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Corporate Income Tax Competition in the Caribbean

  • Koffie Ben Nassar
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    Motivated by the concern that corporate income tax (CIT) competition may have eroded the tax base, this paper calculates average effective tax rates to measure the impact of CIT competition, including the widespread use of tax holidays, on the tax base for 15 countries in the Caribbean. The results not only confirm erosion of the tax base, but also show that CIT holidays must be removed for recent tax policy initiatives (such as accelerated depreciation, loss carry forward provisions, and tax harmonization) to be effective. These findings suggest that the authorities should either avoid granting CIT holidays or rely more on other taxes (including consumption taxes such as the value-added tax) in order to broaden the tax base.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/77.

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    Length: 22
    Date of creation: 01 Mar 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/77
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    1. Michael P. Devereux & Alexander Klemm, 2003. "Measuring Taxes on Income from Capital: Evidence from the UK," CESifo Working Paper Series 968, CESifo Group Munich.
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    8. Michael Devereux & Rachel Griffith & Alexander Klemm, 2004. "Why has the UK corporation tax raised so much revenue?," Fiscal Studies, Institute for Fiscal Studies, vol. 25(4), pages 367-388, December.
    9. Gordon, Roger H, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 567-86, November.
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    11. Eggert, Wolfgang & Haufler, Andreas, 2006. "Company tax coordination cum tax rate competition in the European Union," Discussion Papers in Economics 902, University of Munich, Department of Economics.
    12. Alexander Klemm, 2004. "A minimum rate without a common base?," Intereconomics: Review of European Economic Policy, Springer, vol. 39(4), pages 186-189, July.
    13. Keen, Michael, 2001. "Preferential Regimes Can Make Tax Competition Less Harmful," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 757-62, December.
    14. Mark Rider, 2004. "Corporate Income Tax and Tax Incentives," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0428, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    15. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 289-96, April.
    16. 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.
    17. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer, vol. 10(2), pages 107-26, March.
    18. Sebastian Sosa, 2006. "Tax Incentives and Investment in the Eastern Caribbean," IMF Working Papers 06/23, International Monetary Fund.
    19. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
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