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Economic integration and the relationship between profit and wage taxes

Author

Listed:
  • Andreas Haufler

    (University of Munich)

  • Alexander Klemm

    (International Monetary Fund)

  • Guttorm Schjelderup

    (Norwegian School of Economics and Business Administration)

Abstract

This paper analyses the development of the ratio of corporate taxes to wage taxes using a simple political economy model with workers and capitalists that own internationally mobile and immobile firms. Among other results, our model predicts that countries reduce their corporate tax rate, relative to the wage tax when preferences for public goods increase, or when a rising share of capital is employed in multinational firms. We further show how a rise in the wage share changes both the relative size of tax bases and the political influence of different income groups. The predicted relationships are tested using panel data for 23 OECD countries for the period 1980 through 2004. The results of the empirical analysis support our main hypotheses.

Suggested Citation

  • Andreas Haufler & Alexander Klemm & Guttorm Schjelderup, 2008. "Economic integration and the relationship between profit and wage taxes," Working Papers 0810, Oxford University Centre for Business Taxation.
    • Handle: RePEc:btx:wpaper:0810
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    Cited by:

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    2. Gintarė Giriūnienė, 2013. "Public sector‘s subsidies to business – suitability valuation of labor market support measures," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 1(1), pages 37-44, September.
    3. Osterloh, Steffen & Debus, Marc, 2009. "Partisan politics in corporate tax competition," ZEW Discussion Papers 09-078, ZEW - Leibniz Centre for European Economic Research.
    4. Genschel, Philipp & Schwarz, Peter, 2012. "Tax competition and fiscal democracy," TranState Working Papers 161, University of Bremen, Collaborative Research Center 597: Transformations of the State.
    5. Koenig, Tobias & Wagener, Andreas, 2013. "Tax structure and government expenditures with tax equity concerns," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 137-153.
    6. B. Merlevede & G. Rayp & S. Van Parys & T. Verbeke, 2011. "Do EU15 countries compete over labour taxes?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/750, Ghent University, Faculty of Economics and Business Administration.
    7. Simon Loretz, 2008. "Corporate taxation in the OECD in a wider context," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(4), pages 639-660, winter.
    8. 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.
    9. Osterloh, Steffen & Debus, Marc, 2012. "Partisan politics in corporate taxation," European Journal of Political Economy, Elsevier, vol. 28(2), pages 192-207.
    10. Adam, Antonis & Kammas, Pantelis & Lagou, Athina, 2013. "The effect of globalization on capital taxation: What have we learned after 20years of empirical studies?," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 199-209.
    11. Janeba, Eckhard & Osterloh, Steffen, 2012. "Tax and the city: A theory of local tax competition and evidence for Germany," ZEW Discussion Papers 12-005, ZEW - Leibniz Centre for European Economic Research.
    12. König, Tobias & Wagener, Andreas, 2008. "(Post-)Materialist Attitudes and the Mix of Capital and Labour Taxation," Hannover Economic Papers (HEP) dp-404, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    13. Gintarė Giriūnienė, 2013. "Public sector‘s subsidies to business – suitability valuation of labor market support measures," Post-Print hal-01694346, HAL.
    14. Karpowicz Andrzej, 2018. "Corporate Income Tax Rates in the EU Member States: Why Lower Means Better," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 14(3), pages 32-48, September.

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    More about this item

    Keywords

    Capital and labour taxes; economic integration; multinational firms;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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