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For as long as economics has been a serious subject it has wrestled with the appropriate role of competition in determining economic outcomes. In the modern era this issue appears and reappears in the context of tax competition. Supporters of tax competition between national governments, between states or provinces within countries, or between jurisdictions within states and provinces, tout the effects of competition in disciplining governments and point to the Tiebout hypothesis that, in certain circumstances, interjurisdictional competition leads to efficient outcomes. Opponents worry that unbridled tax competition produces “race-to-the-bottom” outcomes that generate inefficient tax structures and suboptimal government sizes; such concerns commonly lead to prescriptions that governments should coordinate, or even harmonize, their tax systems.


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