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Corporate Tax Competition between Firms

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  • Simon Loretz

    ()
    (Oxford University Centre for Business Taxation)

  • Padraig J. Moore

    ()
    (Deutsche Bank London)

Abstract

Firms' tax planning decisions, similar to their other operational decisions, are made in a competitive environment. Various stakeholders observe the tax payments and evaluate these against the relevant peer group, which creates interdependencies in the tax planning activities of firms. Introducing the concept of reputational loss we show the positive interdependence in a theoretical model and test it in a spatial econometric model. Empirical evidence suggests that benchmarking takes place both within countries and within industries, however for the latter it is important to include firms in large non-EU OECD countries. Further, the analysis shows that spatial interdependence is stronger for the largest firms and if they have an average effective tax rate above the statutory tax rate.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0912.

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Date of creation: 2009
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Handle: RePEc:btx:wpaper:0912

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Keywords: Corporate Taxation; Benchmarking; Tax Competition; Spatial Econometrics;

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Cited by:
  1. Bauer, Christian J. & Langenmayr, Dominika, 2013. "Sorting into outsourcing: Are profits taxed at a gorilla’s arm’s length?," Munich Reprints in Economics 20122, University of Munich, Department of Economics.

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