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Economic integration and the relationship between profit and wage taxes

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  • Andreas Haufler

    (University of Munich)

  • Alexander Klemm

    (International Monetary Fund)

  • Guttorm Schjelderup

    (Norwegian School of Economics and Business Administration)

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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Bibliographic Info

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

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References

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Citations

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Cited by:
  1. Janeba, Eckhard & Osterloh, Steffen, 2012. "Tax and the city: A theory of local tax competition and evidence for Germany," ZEW Discussion Papers 12-005, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Simon Loretz, 2008. "Corporate taxation in the OECD in a wider context," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 639-660, winter.
  3. Adam, Antonis & Kammas, Pantelis & Lagou, Athina, 2013. "The effect of globalization on capital taxation: What have we learned after 20years of empirical studies?," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 199-209.
  4. König, Tobias & Wagener, Andreas, 2008. "(Post-)Materialist Attitudes and the Mix of Capital and Labour Taxation," Hannover Economic Papers (HEP) dp-404, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  5. Osterloh, Steffen & Debus, Marc, 2012. "Partisan politics in corporate taxation," European Journal of Political Economy, Elsevier, vol. 28(2), pages 192-207.
  6. Koenig, Tobias & Wagener, Andreas, 2013. "Tax structure and government expenditures with tax equity concerns," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 137-153.
  7. B. Merlevede & G. Rayp & S. Van Parys & T. Verbeke, 2011. "Do EU15 countries compete over labour taxes?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/750, Ghent University, Faculty of Economics and Business Administration.
  8. Genschel, Philipp & Schwarz, Peter, 2012. "Tax competition and fiscal democracy," TranState Working Papers 161, University of Bremen, Collaborative Research Center 597: Transformations of the State.

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