| dc.description.abstract | Corporate tax rates have been significantly decreased, especially in the OECD countries in the past thirty years. In 1980, the average federal level corporate top statutory tax rate in the OECD countries was 42.35%, and in 1990, this number was 36.35%. In 2010, this number has been decreased to less than 25%. Many economists (Slemrod, 2004; Winner, 2005; Schwarz, 2007; Devereux et al., 2008; Bellak and Leibrecht, 2009) investigate the causes, as well as the consequences of the decreasing corporate tax rate trend. The purpose of this paper is to provide a comprehensive study of the causes of corporate tax rate changes by investigating the OECD countries first, and then extending to other developing countries.
This dissertation contains three chapters. Chapter I documents the evolution of corporate tax policies in OECD countries. Chapter II studies international corporate tax competition within OECD countries. It focuses on controlling the effects of common shocks on strategic interactions with respect to corporate tax policies. Chapter III includes corporate tax policies of developing countries and investigates two questions. First, how do neighboring countries interact with each other regarding corporate top statutory tax rate (TSR)? Second, which countries are more likely to be leaders and which countries are more likely to be followers in international corporate tax competition setting?
The first chapter evaluates various aspects of corporate tax evolution in OECD countries. Corporate tax policy changes not only include changes in corporate tax rates, but also changes in corporate tax bases, as well as the changes in corporate tax structures. These changes differ across countries as well as through time. Despite the differences, however, there are several common features in OECD countries’ corporate tax policy changes.
First of all, corporate tax rates in all OECD counties have been reduced. In contrast, the corporate tax bases have been broadened. The countries, such as Portugal, Finland, and Greece, had higher corporate tax rates than the other OECD countries at the beginning of the sample period, 1981, and also experienced larger corporate tax rate reductions. Second, most of the OECD countries impose a straight-forward corporate tax structure. More than half of the OECD countries do not collect local corporate tax. Also, most of the OECD countries implement a flat instead of progressive corporate tax rate structure. Third, in all OECD countries, corporate tax revenues only account for a small fraction of the total tax revenues, as well as GDP.
The second chapter uses panel spatial analysis to study strategic interactions in OECD countries with respect to corporate tax rates. The data includes 21 developed countries which joined the OECD before 1980, for the period from 1981 to 2011. The main contribution of this chapter is analyzing the importance of accounting for common shocks which may have differential impacts on countries. To do this, I adopt the double clustering method proposed by Thompson (2011), account for the effects of common shocks on the corporate tax competition via reaction functions, which represent how a country responds to other countries’ corporate tax rates. Both geometric and economic weighting matrixes are adopted to build the reaction functions.
These findings demonstrate that an OECD country’s corporate tax rates are positively and significantly correlated with other OECD countries’ corporate tax rates. Generally, a country’s corporate tax rates fall by around 0.7 percentage points when the weighted average corporate tax rates in other OECD countries fall by 1 percentage point. This positive correlation is robust under various empirical specifications. As the 1998 OECD report mentioned, corporate tax competition in OECD countries has been more intense since the early 1990s.The findings also indicate that corporate tax rates in developing countries significantly affect OECD countries’ corporate tax rates. This suggests that international corporate tax competition among OECD countries is also influenced by developing countries.
The third chapter contributes to the existing literature about international corporate tax competition in three ways. First, it adopts a larger sample than previous research which allows for a more comprehensive investigation on international corporate tax changes. The data includes 139 countries from 1981 to 2011. Second, instead of corporate tax rate levels, this chapter focuses on the observed corporate TSR changes and investigates corporate TSR change interactions among neighboring countries. Third, this chapter sheds light on the leader follower problem in international corporate tax competition by investigating dynamic aspects of corporate TSR change interactions.
The results of the third chapter are quite interesting. First, neighboring countries’ corporate TSR changes are found to interact with each other. Moreover, neighboring countries’ corporate TSR increases and decreases have opposite effects on home countries’ corporate TSR policies. Second, the structure of corporate TSR change interactions is complicated. Countries interact with each other contemporaneously, as well as dynamically with respect to corporate TSR changes. Third, this chapter finds that developed countries and tax havens are more likely to be leaders than developing and non-tax haven countries in corporate TSR change interactions. Regarding contemporaneous interactions, corporate TSR changes in emerging market countries are found to be significantly related to developed countries’ corporate TSR policies.
From a policy perspective, attempts to regulate corporate tax competition in OECD and European Union (EU) countries which focus on cooperation among member countries alone are not sufficient. It is necessary to include developing countries, at least some of the emerging market countries, into international tax coordination. Moreover, since a country’s corporate tax policies not only depends on the interactions with other countries, but also on its own economic and political characteristics, it is difficult to enforce the same corporate tax rates and bases on all countries. However, countries may agree to enhance the stability of corporate tax policies. By reducing the incentives to decrease corporate tax rates, international corporate tax competition can be attenuated.
Overall, this dissertation investigates countries’ strategic interactions regarding corporate tax policies. The results provide some evidence to help policymakers, particularly those in OECD countries, understand the nature of corporate tax policy interactions. In doing so, it provides guidance to policymakers regarding policies aimed at curbing international corporate tax competition. | en_US |
