Tax competition strategies in corporate income tax - The case of EU countries

• Authors: Beata Guziejewska , Wojciech Grabowski , Szymon Bryndziak
• Languages of publication: EN

Abstracts

EN

The process of globalization, which is ongoing in a variety of dimensions, the ever-increasing mobility of capital and production factors as well as the fiscal problems in many European countries make the debate over tax competition still relevant today. The article discusses the problem of tax competition in the corporate income tax in the context of inward foreign direct investment in the Member States of the European Union. The advantages and disadvantages of tax competition as well as its consequences for the revenues from corporate income tax and for the inward foreign direct investment have been presented for the years 2000-2013. On the basis of an analysis of the literature and a general statistical analysis, the authors identified and described three strategies of tax competition: aggressive, moderate and conservative. Furthermore, rankings of the countries were created on the basis of two elements, namely: changes to FDI and the share of CIT revenues in GDP. The authors have also estimated parameters of the dynamic panel model in order to find relations between the corporate income tax and the ratio of FDI to GDP and have found differences between crisis period and stable period and differences in results for two groups of countries (new members of the EU and old ones).

Keywords

EN

Tax competition, tax competition strategies, foreign direct investment, corporate income tax, tax rates

• Publisher: Prague Development Center, Czech Republic
• Journal: Business and Economic Horizons
• Year: 2014
• Volume: 10
• Issue: 4
• Pages: 253-271

Dates

published

2014-11-20

Contributors

author

Beata Guziejewska

author

Wojciech Grabowski

author

Szymon Bryndziak

References

• Arellano, M., Bond, S., 1991. “Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations”, Review of Economic Studies, Vol.58, 277-297, http://dx.doi.org/10.2307/2297968
• Baldwin R.E., Krugman P., 2004. “Agglomeration, Integration and Tax Harmonization”, CEPR, Discussion Paper, No. 2630
• Bénassy-Quéré, A., Fontagné, L., Lahrèche-Révil, A., 2003. “Tax Competition and Foreign Direct Investment”, CEPII Working Paper No.2003-17, Paris
• Bhargava, A., Franzini L., Narendranathan W., 1982. “Serial correlation and fixed effects model.”, Review of Economic Studies, Vol. 49, 533-549,http://dx.doi.org/10.2307/2297285
• Breusch, T.S., Godfrey L.G., 1981. “A review of recent work on testing for autocorrelation in dynamic simultaneous models”, in. Currie D.A., Nobay R., Peel D. eds., “Macroeconomic Analysis, Essays in Macroeconomics and Economics” (Croom Helm, London)
• Choi, I., 2001. “Unit root tests for panel data”. Journal of International Money and Finance, Vol. 20, http://dx.doi.org/10.1016/S0261-5606(00)00048-6
• Dalton, H., 1922. reprinted in 2003. Principles of public finance, Routledge Taylor & Francis Group, London and New York
• Diamond, P.A. and Mirrlees J., 1971. “Optimal taxation and public production, I: Production Efficiency (II: Tax Rules)”. American Economic Review 61, pp.261-278
• Gordon, R.H. and. Hines, Jr. J.R., 2002. “International taxation”. NBER Working Paper No. 8854
• Greene J.E., 2012. Public finance. An international perspective, World Scientific Publishing Co. Pte. Ltd., Singapore
• Hajkowa, D., Nikoletii, G., Vartia, L., Yoo, K.Y., 2004. “Taxation, business environment and FDI location in OECD countries”, OECD
• Hillman, A. L., 2009. Public finance and public policy. Responsibilities and Limitations of Government, Cambridge University Press, New York, http://dx.doi.org/10.1017/CBO9780511813788
• Im, K.S., Pesaran, M.H., Shin, Y., 2003. “Testing for unit roots in heterogeneous panels.” Journal of Econometrics, Vol. 115, 53-74, http://dx.doi.org/10.1016/S0304-4076(03)00092-7
• Krajewska, A., 2010. Podatki w Unii Europejskiej, PWE, Warszawa
• Levin, A., Lin, C.F., Chu, C., 2002. “Unit root test in panel data: Asymptotic and finite sample properties.”, Journal of Econometrics, Vol.108, 1-24, http://dx.doi.org/10.1016/S0304-4076(01)00098-7
• Maddala, G.S., Wu S., 1999. “A comparative study of unit root tests with panel data and a new simple test”, Oxford Bulletin of Economics and Statistics, Vol.61, 631-652
• "Malta. Essentials for excellence”, Deloitte Malta; Tax Services. March 2012
• Mitchell, D.J., The Economics of Tax Competition, Adam Smith Institute, http://www.adamsmith.org/sites/default/files/images/stories/tax-competition.pdf, date of access: 14.07.2014
• Musgrave, R.A., Musgrave, P.B., 1980. Public Finance in Theory and Practice, McGraw-Hill Book Company
• Oates, W.E., 1999. “An essay on fiscal federalism”, Journal of Economic Literature, Vol.XXXVII, 1120-149
• Rosen, H.S., Gayer, T., 2010. Public finance, McGraw-Hill Companies, New York
• San, O.T., Cheng, W.K., Heng, T.B., 2012. “Corporate tax and foreign direct investment in developing countries”, International Journal of Business Management & Economic Research, Vol.3 Issue 1, 471-479
• Sepp J., Wróbel R. M., 2004. “Tax competition and EU enlargement: Strategies within a Developing Political-Economic Environment”, [w:] Essays in Estonian Transformation Economics, Ennuste U., Wilder L. (ed.), Estonian Institute of Economics at Tallinn Technical University, Tallinn
• Siebert, H., 1990. The Harmonization Issue in Europe: Priori Agreement or a Competitive Process, The Completion of the Internal Market, Tübingen
• Sinn, H. W., 1994. “How much Europe? Subsidiarity, Centralization and Fiscal Competition”, Scottish Journal of Public Economy, Vol.41, No.1, 85-107
• Slemrod, J., 2004. “Are Corporate Tax Rates, or Countries, Converging?”, Journal of Public Economics, No.88, 1169-1186
• Stiglitz, J. E., 1988. Economics of the Public Sector, W.W. Norton&Company, New York, London
• Scharpf, F.W., 1997. “Introduction: The Problem Solving Capacity of Multilevel Governance”, Journal of European Public Policy, 4, pp.520-538
• Surugiu, M., Surugiu, C., 2012. “Tax Competition, Harmonization and Development: Challenges and Consequences”, Argumenta Oeconomica, No.1(28), 139-154
• Tiebout, Ch., 1956. “A Pure Theory of Local Expenditure”, Journal of Political Economy, T.64, 416-24
• Troeger, V., 2013. “Tax competition and the myth of the ‘Race to the Bottom’ Why Governments still tax capital?”, The Competitive Advantage in the Global Economy-Chatham House Series, No.4
• Wilson, J., 1999. “Theories of Tax Competition”, National Tax Journal, Vol.2, 269-304
• Windmeijer, F., 2005. “A finite sample correction for the variance of linear efficient two-step GMM estimators”, Journal of Econometrics, Vol.126, 25-51, http://dx.doi.org/10.1016/j.jeconom.2004.02.005
• Zodrow, G.R., Mieszkowski P., 1986. “Pigou, Tieubot, Property Taxation, and the Underprovision of Local Public Goods”, Journal of Urban Economics, Vol.19(3), 356-370

Identifiers

DOI

http://dx.doi.org/10.15208/beh.2014.21