A Study On The Theory Of International Tax Competition

International tax competition means the nations or regions which have the self-governed fiscal right play games one another through tax rates and tax system to compete for the floating factors in order to increase taxation and public goods, boost economy growth, advance and subjects'welfare. The fluidity of factors restricts the power to levy of country. Tax competition results in inefficiency of economy and non optimal welfare. International tax coordination may improve economic efficiency. Its durative depends both on tax conventions and differences of economic scale between two countries.The abroad research on international tax competition and coordination is thorough. The literature is abundant which is from Tiebout hypothesis and standard international tax competition theory to the study under the framework of new economic geography. The theory is the field across public sector economics, international economics, microeconomics and international tax. It is a hotspot of economics. There are many meaningful issues. There is the tax competition and coordination which is among Europe Union countries, between EU and the Unite States, between developed country and developing country and between regions inside country under the condition of fiscal decentralization. China is big developing country whose system is being changed. China use tax tools to attract international floating capital to boost economy growth and improve welfare. We need to analyze the correlative issues and give some advices due to the needs from both theory and practice.The purpose of dissertation is to survey, rearrange and use for reference literatures and utilize basic principle of economics, to do some researches by combining Chinese facts and the change of tax system. We analyze international tax competition how to influence economic welfare and give some policy advices by doing logic ratiocination and quantity analysis. The main contents are follows.Firstly, the dissertation introduces agglomeration into the standard tax competition model to analyze the economic effects of agglomeration to tax competition. The agglomeration can improve the productivity of firms. The more the agglomeration is the higher productivity of firm is. The results of increasing tax rate are inducing capital to flight away and decreasing the agglomeration power of domestic economy. The government concerns the capital flight than before. The tax competition is fiercer and to worsen economic welfare. The core country which has agglomeration can levy an appropriate agglomeration rents on firms. It will not touch off outflow of capital to peripheral country. So, the country which tries to engender and develop agglomeration can have an advantage in the course of international tax competition.Secondly, we analyze the determinant of dynamic optimal tax rate of income under the framework of New Classical Economics growth theory and our object is maximal welfare in the long run by translate international tax competition into the long economic effects of change of tax rate to economy. There are two results from increasing current tax. One is to increase tax and public goods and welfare. The other is to decrease capital and go against future economy growth and welfare. This is a relation of tradeoff. So, there is a dynamic optimal tax rate to maximize welfare in the long run. General speaking, the tax rate of income should decrease gradually along with time. Besides the resident's preference to public goods and private goods, the adjustment of tax rate of income should depend on the contribution of factor to economy growth. The higher contribution rate is the lower the rate is.Thirdly, the dissertation assumes that the government maximizes tax revenues. Two countries attract the international capital though tax rate of income not property and the quantity of capital is given. We analyze that how both economic scale and expectations of government to the future affect tax coordination under the condition of between symmetric countries and asymmetric countries. The result is follows. Tax coordination can be obtained and maintained if two symmetric countries expect the discount rate of future revenue is close to one. Tax coordination which results from asymmetric counties can not be continual between big country and small country because if small country violates tax coordination and get more benefits than it obeys tax coordination.Finally, we introduce the asymmetric factors between developed country and developing country, the different character between big developing country and small country, and the assumption of Leviathan government to analyze the international tax competition among developing countries by combining the character of our country. If the change of tax rate of big economic scale country can affect the return of capital after tax it can lighten the pressure of capital fluidity urging tax rate downward. The bigger the difference of tax rate between big country and small country is the stronger capital liquidity is. The small country has the more advantage in the course of tax competition. Tax competition causes the decrease of tax revenue. Normally the goal of government is a synthesis of residents'welfare and country's benefits. If the decrease of government's wasteful expenditure exceeds the decrease of tax revenue the tax competition can increase the residents'welfare.