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Economic integration and the relationship between profit and wage taxes

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Author Info
Andreas Haufler (University of Munich)
Alexander Klemm (International Monetary Fund)
Guttorm Schjelderup (Norwegian School of Economics and Business Administration)

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Abstract

This paper analyses the development of the ratio of corporate taxes to wage taxes using a simple political economy model with workers and capitalists that own internationally mobile and immobile firms. Among other results, our model predicts that countries reduce their corporate tax rate, relative to the wage tax when preferences for public goods increase, or when a rising share of capital is employed in multinational firms. We further show how a rise in the wage share changes both the relative size of tax bases and the political influence of different income groups. The predicted relationships are tested using panel data for 23 OECD countries for the period 1980 through 2004. The results of the empirical analysis support our main hypotheses.

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Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0810.

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Date of creation: 2008
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Handle: RePEc:btx:wpaper:0810

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Related research
Keywords: Capital and labour taxes; economic integration; multinational firms;

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Find related papers by JEL classification:
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
F15 - International Economics - - Trade - - - Economic Integration
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  3. Persson, Torsten & Tabellini, Guido, 1992. "The Politics of 1992: Fiscal Policy and European Integration," Review of Economic Studies, Blackwell Publishing, vol. 59(4), pages 689-701, October. [Downloadable!] (restricted)
    Other versions:
  4. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer, vol. 10(2), pages 107-26, March. [Downloadable!] (restricted)
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  5. Haufler, Andreas & Klemm, Alexander & Schjelderup, Guttorm, 2006. "Globalisation and the mix of wage and profit taxes," Discussion Papers in Economics 885, University of Munich, Department of Economics. [Downloadable!]
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  6. Atish R. Ghosh & Holger C. Wolf, 1997. "Geographical and Sectoral Shocks in the U.S. Business Cycle," NBER Working Papers 6180, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR, CES, MSH, vol. 17(35), pages 449-495, October. [Downloadable!] (restricted)
  12. Bretschger, Lucas & Hettich, Frank, 2002. "Globalisation, capital mobility and tax competition: theory and evidence for OECD countries," European Journal of Political Economy, Elsevier, vol. 18(4), pages 695-716, November. [Downloadable!] (restricted)
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  15. Clemens Fuest & Bernd Huber, 2001. "Tax Competition and Tax Coordination in a Median Voter Model," Public Choice, Springer, vol. 107(1), pages 97-113, April. [Downloadable!] (restricted)
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  16. Michael P. Devereux & Alexander Klemm, 2003. "Measuring Taxes on Income from Capital: Evidence from the UK," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  17. Jimeno, Juan F., 1992. "The relative importance of aggregate and sector-specific shocks at explaining aggregate and sectoral fluctuations," Economics Letters, Elsevier, vol. 39(4), pages 381-385, August. [Downloadable!] (restricted)
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  19. Davis, Steven J & Henrekson, Magnus, 1999. " Explaining National Differences in the Size and Industry Distribution of Employment," Small Business Economics, Springer, vol. 12(1), pages 59-83, February. [Downloadable!] (restricted)
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  20. Signe Krogstrup, 2004. "Are Corporate Tax Burdens Racing to the Bottom in the European Union?," EPRU Working Paper Series 04-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
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  22. Kind, Hans Jarle & Midelfart, Karen Helene & Schjelderup, Guttorm, 2005. "Corporate tax systems, multinational enterprises, and economic integration," Journal of International Economics, Elsevier, vol. 65(2), pages 507-521, March. [Downloadable!] (restricted)
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  23. Dreher, Axel, 2006. "The influence of globalization on taxes and social policy: An empirical analysis for OECD countries," European Journal of Political Economy, Elsevier, vol. 22(1), pages 179-201, March. [Downloadable!] (restricted)
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  24. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tobias König & Andreas Wagener, 2008. "(Post-)Materialist Attitudes and the Mix of Capital and Labour Taxation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Simon Loretz, 2008. "Corporate taxation in the OECD in a wider context," Working Papers 0821, Oxford University Centre for Business Taxation. [Downloadable!]
    Other versions:
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