Do Countries Compete over Corporate Tax Rates?

Michael 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: Tax competition; Corporate taxes; Effective tax rate; Effective marginal tax rate (search for similar items in EconPapers)
JEL-codes: H00 H25 H77 (search for similar items in EconPapers)
Date: 2002-05
New Economics Papers: this item is included in nep-cdm and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (82)

Downloads: (external link)
https://cepr.org/publications/DP3400 (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:
Journal Article: Do countries compete over corporate tax rates? (2008)
Working Paper: Do Countries Compete over Corporate Tax Rates? (2002)
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: https://EconPapers.repec.org/RePEc:cpr:ceprdp:3400

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3400

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().