Technological Change and Countries' Tax Policy Design

51 Pages Posted: 31 Oct 2019

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 change predicts tax policy changes in 34 OECD countries from 1996 to 2016. To examine tax policy reactions, we construct two new country-level indexes, one capturing tax-related investment incentives and one capturing anti-tax avoidance rules in a country. We document a decreasing trend in statutory tax rates, stable capital investment incentives, and a trend toward stricter anti-tax avoidance rules across countries over the last two decades. Our main finding is that country-specific exposure to technological change predicts variation in these trends. We find that, following technological changes, countries tighten their anti-tax avoidance rules. Cross-sectional tests show that smaller countries deviate from this general trend and use 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., anti-tax avoidance rules).

Keywords: tax policy, technological changes, tax avoidance

JEL Classification: M48, H25, H26

Suggested Citation

Bruehne, Alissa and Jacob, Martin and Schütt, Harm H., Technological Change and Countries' Tax Policy Design (October 22, 2019). 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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