Corporate income tax reforms and international tax competition

Abstract

This paper analyses the development of taxes on corporate income in EU and G7 countries over the last two decades. We establish a number of stylised facts about their development. Tax-cutting and base-broadening reforms have had the effect that, on average across EU and G7 countries, effective tax rates on marginal investment have remained fairly stable, but those on more profitable investments have fallen. We discuss two possible explanations of these stylised facts arising from alternative forms of tax competition. First, governments may be responding to a fall in the cost of income shifting, which puts downward pressure on the statutory tax rate. Second, reforms are consistent with competition for more profitable projects, in particular those earned by multinational firms.

Tax incentives and the location of FDI: Evidence from a panel of German multinationals

“…Tax incentives are taken from Devereux, Griffith, and Klemm (2002). The data are kindly provided by the authors at the IFS website.…”

Mobile tax base as a global common

“…Second, if c B < 1 2 t h n < c A , then an equilibrium exists in which only B invests and A prefers not to invest. This can also be seen from the matrix in (14): B prefers to invest, as the additional pro…t from investing is 1 2 t h n c B > 0, independent of whether A invests or not, and for A the cost of investing exceeds the bene…ts in terms of additional tax returns, independent of whether B invests or not. Hence, this asymmetric equilibrium is an equilibrium in dominant strategies.…”

Trade integration and corporate income tax differentials

“…2 While numerous studies analyse the decline in corporate tax rates (Devereux et al, 2002(Devereux et al, , 2008Davies and Voget, 2008), Gilbert et al (2005) is the only study analysing the determinants of corporate tax rate differentials. Compared to that study, we provide a firmer theoretical rationale for the analysis, address potential endogeneity problems, control for the influence of various country-level variables, and employ a Our results support theoretical predictions from Ottaviano and Van Ypersele (2005) and Haufler and Wooton (2010).…”

“…2 While numerous studies analyse the decline in corporate tax rates (Devereux et al, 2002(Devereux et al, , 2008Davies and Voget, 2008), Gilbert et al (2005) is the only study analysing the determinants of corporate tax rate differentials. Compared to that study, we provide a firmer theoretical rationale for the analysis, address potential endogeneity problems, control for the influence of various country-level variables, and employ a Former US Treasury Secretary Geithner's statement quoted above indeed makes clear that a central reason behind the US' planned overhaul of the corporate tax system lies in fears that increasing economic integration is undermining the US' ability to sustain higher tax rates compared to its main trading partners.…”

“…Also, some countries give preferential treatment to highly mobile tax bases (e.g., Ireland taxes manufacturing and financial services less than other sectors). We abstract from such empirical tax competition studies -which mostly estimate tax reaction functions, where the tax rate in one country is linked to a population-or distance-weighted average of competing countries' tax rates (Devereux et al, 2002(Devereux et al, , 2008Davies and Voget, 2008) -we thereby explicitly model the tax rate difference between each country-pair. The reason is threefold.…”