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Corporate Income Tax Competition in the Caribbean

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  • Koffie Ben Nassar
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    Abstract

    Motivated by the concern that corporate income tax (CIT) competition may have eroded the tax base, this paper calculates average effective tax rates to measure the impact of CIT competition, including the widespread use of tax holidays, on the tax base for 15 countries in the Caribbean. The results not only confirm erosion of the tax base, but also show that CIT holidays must be removed for recent tax policy initiatives (such as accelerated depreciation, loss carry forward provisions, and tax harmonization) to be effective. These findings suggest that the authorities should either avoid granting CIT holidays or rely more on other taxes (including consumption taxes such as the value-added tax) in order to broaden the tax base.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/77.

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    Length: 22
    Date of creation: 01 Mar 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/77

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    Related research

    Keywords: Tax incentives; Income taxes; tax competition; effective tax rates; tax rate; corporate tax; capital stock; cost of capital; tax harmonization; depreciation allowances; tax policy; corporate income tax; rate of return; accelerated depreciation; tax concessions; personal taxes; investors; corporate income taxes; tax system; foreign direct investment; investment projects; corporate taxes; direct investment; corporate tax rates; corporate tax base; income tax rates; consumption taxes; tax systems; retained earnings; tax reforms; statutory tax rate; corporate tax rate; corporate income taxation; real rate of return; international tax; national tax journal; tax journal; tax purposes; statutory corporate tax rates; investment decisions; optimal taxation; tax avoidance; tax coordination; taxable profits; corporate tax systems; low-tax jurisdictions; corporate tax system; tax return; international tax competition; business tax; investment choices; taxes on domestic; tax reform; marginal tax rate; capital gains tax; effects of tax policy; tax profits; tax structure; tax revenue; corporate tax revenues; capital gains taxes; capital income taxation; regional tax; vat rate; dividend payments; corporate tax structure; tax burdens; taxation of income; tax evasion; optimal taxation approach; value-added taxes; tax reductions; tax revenues; corporate taxation; foreign investors; import duty exemptions; taxes on income; property taxation;

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    16. Devereux, Michael P & Griffith, Rachel, 2002. "Evaluating Tax Policy for Location Decisions," CEPR Discussion Papers 3247, C.E.P.R. Discussion Papers.
    17. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
    18. Alexander Klemm, 2004. "A minimum rate without a common base?," Intereconomics: Review of European Economic Policy, Springer, vol. 39(4), pages 186-189, July.
    19. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 289-96, April.
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    21. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
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