The Brazilian “tax war”: the case of value-added tax competition among the states by Luiz de Mello published by OECD. “This paper tests for horizontal tax competition in the VAT for a sample of Brazilian states in the period 1985-2001. The states have considerable autonomy to set their VAT rates and bases, often using this tax as an industrial policy tool. The empirical findings, based on the estimation of a tax reaction function in na error-correction set-up, confirm the hypothesis of horizontal tax competition: the states react strongly to changes in their neighbours’ VAT code, especially those that belong to the same geo-economic region.”
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