How mobile is capital within the European Union?
Kapitaal vlucht van EU landen met een hoge, naar EU landen met een lage effectieve vennootschapsbelastingvoet
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Therefore, there is a case for coordination of EU capital income taxes, provided that capital is mobile within the EU. We measure how the international allocation of capital depends on taxation by examining the relation between FDI positions and effective corporate income tax rates.
An EU country typically increases its FDI position in another EU country by approximately four percent if the latter decreases its effective corporate income tax rate by one percentage point relative to the EU mean. This conditionally support the recent efforts of the EU to coordinate capital income taxation. The benefits or costs of tax coordination ultimately depend, however, on whether one views the government as a social welfare maximising agent or tax revenue maximising leviathan.
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