This paper tests the central predictions of the theoretical tax competition literature for capital tax rates for a panel of European Union countries, notably a race to the bottom in capital tax rates. One measure of capital mobility is found to exhibit a downward pressure on capital taxes while...

The paper reviews the theoretical literature on capital tax competition relevant for capital taxation in the European Union. The basic tax competition model a la Zodrow and Mierzkowski (1986) is presented, and the arguments of the literature are subsequently integrated into the framework of the...