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Testing the Tax Competition Theory: How Elastic are National Tax Bases in OECD Countries?

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Author Info
Aleksandra Riedl ()
Silvia Rocha-Akis ()

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Abstract

To 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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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2669.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2669

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Related research
Keywords: tax competition; corporate income tax base elasticity; instrumental variables; international fiscal externalities; Laffer curve; panel data estimation;

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
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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