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Partisan politics in corporate taxation

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  • Osterloh, Steffen
  • Debus, Marc

Abstract

This paper studies the effects of political factors, mainly partisanship, on corporate taxes in the past 30years—a period of intensifying competitive pressure in Europe. The consideration of decision-makers who have ideological preferences yields in standard tax competition models the hypothesis that left-wing leaders set higher corporate tax rates. In the empirical analysis, we introduce an innovative measure of ideology derived from content analysis of party manifestos into the public finance literature. The results support our main hypothesis, but we also find evidence that the partisan effect declines in the course of time. Moreover, we are able to reveal that the observed effect is mainly driven by the legislatures' stance on welfare policies. Finally, we show that a higher degree of government fragmentation, as well as the leadership of a head of government with an educational background in law counteracts the general tendency to lower tax rates.

Suggested Citation

  • Osterloh, Steffen & Debus, Marc, 2012. "Partisan politics in corporate taxation," European Journal of Political Economy, Elsevier, vol. 28(2), pages 192-207.
  • Handle: RePEc:eee:poleco:v:28:y:2012:i:2:p:192-207
    DOI: 10.1016/j.ejpoleco.2011.11.002
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    Cited by:

    1. Osterloh, Steffen & Heinemann, Friedrich, 2013. "The political economy of corporate tax harmonization — Why do European politicians (dis)like minimum tax rates?," European Journal of Political Economy, Elsevier, vol. 29(C), pages 18-37.
    2. Michaël Zemmour, 2012. "Tax competition and the move from insurance to assistance," Documents de travail du Centre d'Economie de la Sorbonne 12090r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Mar 2013.
    3. repec:kap:itaxpf:v:24:y:2017:i:2:d:10.1007_s10797-016-9419-y is not listed on IDEAS
    4. Hallerberg, Mark & Scartascini, Carlos, 2017. "Explaining changes in tax burdens in Latin America: Do politics trump economics?," European Journal of Political Economy, Elsevier, vol. 48(C), pages 162-179.
    5. Angelopoulos, Konstantinos & Economides, George & Kammas, Pantelis, 2012. "Does cabinet ideology matter for the structure of tax policies?," European Journal of Political Economy, Elsevier, vol. 28(4), pages 620-635.
    6. Michael P. Devereux & Simon Loretz, 2013. "What Do We Know About Corporate Tax Competition?," National Tax Journal, National Tax Association, vol. 66(3), pages 745-774, September.
    7. Potrafke, Niklas, 2017. "Partisan politics: The empirical evidence from OECD panel studies," Journal of Comparative Economics, Elsevier, vol. 45(4), pages 712-750.
    8. Osterloh, Steffen, 2012. "Words speak louder than actions: The impact of politics on economic performance," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 318-336.
    9. Camyar, Isa & Ulupinar, Bahar, 2013. "The partisan policy cycle and firm valuation," European Journal of Political Economy, Elsevier, vol. 30(C), pages 92-111.
    10. Wen, Jun & Hao, Yu & Feng, Gen-Fu & Chang, Chun-Ping, 2016. "Does government ideology influence environmental performance? Evidence based on a new dataset," Economic Systems, Elsevier, vol. 40(2), pages 232-246.
    11. Benoît LE MAUX & Kristýna DOSTÁLOVÁ & Antti MOISIO, 2017. "Do political parties matter? Endogenous fragmentation, partisanship, and local public expenditures in Finland," Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS 2017-02-ccr, Condorcet Center for political Economy.
    12. Mark Hallerberg & Carlos Scartascini, 2015. "Explaining Changes in Tax Burdens in Latin America: Does Politics Trump Economics?," IDB Publications (Working Papers) 90997, Inter-American Development Bank.
    13. Manuela Krause & Niklas Potrafke, 2017. "The Real Estate Transfer Tax and Government Ideology: Evidence from the German States," CESifo Working Paper Series 6491, CESifo Group Munich.

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    Keywords

    Political ideology; Partisan politics; Company taxation; Tax competition;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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