Partisan politics in corporate tax competition

Steffen Osterloh () and Marc Debus

No 09-078, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper studies the effects of political factors, mainly partisanship, on corporate taxes in the past 30 years - a period of intensifying competitive pressure in Europe. Extending the Zodrow-Mieszkowski model by decision-makers who have ideological preferences yields the hypothesis that left-wing leaders set higher corporate tax rates. In the empirical analysis, we introduce a sophisticated measure of ideology derived from content analysis of party manifestos into the literature dealing with partisan effects on tax policy. We can confirm our main hypothesis, but we also find evidence that this partisan effect declines in the course of time. Moreover, we are able to reveal that this effect is mainly driven by the legislatures' stance on welfare policies. Finally, we show that a higher degree of government fragmentation, as well as the leadership of a head of state with an educational background in law counteracts the general tendency to lower tax rates.

Keywords: company taxation; tax competition; political ideology; partisan politics (search for similar items in EconPapers)
JEL-codes: D78 H25 H87 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-pbe, nep-pol and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:09078

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