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How elastic are national corporate income tax bases in OECD countries? The role of domestic and foreign tax rates

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  • Aleksandra Riedl
  • Silvia Rocha‐Akis
Abstract
To what extent do reductions in corporate income tax (CIT) rates attract foreign tax bases? What are the revenue implications of a unilateral tax reduction when tax bases are internationally mobile? These questions are explored using annual data from 17 OECD countries spanning the period 1982 to 2005. Controlling for fixed country effects, year effects, and country time trends, and subjecting our results to an extensive robustness analysis, we find (i) a country’s aggregate reported corporate profits are negatively and significantly affected by CIT rate reductions in neighbouring countries; (ii) a unilateral reduction in the domestic CIT rate results in lower domestic CIT revenues. Jusqu’à quel point est‐ce que les réductions dans les taux d’imposition des revenus des corporations attirent des bases imposables de l’étranger? Quelles sont les implications en termes de revenus d’une réduction unilatérale du taux d’imposition quand les bases imposables sont mobiles? On examine ces questions en utilisant les données annuelles pour 17 pays de l’OCDE pour la période de 1982 à 2005. Normalisant pour tenir compte de l’effet de pays, de l’année, et des tendances des pays dans le temps, et prenant la peine de soumettre les résultats à une sérieuse analyse de robustesse, on montre que (i) les profits agrégés des corporations sont affectés négativement et de manière substantielle par les réductions dans les taux d’imposition des pays voisins; (ii) une réduction unilatérale dans le taux d’imposition domestique sur le revenu des corporations entraîne une réduction des revenus fiscaux de cette source.

Suggested Citation

  • Aleksandra Riedl & Silvia Rocha‐Akis, 2012. "How elastic are national corporate income tax bases in OECD countries? The role of domestic and foreign tax rates," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(2), pages 632-671, May.
    • Handle: RePEc:wly:canjec:v:45:y:2012:i:2:p:632-671
    DOI: 10.1111/j.1540-5982.2012.01713.x
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    Cited by:

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    2. Matthias Krapf & David Staubli, 2020. "The Corporate Elasticity of Taxable Income: Event Study Evidence from Switzerland," CESifo Working Paper Series 8715, CESifo.
    3. Nobilis, Benedek, 2021. "A magyar adórendszer versenyképességének helyreállítása a 2010-es években [Restoring the Competitiveness of the Hungarian Tax System in the 2010s]," Taxation Policy Papers 2, Ministry of Finance, Department of Tax Policy and International Taxation.
    4. repec:ilo:ilowps:485510 is not listed on IDEAS
    5. David Staubli, 2018. "The Elasticity of Corporate Income: Panel Data Evidence from Switzerland," Cahiers de Recherches Economiques du Département d'économie 18.01, Université de Lausanne, Faculté des HEC, Département d’économie.
    6. Florence Lachet-Touya, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working papers of CATT hal-02939340, HAL.
    7. repec:tur:wpapnw:10 is not listed on IDEAS
    8. Leoš Vítek, 2013. "Corporate Income Taxation and the Corporate Tax Base in the Czech Republic [Zdanění firem a jejich daňový základ v České republice]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2013(2), pages 38-49.
    9. Godar, Sarah. & Paetz, Christoph. & Truger, Achim., 2014. "Progressive tax reform in OECD countries : perspectives and obstacles," ILO Working Papers 994855103402676, International Labour Organization.
    10. Yuya Kikuchi & Toshiki Tamai, 2019. "Tax competition, unemployment, and intergovernmental transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 899-918, August.
    11. Nathan M. Jensen & Adam H. Rosenzweig, 2015. "Can a Single Country Increase the Taxes of Multinational Corporations? Evidence from the Impact of the 1993 Corporate Tax Rate Increase on Fortune 500 Companies," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 12(4), pages 757-780, December.
    12. Tamai, Toshiki, 2022. "Tax competition versus tax coordination in a multi-region endogenous growth model with an integrated capital market," Economic Modelling, Elsevier, vol. 114(C).
    13. Karen Tumanyants, 2018. "Economic impact of the change in tax rate on small enterprises of manufacturing and construction sectors: Evidence from Russia 2006-2014," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(3), pages 642-658, June.
    14. Florence Lachet-Touya, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers hal-02939340, HAL.
    15. Florence Lachet-Touya, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working papers of CATT hal-02939399, HAL.
    16. Godar, Sarah & Paetz, Christoph & Truger, Achim, 2014. "Progressive tax reform in OECD countries: Perspectives and obstacles," GLU Working Papers 27, Global Labour University (GLU).
    17. Florence TOUYA, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers 2015-2016_12, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    18. Florence TOUYA, 2016. "EU tax competition and tax avoidance: A multiprincipal perspective," Working Papers 2015-2016_11, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Aug 2016.
    19. Florence Lachet-Touya, 2016. "Horizontal and Vertical Tax Interactions in a Common Agency Game," Working Papers hal-02939399, HAL.
    20. Karpowicz Andrzej, 2022. "What impacts the value of revenues from taxation of income of corporations? Evidence from European Union Member States," Wroclaw Review of Law, Administration & Economics, Sciendo, vol. 12(1), pages 30-53, December.

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    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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