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Why is there no race to the bottom in capital taxation?
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Plümper, Thomas, Troeger, Vera E. and Winner, Hannes. (2009) Why is there no race to the bottom in capital taxation? International Studies Quarterly, Vol.53 (No.3). pp. 761-786. ISSN 0020-8833
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Official URL: http://dx.doi.org/10.1111/j.1468-2478.2009.00555.x
Abstract
This article explains the absence of a race to the bottom in capital taxation by analyzing fiscal competition under budget rigidities and tax equity constraints (fairness norms). We outline a political economic model of tax competition that treats the outcome of tax competition as one argument in the governments utility function, the others being public expenditure and tax equity. In accordance with previous theoretical research, tax competition tends to cause a reduction in taxes on mobile capital and an increase in the tax rates on relatively immobile labor in our model. Yet, our model predicts that governments do not fully abolish taxes on mobile capital. Instead, the government being least restricted by budget constraints and equity norms cuts tax rates to levels slightly below the lowest tax rates of those countries, in which governments are more constrained, where effective constraints are country size, budget rigidities and fairness norms. Analyzing data from 23 Organization for Economic Co-operation and Development countries between 1975 and 2004 we find empirical support for the hypotheses derived from our theoretical model.
| Item Type: | Journal Article |
|---|---|
| Subjects: | H Social Sciences > HF Commerce |
| Divisions: | Faculty of Social Sciences > Economics Faculty of Social Sciences > Politics and International Studies |
| Journal or Publication Title: | International Studies Quarterly |
| Publisher: | Wiley-Blackwell Publishing Ltd. |
| ISSN: | 0020-8833 |
| Date: | September 2009 |
| Volume: | Vol.53 |
| Number: | No.3 |
| Page Range: | pp. 761-786 |
| Identification Number: | 10.1111/j.1468-2478.2009.00555.x |
| Status: | Peer Reviewed |
| Publication Status: | Published |
| Access rights to Published version: | Restricted or Subscription Access |
| Related URLs: | |
| URI: | http://wrap.warwick.ac.uk/id/eprint/42335 |
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