Please use this identifier to cite or link to this item:
Heinemann, Friedrich
Overesch, Michael
Rincke, Johannes
Year of Publication: 
Series/Report no.: 
ZEW Discussion Papers 08-028
While there is a large and growing number of studies on the determinants of corporate tax rates, the literature has so far ignored the fact that the behavior of governments in setting tax rates is often best described as a discrete choice decision problem. We set up an empirical model that relates a government's decision whether to cut its corporate tax rate to the country's own inherited tax and taxes in neighboring countries. Using comprehensive data on corporate tax reforms in Europe since 1980, we find evidence suggesting that the position in terms of the tax burden imposed on corporate income relative to geographical neighbors strongly affects the probability of rate cutting tax reforms. Countries are particularly likely to cut their statutory tax rate if the inherited tax is high and if they are exposed to low-tax neighbors.
Tax reform
tax competition
corporate taxes
Document Type: 
Working Paper

Files in This Item:
296.21 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.