Corporate tax competition and public capital stock

Pedro Gomes and Francois Pouget

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper argues that the governmental decisions on corporate tax and public capital stock are not independent. In order to explain this relationship, we have built a general equilibrium model of corporate tax competition where governments supply public capital and compete for corporate profits. When international tax competition drives the statutory tax rate down from 50% to 30%, public capital stock goes down by 10% of GDP. To confirm this relation, we estimate two policy functions for 18 OECD countries. We find that corporate tax rate and public investment are endogenous and that a decline of 20% in the corporate tax rate, driven by competition, reduces public investment by 0.5% to 0.9% of GDP. We also find evidence that there is international competition in both policy tools and that tax competition increases with the degree of openness of the economy.

JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2008-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://eprints.lse.ac.uk/6536/ Open access version. (application/pdf)

Related works:
Working Paper: Corporate Tax Competition and Public Capital Stock (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: https://EconPapers.repec.org/RePEc:ehl:lserod:6536

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().