How big are strategic spillovers from corporate tax competition?
Economic Inquiry, 2022, vol. 60, issue 2, 847-869
Strategic spillovers happen when one country's tax rate responds to tax cuts in other countries. My estimate of the size of strategic spillovers from corporate tax competition is one‐third of the size of consensus estimates. A one percentage point cut in the foreign tax rate results in a 0.23 percentage point cut in the home tax rate. I use two novel identification strategies. First, I use bilateral foreign investment to define how one country matters to another. Second, I use only tax reforms—359 reforms across 76 countries. These identification strategies are derived from a model of corporate tax competition.
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