Do Countries Compete over Corporate Tax Rates

By Michael P. Devereux, Ben Lockwood, Michela Redoano. 2008

955 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/017c9932198626dfbbf9fc3f29b1a384b40ccd2e

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Citations in the corpus

The capital structure of multinational companies under tax competition (2009, methodology): “(31) Finally, using (30) and (31) one easily obtains (8).”
What Drives Corporate Tax Rates Down? A Reassessment of Globalization, Tax Competition, and Dynamic Adjustment to Shocks (2011, background): “Relating our work to the recent contribution of Devereux et al. (2008), we would like to stress two points.”
Public spending interactions and local politics. Empirical evidence from French municipalities (2008, methodology): “As the previous estimators are likely to be inconsistent when including the time-lagged dependent variable in the regression ( Devereux et al. 2002 ; D reher2006; Redoano 2007), the GMM estimator developed by Arellano and Bond (1991) in addition to the IV estimator of the spatial coefficient (ρ) is ”
Capital tax competition: bane or boon (2004, background): “6 Devereux et al. (2001a) uncover some empirical evidence that governments treat the location choices of”
The impact of globalization on the composition of government expenditures: Evidence from panel data (2006, positive): “We do not include fixed period effects, since they are already present in the weighted average and the lagged dependent variable (see Devereux et al. 2002 for details).”
Patent Boxes Design, Patents Location and Local R&D (2015, background): “10 See Devereux et al. (2008) for an empirical analysis. Data on corporate tax rates can be found in, inter alia, European Commission (2014b) and OECD (2015a). 11 The EU-28 average moved from 22.7% in 2008 to 22.1% in 2015. The OECD data are for those that were members in 1985. 12 See Garnier et al ”
International Financial Integration (2003, positive): “15 This variable is constructed by Devereux, Lockwood, and Redoano (2002) and Devereux, Griffith and Klemm (2002).”
Growth impact and determinants of foreign direct investment into South Africa, 1956–2003 (2004, background): “Devereux et al (2002) show that OECD countries do indeed compete with each other over corporate taxes in order to attract investment.”
A Race to the Bottom in Labour Standards? An Empirical Investigation (2011, background): “The first group of work includes Davies and Voget (2008), Devereux et al. (2008), Overesch and Rincke (2009) and others.”