Globalization and Corporate Taxation

IMF Working Papers, October 22, 2012

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Globalization and Corporate Taxation

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Bibliographic details

• Authors: Manmohan S. Kumar, Dennis P. Quinn
• Published: October 22, 2012
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781557754752.001

Summary

• This paper analyzes the extent to which the degree of international economic integration, both financial and trade, affects corporate tax rates.
• It explores the issue in the context of strategic behavior by countries, taking into account other global and domestic political economy factors.
• Tax rates are analyzed using a unique tax dataset for advanced and developing economies extending over five decades.
• Key reported results:
  • There is no general negative relationship between financial globalization and corporate tax rates and revenues—results vary according to country grouping with OECD countries showing a positive relationship.
  • The United States exhibits a “Stackelberg” type of leadership on other countries.
  • Trade integration is inversely correlated with tax rates.
  • Public sentiment and ideology affect tax rates.
• The policy implications of these findings, particularly given budgetary pressures in the aftermath of the global crisis, are noted.

Data and methods

• Uses a unique tax dataset for advanced and developing economies extending over five decades.
• Focuses on corporate tax rates and revenues in relation to:
  • Financial globalization (including account openness indicators)
  • Trade integration
  • Country grouping (including OECD countries)
  • Political economy variables (public sentiment, ideology, strategic behavior)
• Keywords reflected in the analysis include: account openness indicator, capital share, Corporate income tax, Corporate tax rates, corporate tax tax rate, Corporate taxes, debt ratio, diversified portfolio, emerging market, financial market, Global, Globalization, government share, OECD country, Personal income tax, share data, Strategic behavior, tax rate, Tax revenues, WP

Main findings (enumerated)

• No general negative relationship between financial globalization and corporate tax rates and revenues; relationship varies by country grouping.
• OECD countries show a positive relationship between financial globalization and corporate tax rates/revenues.
• The United States plays a leadership role characterized as “Stackelberg” influence on other countries’ tax behavior.
• Trade integration is inversely correlated with corporate tax rates.
• Public sentiment and ideology are significant determinants of tax rates.

Policy implications and context

• Findings have implications for tax policy design under budgetary pressures following the global crisis.
• Results suggest heterogeneous effects of globalization on tax policy, implying that one-size-fits-all policy prescriptions may be inappropriate.
• Strategic interactions among countries, and leadership effects (e.g., U.S. influence), should be considered when formulating international and domestic tax policies.

Content in this bundle

• Microsoft Word - DMSDR1S-#5008884-v2-Globalization_and_Corporate_Taxation.DOCX
  • Microsoft Word - DMSDR1S-#5008884-v2-Globalization_and_Corporate_Taxation.DOCX (Markdown version)
  • Microsoft Word - DMSDR1S-#5008884-v2-Globalization_and_Corporate_Taxation.DOCX (PDF)