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Rate Cutting Tax Reforms and Corporate Tax Competition in Europe

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  • Heinemann, Friedrich
  • Overesch, Michael
  • Rincke, Johannes

Abstract

While there is a large and growing number of studies on the determinants of corporate tax rates, the literature has so far ignored the fact that the behavior of governments in setting tax rates is often best described as a discrete choice decision problem. We set up an empirical model that relates a government's decision whether to cut its corporate tax rate to the country's own inherited tax and taxes in neighboring countries. Using comprehensive data on corporate tax reforms in Europe since 1980, we find evidence suggesting that the position in terms of the tax burden imposed on corporate income relative to geographical neighbors strongly affects the probability of rate cutting tax reforms. Countries are particularly likely to cut their statutory tax rate if the inherited tax is high and if they are exposed to low-tax neighbors. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 08-028.

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Date of creation: 2008
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Handle: RePEc:zbw:zewdip:7300

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Keywords: Tax reform; tax competition; corporate taxes;

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  1. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
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  15. Mauro Ghinamo & Paolo Panteghini & Federico Revelli, 2007. "FDI Determination and Corporate Tax Competition in a Volatile World," CESifo Working Paper Series 1965, CESifo Group Munich.
  16. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2003. "In search of yardstick competition: a spatial analysis of Italian municipality property tax setting," Journal of Urban Economics, Elsevier, vol. 54(2), pages 199-217, September.
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Cited by:
  1. Hansson, Ã…sa & Porter, Susan & Perry Williams, Susan, 2012. "The Effect of Political and Economic Factors on Corporate Tax Rates," Working Paper Series, Research Institute of Industrial Economics 942, Research Institute of Industrial Economics.
  2. Mark Hallerberg, 2012. "Explaining European Patterns of Taxation: From the Introduction of the Euro to the Euro-Crisis," Research Department Publications, Inter-American Development Bank, Research Department 4777, Inter-American Development Bank, Research Department.
  3. Johannes Becker & Ronald B. Davies, 2013. "Learning and international policy diffusion: the case of corporate tax policy," Working Papers, Oxford University Centre for Business Taxation 1319, Oxford University Centre for Business Taxation.
  4. Osterloh, Steffen & Debus, Marc, 2012. "Partisan politics in corporate taxation," European Journal of Political Economy, Elsevier, vol. 28(2), pages 192-207.
  5. Osterloh, Steffen & Debus, Marc, 2009. "Partisan politics in corporate tax competition," ZEW Discussion Papers 09-078, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Michael Devereux & Simon Loretz, 2012. "What do we know about corporate tax competition?," Working Papers, Oxford University Centre for Business Taxation 1229, Oxford University Centre for Business Taxation.

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