This paper tests the central predictions of the theoretical tax competition literature for capital tax rates for a panel of European Union countries, notably a race to the bottom in capital tax rates. One measure of capital mobility is found to exhibit a downward pressure on capital taxes while...

The standard tax competition literature predicts a race to the bottom in capital tax rates as capital mobility increases. Recently, the very different modeling framework of the new economic geography literature has produced the contrasting result that economic integration leads to agglomeration...