Register  |  Login  |  Inquiries  |  Sitemap |  
Advanced Search
Journal of Economic Integration 2005 September;20(3) :530-542.
Globalization and International Tax Competition: Empirical Evidence Based on Effective Tax Rates

Lucas Bretschger 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
1. Baldwin, R.E. (1992) Measurable Dynamic Gains from Trade. Journal of Political Economy, 100, 162–174.
2. Beck, N. and J.N. Katz (1995) What to do (and not to do) with Time-Series Cross-Section Data. American Political Science Review, 89, 634-647.
3. Bucovetsky, S. (1991). Asymmetric Tax Competition. Journal of Urban Economics 30, 167-181.
4. Bucovetsky, S. and J.D. Wilson (1991) Tax Competition with Two Tax Instruments. Regional Science and Urban Economics 21, 333-350.
5. Cusack, T.R (1997) Partisan Politics and Public Finance: Changes in Public Spending in the Industrialized Democracies 1955-1998. Public Choice 91, 375-395.
6. Dooley, M.P and M.D. Chinn (1997), Financial Repression and Capital Mobility: Why Capital Flows and Covered Interest Rate Differentials Fail to Measure Capital Market Integration, Bank of Japan, Monetary and Economic Studies, 15(4), 81-103. (also: NBER Working Paper No. W5347).
7. Garrett, G. (1995) Capital Mobility, Trade and the Domestic Politics of Economic Policy. International Organization 49(4), 657-687.
8. Garrett, G. (2000) Capital Mobility, Exchange Rates and Fiscal Policy in the Global Economy, Review of International Political Economy 7(1), 153-170.
9. Jones, C. (1995) R&D-Based Models of Economic Growth, Journal of Political Economy, 103, 759-784.
10. Mendoza, E.G., A. Razin and L. Tesar (1994), Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Income and Consumption, Journal of Monetary Economics 34, 297-323.
11. OECD (1999), OECD Statistical Compendium, National Accounts 1965-1996, Electronic Edition on CD Rom, edition 01/1999, Organisation for Economic Co-operation and Development, Paris.
12. Quinn, D. (1997) The Correlates of Change in International Financial Regulation, American Political Science Review 91(3), 531-551.
13. Rodrik, D. (1997) Trade, Social Insurance, and the Limits of Globalisation, NBER Working Paper 5905 (Cambridge).
14. Swank, D. (1998) Funding the Welfare State: Globalisation and the Taxation of Business in Advanced Market Economies, Political Studies XLVI, 671-692.
15. Wilson J.D. (1991) Tax Competition with Interregional Differences in Factor Endowments, Regional Science and Urban Economics 21, 423-451.
16. Zodrow G.R and P. Mieszkovsky (1986) Pigou, Tiebout, Property Taxation and the Underprovision of Local Public Goods, Journal of Urban Economics 19, 356-370.
PDF Links  PDF Links
Full text via DOI  Full text via DOI
Download Citation  Download Citation
International Tax Competition in the Global Economy  2017 December;32(4)
Editorial Office
Center for Economic Integration, Sejong University, 209, Neungdong-Ro, Gwangjin-Gu,
Seoul, 05006, Korea
TEL : +82-2-3408-3338    FAX : +82-2-6935-2492   E-mail :,
Browse Articles |  Current Issue |  For Authors and Reviewers |  About
Copyright© by Center for Economic Integration.      Developed in M2PI