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Corporate tax competition between firms

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  • Simon Loretz

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  • Padraig Moore

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Abstract

Firms’ tax planning decisions, similar to their other operational decisions, are made in a competitive environment. Various stakeholders observe the tax payments and evaluate these against the relevant peer group. This implies firms might not simply minimise their tax burden, but also consider their competitors behaviour when deciding about tax planning. Empirically this creates interdependencies in the tax planning activities of firms. Introducing the concept of a reputational loss we show the positive interdependence in a theoretical model and test it in a spatial econometric model. Empirical evidence suggests that benchmarking takes place both within countries and within industries, however for the latter it is important to include firms in large non-EU OECD countries. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Simon Loretz & Padraig Moore, 2013. "Corporate tax competition between firms," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(5), pages 725-752, October.
  • Handle: RePEc:kap:itaxpf:v:20:y:2013:i:5:p:725-752
    DOI: 10.1007/s10797-012-9248-6
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    References listed on IDEAS

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    Cited by:

    1. Bauer, Christian J. & Langenmayr, Dominika, 2013. "Sorting into outsourcing: Are profits taxed at a gorilla's arm's length?," Journal of International Economics, Elsevier, vol. 90(2), pages 326-336.

    More about this item

    Keywords

    Corporate taxation; Benchmarking; Tax competition; Spatial econometrics; C33; H25; M40;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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