Corporate Taxation and the Impact of Governance, Political and Economic Factors

44 Pages Posted: 16 Jan 2010

See all articles by Marcel Gerard

Marcel Gerard

Facultes Universitaires Catholiques de Mons (FUCAM); CESifo (Center for Economic Studies and Ifo Institute)

Fernando Ruiz

Royal Military Academy

Date Written: December 2009

Abstract

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.

Keywords: institutions and taxation, tax competition, lobbying

JEL Classification: H73, H70

Suggested Citation

Gerard, Marcel and Ruiz, Fernando, Corporate Taxation and the Impact of Governance, Political and Economic Factors (December 2009). CESifo Working Paper Series No. 2904. Available at SSRN: https://ssrn.com/abstract=1536431

Marcel Gerard (Contact Author)

Facultes Universitaires Catholiques de Mons (FUCAM) ( email )

Chaussee de Binche, 151
Mons 7000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Fernando Ruiz

Royal Military Academy ( email )

Rue Hobbema 8
Brussels, 1000
Belgium

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