Capital Account Liberalization and Corporate Taxes

By Ben Lockwood, Michael B. Devereux, Michela Redoano

September 1, 2003

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Ben Lockwood, Michael B. Devereux, and Michela Redoano. Capital Account Liberalization and Corporate Taxes, (USA: International Monetary Fund, 2003) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies whether exchange controls, particularly on the capital account, affect the choice of corporate tax rates, using a panel of 21 OECD countries over the period 1983-99. It builds on existing literature by (1) using a unique dataset with several different measures of the corporate tax rate calculated from the actual parameters of the tax systems, and (2i) allowing exchange controls to affect the intensity of strategic interaction between countries in setting taxes, as well as the levels of tax they choose. We find some evidence that (1) the level of a country’s tax, other things equal, is lowered by a unilateral liberalization of exchange controls; and (2) that strategic interaction in taxsetting between countries is increased by liberalization. These effects are stronger if the country is a high-tax one and if the tax is the statutory or effective average one. There is also evidence that countries’ own tax rates are reduced by liberalization of exchange controls in other countries.

Subject: Average effective tax rate, Balance of payments, Capital controls, Corporate income tax, Corporate taxes, Exchange restrictions, Foreign exchange, Tax policy, Taxes

Keywords: Average effective tax rate, Capital controls, Capital mobility, Competition literature, Corporate income tax, Corporate tax tax rate, Corporate taxes, Exchange controls, Exchange restrictions, Globalization, Home country tax rate, Interaction effect, Measure CMF, Measures Tit, Tax competition, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/180
Stock No:

WPIEA1802003
ISBN:

9781451859133
ISSN:

1018-5941

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