Tax competition

Tax competition occurs when governments use differences in tax policy to attract investment, businesses, workers, or taxable income. It can influence tax rates, public revenues, and the location of economic activity.

Tax base: The income, property, transactions, or other amounts subject to taxation. Governments compete by changing what they tax as well as the rates they charge.
Race to the bottom: A dynamic in which competition drives standards or burdens downward as participants seek advantage. Tax competition may push governments toward progressively lower rates to retain mobile activity.
Corporate tax: A tax imposed on the profits or income of corporations. Corporate rates are a central policy lever in competition for business investment and reported profits.
Tiebout model: A model in which households sort among local jurisdictions according to taxes and public services. It provides an early framework for understanding competition among governments for residents.
Tax coordination: Cooperation among governments to align tax rules or limit harmful cross-border effects. Coordination is a collective response to incentives that otherwise encourage unilateral tax competition.
Capital mobility: The ease with which financial or physical capital can move between locations. Mobile capital can relocate in response to differences in tax treatment.
Fiscal externality: A policy effect imposed on other governments' budgets without being fully reflected in the policymaker's decision. One jurisdiction's tax cut can erode other jurisdictions' revenues by shifting their tax bases.
Transfer pricing: The pricing of transactions between related entities within a multinational enterprise. Transfer-pricing rules determine how much profit is assigned to each tax jurisdiction.
Charles Tiebout: An American economist known for a model of local government choice published in 1956. His model supplied a foundational account of how jurisdictional choice can discipline local policy.
Tax sovereignty: A government's authority to determine and administer taxes within its jurisdiction. Competition raises disputes over how national tax autonomy should be balanced against shared interests.

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