On tax competition, public goods provisionand jurisdictions' size

In this paper, we analyse competition among jurisdictions to attract firms through low taxes oncapital and/or high level of public goods, which enhance firms’ productivity. We assume that thecompeting jurisdictions are different in (population) size and that the mobility of capital is costly.We find that for moderate mobility costs, small economies can attract foreign capital if theysupply higher levels of public goods than larger jurisdictions, without being tax havens. Ifmobility costs are high, we recover the classical result that small jurisdictions are attractive toforeign capital if they engage in tax dumping. Finally, we show that there exists a subset ofmobility costs for which the differentiation in public goods across jurisdictions is not able to relaxtax competition....