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Are Corporate Tax Burdens Racing to the Bottom in the European Union?

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  • Signe Krogstrup

    (Institute of Economics, University of Copenhagen)

Abstract

This paper tests the central predictions of the theoretical tax competition literature for capital tax rates for a panel of European Union countries, notably a race to the bottom in corporate tax burdens. In contrast to the previous empirical literature, empirical support for increasing capital mobility to be resulting in a reduction in corporate tax burdens is found. The results also suggest that other factors driving the corporate tax burden should not be neglected and may provide substantial counterweight to tax competition forces

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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 04-04.

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Length: 43 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:kud:epruwp:04-04

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Keywords: Tax competition; Capital taxation; Corporate tax burden; European financial integration; Capital mobility;

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References

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  1. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  2. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
  3. Duane Swank, 1998. "Funding the Welfare State: Globalization and the Taxation of Business in Advanced Market Economies," Political Studies, Political Studies Association, vol. 46(4), pages 671-692, 09.
  4. Eijffinger, S.C.W. & Wagner, W.B., 2001. "Taxation if Capital is Not Perfectly Mobile: Tax Competition versus Tax Exportation," Open Access publications from Tilburg University urn:nbn:nl:ui:12-88263, Tilburg University.
  5. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  6. Michael Devereux & Harold Freeman, 1995. "The impact of tax on foreign direct investment: Empirical evidence and the implications for tax integration schemes," International Tax and Public Finance, Springer, vol. 2(1), pages 85-106, February.
  7. Garrett, Geoffrey, 1995. "Capital mobility, trade, and the domestic politics of economic policy," International Organization, Cambridge University Press, vol. 49(04), pages 657-687, September.
  8. Bretschger, Lucas & Hettich, Frank, 2000. "Globalisation, capital mobility and tax competition: Theory and evidence for OECD countries," Wirtschaftswissenschaftliche Diskussionspapiere 07/2000, Ernst Moritz Arndt University of Greifswald, Faculty of Law and Economics.
  9. Gropp, Reint & Kostial, Kristina, 2000. "The disappearing tax base: is foreign direct investment eroding corporate income taxes?," Working Paper Series 0031, European Central Bank.
  10. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  11. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," CEG Working Papers 20012, Trinity College Dublin, Department of Economics.
  12. Devereux, Michael P & Griffith, Rachel, 2002. "Evaluating Tax Policy for Location Decisions," CEPR Discussion Papers 3247, C.E.P.R. Discussion Papers.
  13. James R. Hines, Jr., 1996. "Tax Policy and the Activities of Multinational Corporations," NBER Working Papers 5589, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Andreas Haufler & Alexander Klemm & Guttorm Schjelderup, 2009. "Economic integration and the relationship between profit and wage taxes," Public Choice, Springer, vol. 138(3), pages 423-446, March.
  2. Michael Devereux & Simon Loretz, 2012. "What do we know about corporate tax competition?," Working Papers 1229, Oxford University Centre for Business Taxation.
  3. Till Gross, 2013. "Capital Tax Competition and Dynamic Optimal Taxation," Carleton Economic Papers 13-08, Carleton University, Department of Economics.
  4. Harry Garretsen & Jolanda Peeters, 2008. "FDI and the Relevance of Spatial Linkages: Do third Country Effects Matter for Dutch FDI?," CESifo Working Paper Series 2191, CESifo Group Munich.
  5. Ozlem Onaran & Valerie Boesch & Markus Leibrecht, 2012. "How Does Globalization Affect The Implicit Tax Rates On Labor Income, Capital Income, And Consumption In The European Union?," Economic Inquiry, Western Economic Association International, vol. 50(4), pages 880-904, October.
  6. Peter Schwarz, 2007. "Does capital mobility reduce the corporate-labor tax ratio?," Public Choice, Springer, vol. 130(3), pages 363-380, March.
  7. Markus Leibrecht & Claudia Hochgatterer, 2012. "Tax Competition As A Cause Of Falling Corporate Income Tax Rates: A Survey Of Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 26(4), pages 616-648, 09.
  8. Harry Garretsen & Jolanda Peeters, 2009. "FDI and the relevance of spatial linkages: do third-country effects matter for Dutch FDI?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(2), pages 319-338, July.
  9. Hansson, Åsa & Porter, Susan & Perry Williams, Susan, 2012. "The Effect of Political and Economic Factors on Corporate Tax Rates," Working Paper Series 942, Research Institute of Industrial Economics.
  10. Harry Garretsen & Jolanda Peeters, 2007. "FDI and the Relevance of Spatial Linkages: do third country effects matter for Dutch FDI?," DNB Working Papers 162, Netherlands Central Bank, Research Department.
  11. Pedro Gomes & Francois Pouget, 2008. "Corporate tax competition and public capital stock," LSE Research Online Documents on Economics 6536, London School of Economics and Political Science, LSE Library.

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