This paper analyzes enhanced cooperation agreements in corporate taxation in a three country tax competition model where countries differ in size. We characterize equilibrium tax rates and the optimal tax responses due to the formation of an enhanced cooperation agreement. Conditions for strategic complementarity or strategic substitutability of tax rates are crucial for the welfare effects of enhanced cooperation. Simulations show that enhanced cooperation is unlikely to be feasible for small countries. When enhanced cooperation is feasible, it may hamper global harmonization. Only when countries are of similar size is global harmonization a feasible outcome.

Additional Metadata
Keywords asymmetry, enhanced cooperation agrreements, strategic tax response, tax coordination
JEL Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation (jel E62), International Investment; Long-Term Capital Movements (jel F21), Business Taxes and Subsidies (jel H25), Intergovernmental Relations; Federalism (jel H77)
Publisher Tinbergen Institute
Persistent URL
Vrijburg, H, & de Mooij, R.A. (2009). Enhanced Cooperation in an Asymmetric Model of Tax Competition (No. TI 2010-011/3). Discussion paper / Tinbergen Institute. Tinbergen Institute. Retrieved from