This paper examines the tax competition for mobile capital between two symmetric countries in a monopolistic competition economy. Taxation generates its own distortions of location and consumption as long as consumers/governments deviate from the symmetric equilibrium. Taking all possible distortions into account, this paper finds that the equilibrium tax rate may be positive and increasing when trade costs are high while it is negative and decreasing when trade costs are low if consumers have additively separable preferences displaying an increasing relative love for variety. This nonmonotonic relationship of tax rate with trade costs is further accompanied by welfare loss when market integration starts. The procompetitive effect and the income effect are both crucial to deriving the results.

中文翻译：

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资金松散对称的税收竞争和福利

本文考察了垄断竞争经济中两个对称国家之间流动资本的税收竞争。只要消费者/政府偏离对称均衡，税收就会产生其自身的位置和消费扭曲。考虑到所有可能的失真，本文发现，如果消费者的可加性可分离偏好显示出对品种的相对热爱，则均衡税率可能为正，并在贸易成本较高时增加，而当贸易成本为负时降低，而当贸易成本较低时则降低。当市场一体化开始时，税率与贸易成本的这种非单调的关系还会伴随着福利的损失。竞争效应和收入效应都是得出结果的关键。