Economics of Tax Competition and Business Taxation

Jurisdictional competition has long been recognized as a concern in tax policy, and there is a rich theoretical literature on this problem. There is also a more recent body of empirical work that examines the impact of locating corporate facilities in particular jurisdictions, with particular attention to the impact on workers. The empirical literature has focused less on documenting competition between jurisdictions and understanding the nature of the competitive dynamics in the tax policy process.
To provide new insights on the role of interjurisdictional tax competition in the taxation of firms, entrepreneurs, and other high-skill workers, the NBER proposes a multi-stage research project on tax competition and business taxation. The project will focus on three inter-connected questions:
• What does the theory of interjurisdictional tax competition suggest about the circumstances in which such competition will have the most significant impacts on the tax system, and about the efficiency cost of this competition?
• How effective are business tax incentives, and associated individual income tax provisions, in moving businesses across locations? What is the incidence of these incentives on the owners of capital and on workers?
• What can be learned from recent initiatives to harmonize tax systems, such as the Base Erosion and Profit Shifting (BEPS) project at the OECD, about restraining interjurisdictional competition? Are there lessons for tax policy from jurisdictional coordination in other settings, such as regional trade policy?