TAX COMPETITION, BENEFIT TAXES, AND FISCAL FEDERALISM 579 TAX COMPETITION, BENEFIT TAXES, AND FISCAL FEDERALISM TIMOTHY J. GOODSPEED * Abstract - As the world becomes more globalized and resources become more internationally mobile, the issue of tax competition is moving to the forefront of debates surrounding national tax systems. Those who have studied taxation in a federal system of govern- ment will recognize that this debate is not new. This paper presents the conceptual issues that have arisen concerning tax competition in the fiscal federalism literature, and explores the reasons why the empirical measurement of the effects of tax competition, particularly corporate tax competition, is so difficult. Given the complicated nature of the problem and the theoreti- cal ambiguity on the consequences of tax competition, it should perhaps not be surprising for the empirical literature to find that competition sometimes increases and sometimes decreases tax rates. INTRODUCTION As the world becomes more globalized and resources become more internation- ally mobile, the issue of tax competition is moving to the forefront of debates surrounding national tax systems. Those who have studied taxation in a federal system of government will recognize that this debate is not new. Federal systems of government inherently involve issues concerning the taxation of mobile tax bases. This is fortuitous, for we have a good deal of literature to rely upon in thinking about the conse- quences of tax competition in the global economy. Despite this knowledge, the consequences of tax competition remain ambiguous and difficult to measure empirically. This paper presents the conceptual issues that have arisen concerning tax competition in the fiscal federalism literature, and explores the reasons why the empirical measurement of the effects of tax competition, particularly corporate tax competition, is so difficult. I begin in the next section by discussing two conceptual issues. First, I address the question of whether tax competition is good or bad. The answer depends on the type of tax used to finance public expenditures. Second, I ask whether we can say that tax competition leads to too little or too much taxation on various tax bases, and I distinguish between vertical and horizontal tax competition. * Department of Economics, Hunter College and CUNY Graduate Center, New York, NY 10021. National Tax Journal Vol 51 no. 3 (September 1998) pp. 579-86