Citation

Discussion Paper Details

Please find the details for DP10800 in an easy to copy and paste format below:

Full Details | Bibliographic Reference

Full Details

Title: Country Size and Corporate Tax Rate: Rationale and Empirics

Author(s): C�line Az�mar, Rodolphe Desbordes and Ian Wooton

Publication Date: August 2015

Keyword(s): corporate tax rate, country size, foreign direct investment and tax competition

Programme Area(s): International Trade and Regional Economics and Public Economics

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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10800

Bibliographic Reference

Az�mar, C, Desbordes, R and Wooton, I. 2015. 'Country Size and Corporate Tax Rate: Rationale and Empirics'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10800