Lowering the Marginal Corporate Tax Rate: Why the Debate?

Abstract

This paper as the co-winner of the 2015 second annual Amartya Sen Prize Competition given by the Global Justice Program at Yale University in partnership with Global Financial Integrity and Academics Stand Against Poverty http://globaljustice.macmillan.yale.edu/news/winners-second-amartya-sen-prizeannounced. Abstract:In an effort to attract new investors and retain existing producers, governments use corporate tax rates as a policy tool for industrial recruitment, resulting in interstate tax competition. FDI and GDP growth are the two policy outcomes gauged in interstate tax competition. The assumption is that lower corporate taxes lead to increase in FDI, which results in capital formation that creates GDP growth. This 60-nation panel study tests that assumption through examining economic indicators continent on taxation, such as FDI and MNC mergers and acquisitions between 1999 and 2009. The results suggest that reduced corporate tax rates can increase FDI but decrease annual GDP growth. The main policy implication is that tax competition may attract investment, but may not promote overall economic growth, offering support for value-extraction theories.

Coordination vs. Competitiveness of Effective Average Tax Rates in Relation to FDI: The Case of Emerging EU Economies

“…Bénassy-Quéré et al [28] claimed that following statutory tax rates, investors/capital owners could be misled. Although the statutory tax rate is decreased, the tax burden can be unchanged [29] Thus, Auerbach [6] emphasized the effective tax rate role in understanding FDI location decisions. Egger et al [8], in their empirical study, confirmed that unilateral effective tax rates significantly affect the production and location decisions of multinational firms.…”

“…Higher transnational capital mobility exerts a downward pressure on corporate tax rates [31]. In an effort to attract new investors and retain existing producers, governments use corporate tax rates as a policy tool for investment attraction, resulting in inter-state tax competition [29]. Tax competitiveness motivates capital owners on resource allocation [14], since one of the key determinants for multinational companies' decisions about the location and expansion of businesses is taxes [15].…”

Türki̇ye’de Makroekonomi̇k Faktörler Ve Kurumlar Vergi̇si̇ni̇n Doğrudan Yabanci Yatirima Etki̇si̇

“…Sonuçlar, vergi oranlarını düşüren ülkelerin, bu düşüşü izleyen süreçte daha yüksek seviyede doğrudan yabancı yatırım çektiğini göstermektedir. Anguelov (2015Anguelov ( ), 1999Anguelov ( -2009 döneminde 60 ülkeyi inceleyen çalışmasında marjinal kurumlar vergisi oranı ve doğrudan yabancı yatırım giriş ve çıkışları ilişkisini incelemiştir. Sonuca göre, düşürülen kurumlar vergisi oranları doğrudan yabancı yatırımları artırırken yıllık GSYİH büyümesini azaltmaktadır.…”

“…Bu anlamda doğrudan yabancı yatırımı etkileyecek vergi indirimleri, vergi tatilleri, yatırım teşvikleri gibi vergisel araçlar bulunmakta iken literatür kurumlar vergisine odaklanmıştır. Literatüre göre, kurumlar vergisi oranında indirime gitmek doğrudan yabancı yatırımı arttırabilecektir ve kurumlar vergisi doğrudan yabancı yatırımı etkileyen diğer faktörler kadar etkilidir (Anaraki, 2015;Anguelov, 2015;Bellak ve Leibrecht, 2009; Bénassy-Quéré, Fontagné ve Lahrèche-Révil, 2005). Ancak ülkelerdeki birtakım özellikler kurumlar vergisinin etkisini zayıflatmaktadır.…”

Race to the Bottom in International Tax Competition: Some Conceptual Issues

“…The author found that reduction of corporate tax rates could lead to the increase of FDI but at the same time -to the decrease of annual GDP growth. He concluded that the tax competition could attract the foreign direct investment, but may not contribute to the economic growth; when both the trade integration and ease of merger and acquisitions increase, the trend in harmonizing tax rates decreases [5].…”