The increasing cross-border mobility of goods, capital and labor challenges a government's ability to finance their activities. Households and firms elastically react to differences in taxation, whereas governments on both national and subnational levels try to attract profitable firms and high income households by offering tax advantages. A thorough understanding of the competition between households and firms on the one hand, and between nation states or subnational governments in a federation on the other hand, is therefore a necessary requirement for sound tax policy. Important questions concern the implications of tax competition for the future design of national tax system, the optimal organization of tax and financing structures of federal systems and modern tax instruments, which raise sufficient revenue while minimizing efficiency costs.