1887

OECD Working Papers on Fiscal Federalism

This series covers issues related to intergovernmental fiscal relations and local/regional public finance, such as: tax and spending assignment across government levels; intergovernmental grants; fiscal equalization; local and regional public service efficiency; inter-jurisdictional tax competition; and macroeconomic issues such as intergovernmental fiscal management and sub-central fiscal rules. Many of these working papers are outputs of the OECD Network on Fiscal Relations Across Levels of Government. Related working papers on fiscal federalism issues are also published in other OECD working paper series on tax policy, economics, public governance and regional development. An integrated list of key papers produced by the Fiscal Network can be found here.

(Note: numbers 1, 6 and 8 are available in the OECD Economics Department Working Papers, as numbers 465, 626 and 705.)

English

Tax Competition Between Sub-Central Governments

Tax competition is the strategic interaction of tax policy between sub-central governments (SCG) with the objective to attract and retain mobile tax bases. Tax competition rests on firms’ and households’ willingness and ability to shift the tax base – i.e. profits, capital, income, consumption etc. – after SCG tax policy changes. There is no tax competition without tax base mobility. The views on the benefits and costs of tax competition differ widely: while some consider that tax competition brings sub-central fiscal policy closer to citizen’s preferences, increases the efficiency of the public sector and avoids tax and spending excesses, others argue that tax competition leads to a distorted tax structure, to growing tax rate disparities and to an under-provision of publicly provided services. The degree of tax competition is likely to vary across countries and over time and is strongly shaped by the fiscal and institutional framework. Tax competition is not only an issue for federal countries, but also for unitary countries where local governments often have far-reaching tax autonomy.

English

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