| By: |
Heinemann, Friedrich;
Overesch, Michael;
Rincke, Johannes |
| Abstract: |
While there is a large and growing number of studies on the determinants of
corporate tax rates, the literature has so far ignored the fact that the
behavior of governments in setting tax rates is often best described as a
discrete choice decision problem. We set up an empirical model that relates a
government's decision whether to cut its corporate tax rate to the country's
own inherited tax and taxes in neighboring countries. Using comprehensive data
on corporate tax reforms in Europe since 1980, we find evidence suggesting
that the position in terms of the tax burden imposed on corporate income
relative to geographical neighbors strongly affects the probability of rate
cutting tax reforms. Countries are particularly likely to cut their statutory
tax rate if the inherited tax is high and if they are exposed to low-tax
neighbors. |
| Keywords: |
Tax reform, tax competition, corporate taxes |
| JEL: |
H20 H25 H71 |
| Date: |
2008 |
| URL: |
http://d.repec.org/n?u=RePEc:zbw:zewdip:7300&r=pub |