Does recent empirical evidence support the existence of international corporate tax competition?
Journal of International Accounting, Auditing and Taxation
FDI, Tax co-ordination, Tax competition
Recent reductions in institutional barriers to international investment have meant that the existence of international corporate tax differentials is now one of the most significant remaining causes of distortion to the optimum global allocation of resources, and hence to international trade. In the debate as to how to reduce such distortion, two main schools of thought have emerged. The first believes that this result can be achieved primarily through the international co-ordination of corporate taxes. To date, efforts in this direction have not made significant progress. The second contends that market forces, through tax competition, will spontaneously reduce international corporate tax differentials. In this article, an analysis of recent trends in corporate tax rates supports this second contention: statutory and effective corporate tax rates are continuing to decline and converge. However, recent tax revenue data give little support for the existence of tax competition; the expected shift in the tax burden from corporate profits onto less mobile factors such as labor has largely failed to materialize. Several explanations for these contrasting findings are outlined and analyzed.
Copyright © 2006 Elsevier Inc
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Simmons, R. S. (2006). Does recent empirical evidence support the existence of international corporate tax competition? Journal of International Accounting, Auditing & Taxation, 15(1), 16-31. doi: 10.1016/j.intaccaudtax.2006.01.002