Tax competition between developed, emerging, and developing countries – Same same but different?

Mohammed Mardan and Michael Stimmelmayr

Journal of Development Economics, 2020, vol. 146, issue C

Abstract: This paper analyzes tax competition between countries, which differ in their country-specific risks. We show that the outcome of asymmetric tax competition crucially depends on the ability of multinational firms to shift profits. With high costs of profit shifting, higher-risk countries set lower tax rates than lower-risk countries whereas the opposite is true if the costs of profit shifting are low. The results provide an explanation for the patterns observed in the corporate income tax policies across countries differing in their level of development. Moreover, for intermediate costs of profit shifting, we show that countries' absolute risk level plays an important role in tax rate setting. These results carry important implication for the empirical tax competition literature.

Keywords: Tax competition; Country risk; Developing countries; Asymmetric countries (search for similar items in EconPapers)
JEL-codes: F23 H25 O23 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Tax Competition between Developed, Emerging and Developing Countries - Same Same but Different? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:146:y:2020:i:c:s0304387820300663

DOI: 10.1016/j.jdeveco.2020.102491

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