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Capital Account Liberalization and Corporate Taxes

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Author Info

  • Ben Lockwood
  • Michael B. Devereux
  • Michela Redoano

Abstract

This paper studies whether exchange controls, particularly on the capital account, affect the choice of corporate tax rates, using a panel of 21 OECD countries over the period 1983-99. It builds on existing literature by (1) using a unique dataset with several different measures of the corporate tax rate calculated from the actual parameters of the tax systems, and (2i) allowing exchange controls to affect the intensity of strategic interaction between countries in setting taxes, as well as the levels of tax they choose. We find some evidence that (1) the level of a country’s tax, other things equal, is lowered by a unilateral liberalization of exchange controls; and (2) that strategic interaction in taxsetting between countries is increased by liberalization. These effects are stronger if the country is a high-tax one and if the tax is the statutory or effective average one. There is also evidence that countries’ own tax rates are reduced by liberalization of exchange controls in other countries.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/180.

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Length: 33
Date of creation: 01 Sep 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/180

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Related research

Keywords: Capital controls; Capital account liberalization; Taxes; Corporate taxes; tax rate; corporate tax; tax competition; corporate tax rate; corporate tax rates; statutory tax rate; home country; tax revenue; capital taxes; domestic tax; corporation tax; effective tax rates; tax system; tax policy; tax measures; corporate tax revenue; investment projects; corporate taxation; property taxation; high-tax countries; corporate tax system; capital tax; foreign capital; international tax; average tax rate; rate of income tax; tax journal; national tax journal; cost of capital; tax countries; tax systems; corporate income tax; foreign ownership; international tax competition; tax on capital; foreign tax; total tax revenue; corporate tax bases; tax authorities; foreign direct investment; tax revenues; business taxes; corporation tax rates; tax changes; optimal tax; investment decisions; corporate tax revenues; rate of tax; personal income tax; tax reforms; foreign tax rate; marginal tax rate; capital tax competition; average corporate tax rate; tax reform; investment flows; depreciation allowances; average foreign tax rate; investment choices; foreign taxes; direct investment;

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Cited by:
  1. Janeba, Eckhard & Osterloh, Steffen, 2013. "Tax and the city — A theory of local tax competition," Journal of Public Economics, Elsevier, Elsevier, vol. 106(C), pages 89-100.
  2. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete Over Corporate Tax Rates?," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 642, University of Warwick, Department of Economics.
  3. Sailesh Gunessee, 2009. "Strategic Tax Competition: An Experimental Study," ICBBR Working Papers, International Centre for Behavioural Business Research 5, International Centre for Behavioural Business Research.
  4. Corneo, Giacomo, 2005. "Steuern die Steuern Unternehmensentscheidungen?," Discussion Papers 2005/3, Free University Berlin, School of Business & Economics.

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