DP3952 Foreign Ownership and Corporate Income Taxation: An Empirical Evaluation

Author(s): Harry Huizinga, Gaëtan Nicodème
Publication Date: June 2003
Keyword(s): corporate taxation, foreign ownership, tax competition
JEL(s): F21, H25
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3952

Economic integration in Europe has not led to a ?race to the bottom? regarding corporate income taxes. This Paper documents trends in the foreign ownership of companies in Europe and examines whether foreign ownership has exerted a positive influence on corporate income tax levels. Using company-level data, we document that foreign ownership share in Europe stood at around 21.5% in the year 2000. The estimation suggests that a one percentage point increase in foreign ownership increases the average corporate income tax rate between 0.5-1%. Further international economic integration is likely to lead to higher foreign ownership shares with a concomitant positive influence on corporate taxation levels.