Is international tax competition only about taxes? A market-based perspective |
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| Institution: | 1. University of Glasgow, Adam Smith Business School, United Kingdom and Rennes School of Business;2. SKEMA Business School-UCA, Paris, France;3. University of Strathclyde, Glasgow, United Kingdom;1. University of Marburg, Public Economics Group, Am Plan 2, 35037 Marburg, Germany. CESifo, Munich, Germany. EconomiX, Paris, France;2. University of Marburg, Public Economics Group, Am Plan 2, 35037 Marburg, Germany;3. ifo Institute for Economic Research, Poschingerstr. 5, 81679 Munich, Germany. University of Munich, Germany. CESifo, Munich, Germany;1. Graduate School of Public Policy, Nazarbayev University, Kabanbay batyr 53, Nur-Sultan 010000, Republic of Kazakhstan;1. ifo Institute, Munich Germany;2. University of Munich (LMU), Germany;3. University of Würzburg, Germany |
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| Abstract: | This paper revisits tax competition among governments for foreign direct investment (FDI) by considering the role played by the economic dynamism of competitors on the setting of corporate tax rates (CTRs). Using a database with worldwide coverage over the period 1995–2014, we find that strong growth performance of neighbouring countries is associated with a lower CTR, especially in developed countries. This spatial effect is particularly manifest if competing countries are large and open to capital flows. These results appear to hold in most regions of the world and suggest that governments perceive foreign economic dynamism as a threat, leading them to reduce their CTRs to maintain their FDI attractiveness. |
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