Rate Cutting Tax Reforms and Corporate Tax Competition in Europe
AbstractWhile 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 InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 08-028.
Date of creation: 2008
Date of revision:
Tax reform; tax competition; corporate taxes;
Other versions of this item:
- Friedrich Heinemann & Michael Overesch & Johannes Rincke, 2010. "Rate-Cutting Tax Reforms And Corporate Tax Competition In Europe," Economics and Politics, Wiley Blackwell, vol. 22(3), pages 498-518, November.
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-20 (All new papers)
- NEP-EEC-2008-07-20 (European Economics)
- NEP-PBE-2008-07-20 (Public Economics)
- NEP-PUB-2008-07-20 (Public Finance)
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