiency size



Publication type
Article in Journal

Publication status
Published

Year
2010

Journal
EUROPEAN ECONOMIC REVIEW

Volume
54

Issue
1

Start page
150

End page
161

Pages range
150-161

Language
English

ISSN
0014-2921

Affiliation
Univ Oxford, Univ Oxford