Testing the Tax Competition Theory: How Elastic are National Tax Bases in OECD Countries?
AbstractTo what extent do countries' corporate income tax (CIT) rates attract foreign tax bases? What are the revenue implications of a unilateral tax reduction when tax bases are internationally mobile? These questions are explored using a panel of annual data from 17 OECD countries spanning the period 1982 to 2005. We find significant international fiscal externalities in the form of CIT-induced resource flows. The magnitude, however, indicates that the extent of international corporate tax base mobility is rather modest. Moreover, we find that, on average, a unilateral CIT reduction results in a less-than-proportional increase in the CIT base, thus reducing CIT revenues. The results are robust across a wide range of specifications and point to potential gains from international tax policy coordination.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2669.
Date of creation: 2009
Date of revision:
tax competition; corporate income tax base elasticity; instrumental variables; international fiscal externalities; Laffer curve; panel data estimation;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- How much new revenue will be generated by an increase in federal corporate taxes?
by Stephen Gordon in Worthwhile Canadian Initiative on 2012-03-10 21:43:59
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"A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth,"
CESifo Working Paper Series
2692, CESifo Group Munich.
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- Copenhagen Economics, 2011. "Elasticities of Financial Instruments, Profits and Remuneration," Taxation Papers 30, Directorate General Taxation and Customs Union, European Commission.
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