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Trade integration and business tax differentials: evidence from OECD countries
[working paper]
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Wissenschaftszentrum Berlin für Sozialforschung gGmbH
Abstract Building on recent contributions to the New Economic Geography literature, this paper analyses the relation between asymmetric market size, trade integration and business income tax differentials across countries. First, relying on Ottaviano and Van Ypersele's (2005) foot-loose capital model of tax ... view more
Building on recent contributions to the New Economic Geography literature, this paper analyses the relation between asymmetric market size, trade integration and business income tax differentials across countries. First, relying on Ottaviano and Van Ypersele's (2005) foot-loose capital model of tax competition, we illustrate that trade integration reduces the importance of relative market size for differences in the extent of corporate taxation between countries. Then, using a dataset of 26 OECD countries over the period 1982-2004, we provide supportive evidence of these theoretical predictions: i.e., market size differences are strongly positively correlated with corporate income tax differences across countries but, crucially, trade integration weakens this link. These findings are obtained controlling for the potential endogeneity of trade integration and are robust to alternative specifications. (author's abstract)... view less
Keywords
competition; taxes; commerce; integration; economic geography; difference in income; enterprise; market; OECD member country; data
Classification
National Economy
Public Finance
Document language
English
Publication Year
2012
City
Berlin
Page/Pages
28 p.
Series
Discussion Papers / Wissenschaftszentrum Berlin für Sozialforschung, Schwerpunkt Märkte und Politik, Forschungsprofessur und Projekt The Future of Fiscal Federalism, SP II 2012-110
Handle
https://hdl.handle.net/10419/68259
Status
Published Version; reviewed
Licence
Deposit Licence - No Redistribution, No Modifications