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Partisan politics in corporate taxation

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  • Osterloh, Steffen
  • Debus, Marc

Abstract

This paper studies the effects of political factors, mainly partisanship, on corporate taxes in the past 30years—a period of intensifying competitive pressure in Europe. The consideration of decision-makers who have ideological preferences yields in standard tax competition models the hypothesis that left-wing leaders set higher corporate tax rates. In the empirical analysis, we introduce an innovative measure of ideology derived from content analysis of party manifestos into the public finance literature. The results support our main hypothesis, but we also find evidence that the partisan effect declines in the course of time. Moreover, we are able to reveal that the observed effect is mainly driven by the legislatures' stance on welfare policies. Finally, we show that a higher degree of government fragmentation, as well as the leadership of a head of government with an educational background in law counteracts the general tendency to lower tax rates.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 28 (2012)
Issue (Month): 2 ()
Pages: 192-207

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Handle: RePEc:eee:poleco:v:28:y:2012:i:2:p:192-207

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Web page: http://www.elsevier.com/locate/inca/505544

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Keywords: Political ideology; Partisan politics; Company taxation; Tax competition;

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Citations

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Cited by:
  1. Michael Devereux & Simon Loretz, 2012. "What do we know about corporate tax competition?," Working Papers 1229, Oxford University Centre for Business Taxation.
  2. Osterloh, Steffen, 2012. "Words speak louder than actions: The impact of politics on economic performance," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 318-336.
  3. Michaël Zemmour, 2012. "Tax competition and the move from insurance to assistance," Documents de travail du Centre d'Economie de la Sorbonne 12090r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Mar 2013.
  4. Osterloh, Steffen & Heinemann, Friedrich, 2008. "The Political Economy of Corporate Tax Harmonization: Why Do European Politicians (Dis)like Minimum Tax Rates?," ZEW Discussion Papers 08-108, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Angelopoulos, Konstantinos & Economides, George & Kammas, Pantelis, 2012. "Does cabinet ideology matter for the structure of tax policies?," European Journal of Political Economy, Elsevier, vol. 28(4), pages 620-635.
  6. Camyar, Isa & Ulupinar, Bahar, 2013. "The partisan policy cycle and firm valuation," European Journal of Political Economy, Elsevier, vol. 30(C), pages 92-111.

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