Country Size and Corporate Tax Rate: Rational and Empirics

Céline Azémar, Rodolphe Desbordes, Ian Wooton

Research output: Working paperDiscussion paper

52 Downloads (Pure)

Abstract

This paper investigates whether the differences in corporate tax rates set by countries can be explained, in part, by the size of national home markets. We set up a simple model in which multinational firms within an industry choose where to invest, given the levels of corporation tax rates in each location. This model yields predictions with respect to the influences of the relative size of countries on the differences in corporate tax rates that should arise in equilibrium. We then test these predictions using data from 27 European Union member‐states for the period 1981‐2005. Consistent with our model, we find that large countries set higher corporate tax rates than their smaller competitors for FDI. Our rationale for the existence of this effect, the market access, withstands the test of alternative explanations.
Original languageEnglish
Place of PublicationLondon
Number of pages30
Publication statusPublished - 2015

Publication series

NameInternational Trade and Regional Economics
PublisherCentre for Economic Policy Research
No.10800
ISSN (Print)0265-8003

Keywords

  • corporate tax rate
  • tax competition 
  • foreign direct investment (FDI)
  • country size

Fingerprint Dive into the research topics of 'Country Size and Corporate Tax Rate: Rational and Empirics'. Together they form a unique fingerprint.

  • Cite this

    Azémar, C., Desbordes, R., & Wooton, I. (2015). Country Size and Corporate Tax Rate: Rational and Empirics. (International Trade and Regional Economics; No. 10800).