Technological Changes and Countries' Tax Policy Design

56 Pages Posted: 31 Oct 2019 Last revised: 5 May 2021

See all articles by Alissa Bruehne

Alissa Bruehne

WHU - Otto Beisheim School of Management

Martin Jacob

WHU - Otto Beisheim School of Management

Harm H. Schütt

Tilburg University - Tilburg School of Economics and Management

Date Written: October 22, 2019

Abstract

We investigate whether technological changes predict tax policy changes in thirty-four OECD countries between 1996 and 2016. In addition to the statutory tax rate, we construct two new country-level indexes, one capturing a country’s tax-related investment incentives and one capturing its anti–tax avoidance rules. We show that after technological changes, countries tighten their anti–tax avoidance rules and reduce investment tax incentives. Technological changes do not contribute to the "race to the bottom" of statutory tax rates. Rather, cross-sectional tests show that smaller countries deviate from this general trend and apply less stringent anti–tax avoidance rules. In the competition for firms’ mobile capital, smaller countries thus appear to create indirect investment incentives by opting for less salient tax policy tools (i.e., less strict anti–tax avoidance rules). In contrast, countries facing high (tax) competition tighten their anti–tax avoidance rules to prevent the erosion of tax revenues.

Keywords: tax policy, technological changes, tax avoidance

JEL Classification: M48, H25, H26

Suggested Citation

Bruehne, Alissa and Jacob, Martin and Schütt, Harm H., Technological Changes and Countries' Tax Policy Design (October 22, 2019). TRR 266 Accounting for Transparency Working Paper Series No. 12, Available at SSRN: https://ssrn.com/abstract=3473767 or http://dx.doi.org/10.2139/ssrn.3473767

Alissa Bruehne (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Martin Jacob

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Harm H. Schütt

Tilburg University - Tilburg School of Economics and Management ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands

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