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Taxpayer Responses to Competitive Tax Policies and Tax Policy Responses to Competitive Taxpayers: Recent Evidence

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  • Rosanne Altshuler

    ()
    (Rutgers University, Department of Economics)

  • Harry Grubert

    ()
    (U.S. Treasury Department, Office of Tax Analysis)

Abstract

We use information from the tax returns of U.S. multinational corporations to address three questions related to tax competition. First, does tax competition or company tax planning behavior better explain recent decreases in the local effective tax rates faced by U.S. multinationals investing abroad? Second, have countries become more aggressive in their use of tax concessions to attract particular types of foreign capital? And finally, has the role of taxes in the location decisions of U.S. manufacturers increased in recent years? Between 1992 and 2000, the average effective tax rate faced by U.S. manufacturers on income earned abroad fell from 25 percent to 21 percent. Our results suggest that the evolution of country effective tax rates between 1992 and 1998 seems to be driven by tax competition. Countries that lost shares of U.S. manufacturing real capital prior to 1992 cut their rates the most over this period. However, the most recent data suggests that companies may not need tax competition to lower effective tax burdens abroad. The evolution of country effective rates between 1998 and 2000 seems to be driven by company rather than country behavior. This is consistent with the introduction of the “check the box” regulations in 1997 which made it easier for corporations to use “self-help” to lower tax burdens. Interestingly, we find that countries were rewarding more mobile companies and those that were perceived to be more beneficial to the local economy with tax concessions as far back as 1984. Finally, although not conclusive, our empirical work suggests that U.S. manufacturers may have become more sensitive to differences in local tax rates across countries in recent years.Length: 20 pages

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200406.

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Date of creation: 01 Mar 2004
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Handle: RePEc:rut:rutres:200406

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Keywords: tax competition; multinational corporations; effective tax rates; international taxation;

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References

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  1. Rosanne Altshuler & Timothy J. Goodspeed, 2002. "Follow the Leader? Evidence on European and U.S. Tax Competition," Departmental Working Papers 200226, Rutgers University, Department of Economics.
  2. Harry Grubert, 2003. "The Tax Burden on Cross-Border Investment: Company Strategies and Country Responses," CESifo Working Paper Series 964, CESifo Group Munich.
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Cited by:
  1. Hristu-Varsakelis, Dimitrios & Karagianni, Stella & Saraidaris, Anastasios, 2011. "Equilibrium conditions in corporate tax competition and Foreign Direct Investment flows," Economic Modelling, Elsevier, vol. 28(1-2), pages 13-21, January.
  2. James R. Hines Jr., 2005. "Do Tax Havens Flourish?," NBER Chapters, in: Tax Policy and the Economy, Volume 19, pages 65-100 National Bureau of Economic Research, Inc.
  3. Li Liu & Rosanne Altshuler, 2011. "Measuring the burden of the corporate income tax under imperfect competition," Working Papers 1105, Oxford University Centre for Business Taxation.
  4. Laura Kawano & Joel Slemrod, 2012. "The Effect of Tax Rates and Tax Bases on Corporate Tax Revenues: Estimates with New Measures of the Corporate Tax Base," NBER Working Papers 18440, National Bureau of Economic Research, Inc.
  5. Rosanne Altshuler & Harry Grubert, 2006. "The Three Parties in the Race to the Bottom: Host Governments, Home Governments and Multinational Companies," Departmental Working Papers 200625, Rutgers University, Department of Economics.
  6. Dharmapala, Dhammika & Hines Jr., James R., 2009. "Which countries become tax havens?," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1058-1068, October.
  7. James R. Hines, Jr. & Lawrence H. Summers, 2009. "How Globalization Affects Tax Design," NBER Working Papers 14664, National Bureau of Economic Research, Inc.
  8. Mihir A. Desai & Dhammika Dharmapala, 2008. "Taxes, Institutions and Foreign Diversification Opportunities," Working Papers 0828, Oxford University Centre for Business Taxation.
  9. Zodrow, George R., 2010. "Capital Mobility And Capital Tax Competition," National Tax Journal, National Tax Association, vol. 63(4), pages 865-901, December.

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