## A Partial Race to the Bottom: Corporate Tax Developments in Emerging and Developing Economies

_IMF Working Papers, January 1, 2012_

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## Bibliographic details
- Authors: Junhyung Park, Sukhmani Bedi, Alexander D Klemm
- Published: January 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463933135.001

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### Dataset and methodology
- Assembles a new dataset on corporate income tax regimes in 50 emerging and developing economies over 1996-2007.
- Computes effective tax rates to take account of complicated special regimes, such as partial tax holidays, temporarily reduced rates and increased investment allowances.
- Uses regression analysis to estimate effects of tax rates on corporate tax revenues, domestic investment, and foreign direct investment (FDI).

### Key findings
- There is evidence of a partial race to the bottom: countries have been under pressure to lower tax rates in order to lure and boost investment.
- For standard tax systems (i.e. tax rules applying under normal circumstances):
  - The effective tax rate reductions have not been larger than those witnessed in advanced economies.
  - Revenues have held up well over the sample period.
- Special regimes display a clearer race to the bottom, most notably in the case of Africa, creating effectively a parallel tax system where rates have fallen to almost zero.
- Regression analysis results:
  - Higher tax rates adversely affect domestic investment and FDI.
  - Higher tax rates do raise revenues in the short-run.

### Policy-relevant implications
- Effective tax rate measures that incorporate special regimes are critical for understanding true tax burdens and competition among jurisdictions.
- The emergence of near-zero taxed special regimes (especially in Africa) suggests policy focus is needed on:
  - The design and scope of special regimes to avoid erosion of the tax base.
  - Balancing investment incentives with revenue mobilization goals.
- Short-run revenue gains from higher rates need to be weighed against adverse effects on domestic investment and FDI.

*IMF Working Paper by Junhyung Park, Sukhmani Bedi, and Alexander D Klemm; January 1, 2012; DOI: https://doi.org/10.5089/9781463933135.001*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/a-partial-race-to-the-bottom-corporate-tax-developments-in-emerging-and-developing-economies-25675_