In this paper we first use two international data sets to investigate how governance, political and economic factors influence corporate tax rates. We show that institutional and political factors matter: good governance reduces the tax rate; a parliamentary system, especially a plurality election system, and religious or nationalist executives too, push tax rates upward. Traditional variables also matter: economic openness has a negative effect on tax rates although market size has a positive one. Though it is not robust, interaction among neighbors also plays a role. Then we turn to theory and extend a standard model of tax competition to provide a channel for the elements set forth so far to influence tax rates formation; nested in the economic theory of lobbying that exercise provides our empirical investigation with theoretical foundations.
institutions and taxation tax competition lobbying