Economic integration and the relationship between profit and wage taxes

Andreas Haufler, Alexander Klemm and Guttorm Schjelderup

No 810, Working Papers from Oxford University Centre for Business Taxation

Abstract: 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.

Keywords: Capital and labour taxes; economic integration; multinational firms (search for similar items in EconPapers)
JEL-codes: F15 F23 H20 H73 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-int and nep-pbe
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Economic integration and the relationship between profit and wage taxes (2009)
Working Paper: Economic integration and the relationship between profit and wage taxes (2009)
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