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A propensity to tax competition

Summary/Abstract: The process of decentralization creates both the participation in tax revenues of local authorities and the competition among them for the fiscal-limited source of taxation. Taking into account the mobility of tax base, the economics of tax competition should investigate a capacity for competition, as well as a propensity to compete. The very aim of the paper is to identify determinants of ability of tax jurisdiction to compete for tax base. The drivers of propensity to tax competition is the subject of investigation. The paper provides original meaning of tax jurisdiction and mobility of tax base. The differentiation of tax jurisdiction defines the capacity for tax competition and its strength. The mobility of tax base pictures the propensity to compete for tax revenues. The range and depth of decentralisation influence the capacity for tax competition; but the costs to enter and exit tax jurisdiction, as well as the cost of transport tax base between tax jurisdiction are crucial for the propensity to compete.

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