International Tax Competition and Coordination

This paper aims to provide a comprehensive survey of the theory of international tax competition. Starting with the standard framework, it visits the non-cooperative equilibrium of tax competition, analyses aspects of partial and regional coordination, repeated interaction, stock-flow-effects, agglomeration effects and time consistency issues in dynamic models. We discuss profit shifting in the Keen-Kanbur model and then survey frameworks to analyze countries’ bidding for firms, tax rate differentiation and preferential tax regimes, the role of information exchange and recent work on tax havens. The paper also discusses approaches that replace the benevolent government assumption by selfish (Leviathan) governments or by political processes that determine countries' decisions on their tax policy in an international context.