What is tax competition in simple terms?

Countries or regions cutting taxes to attract firms and money.

Is tax competition bad?

Critics say it starves public services; supporters say it curbs government waste.

Tax Competition

📈 Economics By CampusDown Wiki Editorial Team Last updated October 27, 2026

Tax competition is rivalry among countries or local governments that cut tax rates or offer incentives to attract or retain mobile tax bases such as capital, firms and high earners. It is a central topic on the effects of globalisation and decentralisation.

Contents

1. Basic models
2. A positive view
3. Evidence
4. FAQ
5. References

Basic models

Zodrow and Mieszkowski (1986) and Wilson (1986) showed that with mobile capital, jurisdictions cut taxes and underprovide public goods, contrasting with the efficiency of the Tiebout model.

A positive view

Brennan and Buchanan (1980) argued competition tames a revenue-maximising government, linked to the Leviathan hypothesis and fiscal federalism. Wilson (1999) reviews the theories.

Evidence

Devereux and colleagues (2008) found OECD countries respond to each other's corporate rates. Swank and Steinmo (2002) found base broadening limited revenue losses, so no extreme race to the bottom. Genschel and Schwarz (2011) review coordination debates.

FAQ

What is tax competition in simple terms?: Countries or regions cutting taxes to attract firms and money.
Is tax competition bad?: Critics say it starves public services; supporters say it curbs government waste.

Sources reviewed: 2026-10-26

References

Zodrow, G. R., & Mieszkowski, P. (1986). Pigou, Tiebout, property taxation, and the underprovision of local public goods. Journal of Urban Economics, 19(3), 356–370. The basic underprovision model.
Wilson, J. D. (1986). A theory of interregional tax competition. Journal of Urban Economics, 19(3), 296–315. Interregional tax competition model.
Wilson, J. D. (1999). Theories of tax competition. National Tax Journal, 52(2), 269–304. A review of theories.
Brennan, G., & Buchanan, J. M. (1980). The power to tax: Analytical foundations of a fiscal constitution. Cambridge University Press. The Leviathan-taming view.
Devereux, M. P., Lockwood, B., & Redoano, M. (2008). Do countries compete over corporate tax rates? Journal of Public Economics, 92(5–6), 1210–1235. Evidence on corporate tax competition.
Swank, D., & Steinmo, S. (2002). The new political economy of taxation in advanced capitalist democracies. American Journal of Political Science, 46(3), 642–655. Globalisation and taxation politics.
Genschel, P., & Schwarz, P. (2011). Tax competition: A literature review. Socio-Economic Review, 9(2), 339–370. An interdisciplinary review.

Reports and materials that use this theory (Korean)

There are no materials dedicated to this theory yet, but you can search related reports in the CampusDown library (Korean).

Find more reports · Search '조세경쟁' on CampusDown →

Race to the BottomWhat the race to the bottom is: the hypothesis that states competing for capital cut taxes and environmental and labor rules. Covers the logic, counterarguments and empirical research.📈 Economics Tiebout ModelWhat the Tiebout model is: residents sort into communities offering their preferred mix of taxes and services, so local public goods can be supplied efficiently, with assumptions, evidence, sorting and fiscal federalism.📈 Economics Fiscal FederalismWhat fiscal federalism is: how revenue and spending functions should be divided between central and local governments. Covers the decentralization theorem and first- and second-generation theories.📈 Economics Leviathan HypothesisWhat the Leviathan hypothesis is: viewing government as a revenue-maximiser constrained by fiscal decentralization and competition. Theory, empirical tests and conditions.📈 Economics

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This article was last updated on October 27, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.