Partial tax harmonization through infrastructure coordination

Abstract

In this article we analyze the role that infrastructure coordination plays to in achieving partial tax harmonization in a coalition of asymmetric jurisdictions. We find that infrastructure coordination with di¤erent investment levels can facilitate partial tax harmonization between asymmetric jurisdictions when asymmetries are not too large. Furthermore, agreeing on a common investment level can be even more e¤ective in facilitating partial tax harmonization between asymmetric jurisdictions. Our results explain the harmonization of corporate tax rates observed in the EU between 1995 and 2006 where there was simultaneous convergence of public infrastructure investments facilitated via EU structural funds. Keywords: Partial Tax Harmonization; Infrastructure Coordination JEL Classification Numbers: F15, F38, H20, H87