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Leaning Right and Learning from the Left: Diffusion of Corporate Tax Policy in the OECD

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Author Info
Nathan M. Jensen Washington University, Rene Lindstadt, Trinity College Dublin
Abstract

There is an increased focus in comparative politics and international relations on how choices of national governments are dependent on choices made by governments in other countries. We argue that while the relationship between policy choices across countries is often labeled as either diffusion or competition, in many cases the theoretical mechanisms underpinning these labels are unclear. In this paper we build a model of social learning with a specific application to the diffusion of corporate tax reductions. This model yields predictions that are differentiable from existing models of tax competition. Specifically, we argue that social learning is most likely to take place in the wake of tax policy cuts by left governments. We test this model using an existing data set of corporate tax rate changes and an author-created data set of changes in tax legislation, covering twenty OECD countries from 1980-1998.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp290.

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Date of creation: 05 2009
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Handle: RePEc:iis:dispap:iiisdp290

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  1. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-70, Summer. [Downloadable!] (restricted)
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  4. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June. [Downloadable!] (restricted)
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  5. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October. [Downloadable!] (restricted)
  6. Garrett, Geoffrey, 1998. "Global Markets and National Politics: Collision Course or Virtuous Circle?," International Organization, Cambridge University Press, vol. 52(04), pages 787-824, October. [Downloadable!]
  7. Swank, Duane, 2006. "Tax Policy in an Era of Internationalization: Explaining the Spread of Neoliberalism," International Organization, Cambridge University Press, vol. 60(04), pages 847-882, October. [Downloadable!]
  8. Bernhard, William & Leblang, David, 1999. "Democratic Institutions and Exchange-rate Commitments," International Organization, Cambridge University Press, vol. 53(01), pages 71-97, January. [Downloadable!]
  9. Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April. [Downloadable!] (restricted)
  10. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer, vol. 10(6), pages 673-93, November. [Downloadable!] (restricted)
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  11. Simmons, Beth A. & Dobbin, Frank & Garrett, Geoffrey, 2006. "Introduction: The International Diffusion of Liberalism," International Organization, Cambridge University Press, vol. 60(04), pages 781-810, October. [Downloadable!]
  12. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August. [Downloadable!] (restricted)
  13. Han, Seungjin & Leach, John, 2008. "A bargaining model of tax competition," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1122-1141, June. [Downloadable!] (restricted)
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  14. Lee, Chang Kil & Strang, David, 2006. "The International Diffusion of Public-Sector Downsizing: Network Emulation and Theory-Driven Learning," International Organization, Cambridge University Press, vol. 60(04), pages 883-909, October. [Downloadable!]
  15. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June. [Downloadable!] (restricted)
  16. Bernhard, William & Leblang, David, 1999. "Democratic Institutions and Exchange-Rate Commitments," International Organization, MIT Press, vol. 53(1), pages 71-97, Winter.
  17. Kiymaz, Koray & Taylor, Leon, 2000. "Competition for foreign direct investment when countries are not sure of site values," International Review of Economics & Finance, Elsevier, vol. 9(1), pages 53-68, February. [Downloadable!] (restricted)
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  18. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June. [Downloadable!] (restricted)
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  19. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June. [Downloadable!] (restricted)
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  20. Garrett, Geoffrey, 1998. "Global Markets and National Politics: Collision Course or Virtuous Circle?," International Organization, MIT Press, vol. 52(4), pages 787-824, Autumn.
  21. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August. [Downloadable!] (restricted)
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