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Journal of Economic Integration 2005 September;20(3) :530-542.
Globalization and International Tax Competition: Empirical Evidence Based on Effective Tax Rates
Lucas Bretschger and 
Frank Hettich 
WIF-Institute of Economic Research
Infraserv GmbH & Co Höchst KG
Copyright ©2005 Journal of Economic Integration
Previous work showing a positive impact of globalization on capital tax revenue as a percent of GDP claims to contradict theoretical results that tax competition pressures governments to reduce taxes on highly mobile assets. However, the observed relationship is not necessarily incompatible with the predictions of tax competition literature, as the internationalization of markets also affects the capital tax base. Measuring taxes by effective tax rates instead of tax revenue for a panel of 12 OECD countries in the period 1967-96, we find that globalization has a negative impact on capital taxes, which is exactly what the theory predicts.

JEL Classification
H7: State and Local Government; Intergovernmental Relations
H87: International Fiscal Issues; International Public Goods
C23: Models with Panel Data; Longitudinal Data; Spatial Time Series
Keywords: Tax competition | Empirical evidence | Panel data | OECD countries
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