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Economic integration and the relationship between profit and wage taxes

  • Andreas Haufler

    (University of Munich)

  • Alexander Klemm

    (International Monetary Fund)

  • Guttorm Schjelderup

    (Norwegian School of Economics and Business Administration)

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.

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Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0810.

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Date of creation: 2008
Date of revision:
Handle: RePEc:btx:wpaper:0810
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  29. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
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