Do Countries Compete over Corporate Tax Rates?

Michael P. Devereux (), Ben Lockwood () and Michela Redoano ()

No 3400, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper tests whether OECD countries compete with each other over corporate taxes in order to attract investment. We develop two models: with firm mobility, countries compete only over the statutory tax rate or the effective average tax rate, while with capital mobility, countries compete only over the effective marginal tax rate. We estimate the parameters of reaction functions using data from 21 countries between 1983-99. We find evidence that countries compete over all three measures, but particularly over the statutory tax rate and the effective average tax rate. This is consistent with a belief amongst governments that location choices by multinational firms are discrete. We also find evidence of concave reaction functions, consistent with the model outlined in the Paper.

Keywords: corporate taxes; effective marginal tax rate; effective tax rate; tax competition (search for similar items in EconPapers)
JEL-codes: H00 H25 H77 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm and nep-pol
Date: 2002-05
View list of references View citations in EconPapers

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP3400.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: DO COUNTRIES COMPETE OVER CORPORATE TAX RATES? (2002)
Journal Article: Do countries compete over corporate tax rates? (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:3400

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP3400.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().