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Zero Corporate Income Tax in Moldova

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  • Marcin Piatkowski
  • Mariusz Jarmuzek

Abstract

Global economic integration intensified tax competition and raised concerns about the resulting "race to the bottom", which could undermine public investment and social spending. The aim of this paper is to test predictions that (i) there is interdependence in CIT rate setting in Eastern Europe and that (ii) the recent CIT cut in Moldova may intensify tax competition in the region. It finds that there is indeed evidence that during 1995-2006 countries in Eastern Europe strategically responded to changes in CIT rates in the region and that Moldovan zero CIT is likely to encourage further cuts in CIT. The paper also discusses implications of tax competition for Eastern Europe and finds that FDI flows will not be much affected, tax revenues are likely to decline, the shift in the composition in tax revenue may increase economic efficiency, but decrease equity. Tax coordination, while difficult politically, could help stem further decline in corporate taxation, but any gains might be modest and not certain to exceed the costs of tax coordination. Without tax coordination, however, it is unclear what exactly could stop corporate taxes from falling further.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/203.

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Length: 31
Date of creation: 01 Aug 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/203

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Keywords: Corporate taxes; Public investment; Tax revenues; Foreign direct investment; tax competition; corporate tax; tax coordination; corporate tax rates; tax revenue; tax rate; corporate taxation; corporate tax revenue; corporate income tax; international tax; tax system; tax systems; tax policy; tax arbitrage; direct investment; corporate tax rate; taxes on capital; income tax rate; effective tax rates; personal income tax; direct taxes; tax evasion; tax reforms; tax administration; income tax rates; higher tax revenues; income taxes; multinational companies; corporate tax burden; payroll taxes; tax avoidance; federal tax; national tax journal; optimal tax; corporate tax base; domestic investment; corporate tax revenues; international tax competition; optimal taxation; tax journal; corporate tax bases; environmental taxes; tax liabilities; national taxes; corporate income taxation; investors; income shifting; tax reduction; dividend taxation; higher tax rates; personal taxes; average tax rate; tax purposes; personal income taxes; foreign companies; tax countries; high tax rates; foreign investors; corporate tax competition; domestic tax; institutional development; taxes on income; labor taxes; home country; tax return; personal income tax rate; flat taxes; tax reform; private investment; corporate tax systems; consumption taxes; tax efficiency; corporate income taxes; vat rate; capital income taxation; regional tax; tax payments; high tax countries; tax exemptions; costs of taxation; corporate tax reform; direct taxation; tax havens; capital structure; lower tax rates; cost of capital; dividend payments; tax treatment; tax incidence; tax policy analysis;

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References

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Citations

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Cited by:
  1. Piatkowski, Marcin, 2013. "Poland's new golden age : shifting from Europe's periphery to its center," Policy Research Working Paper Series 6639, The World Bank.
  2. Daianu, Daniel & Kallai, Ella & Lungu, Laurian, 2012. "Tax Policy under the Curse of Low Revenues: The Case of Romania (Part I)," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 156-186, March.
  3. Nedelchev, Miroslav, 2010. "Корпоративно Управление На Финансови Групи (Спазвай И Обяснявай)
    [Corporate Governance of Financial Groups (Comply and Explain)]
    ," MPRA Paper 52249, University Library of Munich, Germany.
  4. Marcin, Piatkowski, 2009. "The Coming Golden Age of New Europe," MPRA Paper 19523, University Library of Munich, Germany.
  5. Elif Arbatli, 2011. "Economic Policies and FDI Inflows to Emerging Market Economies," IMF Working Papers 11/192, International Monetary Fund.

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