Tax competition with imperfect capital movements and tax bands convergence

This paper analyzes tax competition in a simple dynamic framework. We expand the classical conclusions of the tax competition literature examining the effects of imperfect capital mobility. Especially, we are concerned about Wildasin (2003) findings that "The locally-optimal tax on mobile factors is lower, the faster the speed with which factors adjust to fiscal policy", and we show that it may not be the case in the long run, suggesting that government attempts to restrict capital movements may be counterproductive. Additionally, we examine the determination of tax bands for tax harmonization