Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/68259
Authors: 
Exbrayat, Nelly
Geys, Benny
Year of Publication: 
2012
Series/Report no.: 
WZB Discussion Paper SP II 2012-110
Abstract: 
Building on recent contributions to the New Economic Geography literature, this paper analyses the relation between asymmetric market size, trade integration and business income tax differentials across countries. First, relying on Ottaviano and Van Ypersele's (2005) foot-loose capital model of tax competition, we illustrate that trade integration reduces the importance of relative market size for differences in the extent of corporate taxation between countries. Then, using a dataset of 26 OECD countries over the period 1982-2004, we provide supportive evidence of these theoretical predictions: i.e., market size differences are strongly positively correlated with corporate income tax differences across countries but, crucially, trade integration weakens this link. These findings are obtained controlling for the potential endogeneity of trade integration and are robust to alternative specifications.
Subjects: 
tax competition
trade integration
new economic geography
tax differentials
JEL: 
H2
H3
C23
F12
Document Type: 
Working Paper

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