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What Drives Corporate Tax Rates Down? A Reassessment of Globalization, Tax Competition, and Dynamic Adjustment to Shocks

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  • Michael Overesch
  • Johannes Rincke

Abstract

We reassess the driving forces behind the recent decline of corporate tax rates in Europe. Using data for up to 32 countries from 1983 to 2006, we analyze the role of economic and financial openness as well as tax competition while allowing for dynamic adjustment to shocks and period-specific as well as country-specific effects. While openness does not seem to be systematically related to corporate tax rates, our findings suggest that countries compete over statutory tax rates. In contrast, we do not find competition over effective marginal rates. While the short-run impact of tax competition on corporate tax rates seems to be modest, the interplay of tax competition and a sluggish adjustment of tax rates over time implies that permanent shocks to individual countries have substantial long-run effects on equilibrium tax levels in all countries.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 113 (2011)
Issue (Month): 3 (09)
Pages: 579-602

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Handle: RePEc:bla:scandj:v:113:y:2011:i:3:p:579-602

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Citations

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Cited by:
  1. Simon Loretz & Padraig J. Moore, 2009. "Corporate tax competition between firms," Working Papers 2009/19, Institut d'Economia de Barcelona (IEB).
  2. Robert S. Chirinko & Daniel J. Wilson, 2011. "Tax Competition Among U.S. States: Racing to the Bottom or Riding on a Seesaw?," CESifo Working Paper Series 3535, CESifo Group Munich.
  3. Martin Jacob & Andreas Pasedag & Franz W. Wagner, 2011. "Werden niedrige Steuersätze in Osteuropa durch Verzicht auf Verlustverrechnung erkauft?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(1), pages 72-91, 02.
  4. Robert S. Chirinko & Daniel J. Wilson, 2010. "State business taxes and investment: state-by-state simulations," Economic Review, Federal Reserve Bank of San Francisco, pages 13-28.
  5. Mauro Ghinamo & Paolo M. Panteghini & Federico Revelli, 2008. "FDI Determination and Corporate Tax Competition in a Volatile World," Working Papers 0802, University of Brescia, Department of Economics.
  6. Christina Elschner & Jost H. Heckemeyer & Christoph Spengel, 2011. "Besteuerungsprinzipien und effektive Unternehmenssteuerbelastungen in der Europäischen Union: Regelt sich die EU‐weite Steuerharmonisierung von selbst?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(1), pages 47-71, 02.
  7. Markus Leibrecht & Claudia Hochgatterer, 2012. "Tax Competition As A Cause Of Falling Corporate Income Tax Rates: A Survey Of Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 26(4), pages 616-648, 09.
  8. Kindermann, Daniel, 2009. "Why do some countries get CSR sooner, and in greater quantity, than others? The political economy of corporate responsibility and the rise of market liberalism across the OECD: 1977 - 2007," Discussion Papers, Research Unit: Knowledge, Production Systems and Work SP III 2009-301, Social Science Research Center Berlin (WZB).
  9. Hansson, Åsa & Porter, Susan & Perry Williams, Susan, 2012. "The Effect of Political and Economic Factors on Corporate Tax Rates," Working Paper Series 942, Research Institute of Industrial Economics.
  10. Crabbé, Karen, 2013. "Are your taxes set in Warsaw? Spatial tax competition in Europe," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/398229, Katholieke Universiteit Leuven.

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