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Capital Account Liberalization and Corporate Taxes

Author

Listed:
  • Mr. Ben Lockwood
  • Michael B. Devereux
  • Michela Redoano

Abstract

This paper studies whether exchange controls, particularly on the capital account, affect the choice of corporate tax rates, using a panel of 21 OECD countries over the period 1983-99. It builds on existing literature by (1) using a unique dataset with several different measures of the corporate tax rate calculated from the actual parameters of the tax systems, and (2i) allowing exchange controls to affect the intensity of strategic interaction between countries in setting taxes, as well as the levels of tax they choose. We find some evidence that (1) the level of a country’s tax, other things equal, is lowered by a unilateral liberalization of exchange controls; and (2) that strategic interaction in taxsetting between countries is increased by liberalization. These effects are stronger if the country is a high-tax one and if the tax is the statutory or effective average one. There is also evidence that countries’ own tax rates are reduced by liberalization of exchange controls in other countries.

Suggested Citation

  • Mr. Ben Lockwood & Michael B. Devereux & Michela Redoano, 2003. "Capital Account Liberalization and Corporate Taxes," IMF Working Papers 2003/180, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2003/180
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    Citations

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    Cited by:

    1. Sailesh Gunessee, 2010. "Strategic Tax Competition: An Experimental Study," Public Finance Review, , vol. 38(2), pages 217-243, March.
    2. Corneo, Giacomo, 2005. "Steuern die Steuern Unternehmensentscheidungen?," Discussion Papers 2005/3, Free University Berlin, School of Business & Economics.
    3. Julia Cage & Lucie Gadenne, 2014. "The Fiscal Cost of Trade Liberalization," PSE Working Papers halshs-00705354, HAL.
    4. Janeba, Eckhard & Osterloh, Steffen, 2013. "Tax and the city — A theory of local tax competition," Journal of Public Economics, Elsevier, vol. 106(C), pages 89-100.
    5. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June.

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