Policy Responses to Tax Competition: An Introduction

This paper catalogues policies that have been deployed by jurisdictions seeking to mitigate the effects of tax competition. There are many instruments in this policy arsenal, since the tax base associated with a particular tax instrument may be affected by multiple policy choices, including some such as capital controls and development incentives that are outside the traditional realm of tax policy. This paper describes sixteen instruments that both federal and sub-federal governments have adopted in an effort to limit tax competition. It classifies them into three groups: those that can be pursued unilaterally, those that require bilateral or multilateral agreement, and those that require action by an external actor such as an overarching government. It also discusses the set of economic responses that are relevant to the evaluation of these policies, and then summarizes new evidence on the impact of a subset of these policy instruments in the United States and several other nations.