Tax Competition

Tax Competition

Michael P. Devereux

Oxford University Centre for Business Taxation


Corporation tax rates in OECD countries have been falling for the last three decades. This has widely been interpreted as the result of competition between governments to attract
both real economic activity and taxable income. And such a view is supported by some government statements; notably the coalition government in the UK announced in 2010 its intention in to have the most competitive corporation tax in the G20, and proceeded to reduce the UK rate from 28% to 20% over the life of that parliament.

This paper presents research on the theory of competition, difficulties in using statistical techniques to understand the extent of competition, and the results of the empirical
research. Broadly, empirical research supports two propositions. First, source-based corporation taxes tend to have lower rates when capital is more mobile, typically when
economies are more open. Second, countries respond to changes in tax rates of their competitors, especially in statutory rates. There is also anecdotal evidence of competition over much more specific aspects of the tax system.

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