High-tax countries maintain rates by relaxing tax competition through public good differentiation.
Governments can lower taxes by offering different public goods, which helps them compete less on taxes. High-tax countries keep taxes high even with more connected markets. Some firms save more money from public goods, so governments can use this to relax tax competition. When firms can choose where to go, they spread out too much. Setting a minimum tax can help relax tax competition even more, but it can also reduce efficiency.