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Globalisation and the Mix of Wage and Profit Taxes

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  • Andreas Haufler
  • Alexander Klemm
  • Guttorm Schjelderup

Abstract

This paper analyses the development of the ratio of corporate taxes to wage taxes using a simple political economy model with internationally mobile and immobile firms. Among other results, our model predicts that countries reduce their corporate tax rate, relative to the wage tax, either when preferences for public goods increase or when a rising share of capital is employed in multinational firms. The predicted relationships are tested using panel data for 23 OECD countries for the period 1980 through 2001. The results of the empirical analysis support our central hypotheses.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-02/cesifo1_wp1678.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1678.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1678

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

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References

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  1. Andreas Haufler & Ian Wooton, . "Country Size and Tax Competition for Foreign Direct Investment," Working Papers, Business School - Economics, University of Glasgow 9702, Business School - Economics, University of Glasgow.
  2. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer, Springer, vol. 10(2), pages 107-26, March.
  3. Sam Bucovetsky & Andreas Haufler, 2005. "Tax Competition when Firms Choose their Organizational Form: Should Tax Loopholes for Multinationals be Closed?," CESifo Working Paper Series 1625, CESifo Group Munich.
  4. Mintz, Jack & Smart, Michael, 2004. "Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada," Journal of Public Economics, Elsevier, Elsevier, vol. 88(6), pages 1149-1168, June.
  5. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete Over Corporate Tax Rates?," The Warwick Economics Research Paper Series (TWERPS) 642, University of Warwick, Department of Economics.
  6. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
  7. Persson, Torsten & Tabellini, Guido, 1992. "The Politics of 1992: Fiscal Policy and European Integration," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(4), pages 689-701, October.
  8. Hans Jarle Kind & Helene Midelfart & Guttorm Schjelderup, 2004. "Corporate Tax Systems, Multinational Enterprises, and Economic Integration," CESifo Working Paper Series 1241, CESifo Group Munich.
  9. Bretschger, Lucas & Hettich, Frank, 2002. "Globalisation, capital mobility and tax competition: theory and evidence for OECD countries," European Journal of Political Economy, Elsevier, Elsevier, vol. 18(4), pages 695-716, November.
  10. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 21(3), pages 333-350, November.
  11. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262633078, December.
  12. Clemens Fuest & Bernd Huber, 1998. "Why Do Countries Subsidize Investment and Not Employment?," NBER Working Papers 6685, National Bureau of Economic Research, Inc.
  13. Janeba, Eckhard & Peters, Wolfgang, 1999. "Tax Evasion, Tax Competition and the Gains from Nondiscrimination: The Case of Interest Taxation in Europe," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(452), pages 93-101, January.
  14. Baltagi, Badi H. & Wu, Ping X., 1999. "Unequally Spaced Panel Data Regressions With Ar(1) Disturbances," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 15(06), pages 814-823, December.
  15. Hannes Winner, 2005. "Has Tax Competition Emerged in OECD Countries? Evidence from Panel Data," International Tax and Public Finance, Springer, Springer, vol. 12(5), pages 667-687, September.
  16. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Working Papers, John Deutsch Institute for the Study of Economic Policy 4, John Deutsch Institute for the Study of Economic Policy.
  17. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  18. Jimeno, Juan F., 1992. "The relative importance of aggregate and sector-specific shocks at explaining aggregate and sectoral fluctuations," Economics Letters, Elsevier, Elsevier, vol. 39(4), pages 381-385, August.
  19. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  20. Grubert, Harry & Mutti, John, 2000. "Do Taxes Influence Where U.S. Corporations Invest?," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 825-40, December.
  21. Keen, Michael, 2001. "Preferential Regimes Can Make Tax Competition Less Harmful," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 757-62, December.
  22. 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.
  23. Michael Devereux & Alexander Klemm, 2003. "Measuring taxes on income from capital: evidence from the UK," IFS Working Papers, Institute for Fiscal Studies W03/03, Institute for Fiscal Studies.
  24. Slemrod, Joel, 2004. "Are corporate tax rates, or countries, converging?," Journal of Public Economics, Elsevier, Elsevier, vol. 88(6), pages 1169-1186, June.
  25. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 57, July.
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Citations

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Cited by:
  1. Mauro Ghinamo & Paolo Panteghini & Federico Revelli, 2010. "FDI determination and corporate tax competition in a volatile world," International Tax and Public Finance, Springer, Springer, vol. 17(5), pages 532-555, October.
  2. Francesca Gastaldi & Paolo Liberati, 2011. "Economic integration and government size: a review of the empirical literature," Financial Theory and Practice, Institute of Public Finance, Institute of Public Finance, vol. 35(3), pages 327-384.
  3. Andreas Haufler & Alexander Klemm & Guttorm Schjelderup, 2009. "Economic integration and the relationship between profit and wage taxes," Public Choice, Springer, Springer, vol. 138(3), pages 423-446, March.
  4. Haufler, Andreas & Klemm, Alexander & Schjelderup, Guttorm, 2008. "Redistributive taxation, multinational enterprises, and economic integration," European Journal of Political Economy, Elsevier, Elsevier, vol. 24(1), pages 249-255, March.
  5. Ronald B. Davies & Johannes Voget, 2010. "Tax Competition in an Expanding European Union," GEE Papers, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação 0033, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação, revised Jan 2011.
  6. Heinemann, Friedrich & Overesch, Michael & Rincke, Johannes, 2008. "Rate Cutting Tax Reforms and Corporate Tax Competition in Europe," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 08-028, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Cassette, Aurélie & Paty, Sonia, 2008. "Tax competition among Eastern and Western European countries: With whom do countries compete?," Economic Systems, Elsevier, Elsevier, vol. 32(4), pages 307-325, December.
  8. Lucas Bretschger, 2005. "Taxes, Mobile Capital, and Economic Dynamics in a Globalising World," CER-ETH Economics working paper series 05/43, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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