Tax Competition and Employment

71 Pages Posted: 23 Nov 2019 Last revised: 8 Sep 2020

See all articles by Stephen Glaeser

Stephen Glaeser

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Marcel Olbert

London Business School - Department of Accounting; ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research

Ann-Catherin Werner

University of Mannheim Business School

Date Written: December 12, 2019

Abstract

We study the effect of exposure to tax competition on employment. We find that changes in foreign tax rates relative to domestic tax rates oppositely affect the employment of domestic firms exposed to competition from foreign firms. We attribute these effects to lower foreign tax rates increasing the cash flow and investment of foreign firms that import into a given domestic country, and of foreign firms with domestic subsidiaries that compete in a given domestic country. The adverse effect of exposure to tax competition on employment is greater for domestic firms whose employment is more sensitive to competition: firms located in countries with fewer labor protections, non-service firms, and firms with fewer intangible assets. The effect is also greater for standalone firms and non-multinational firms which lack the international tax planning opportunities and the geographic diversification to weather tax competition.

Keywords: Tax competition, Competition, Employment, Real effects, Trade

JEL Classification: E24, F14, F16, H23, H35

Suggested Citation

Glaeser, Stephen and Olbert, Marcel and Werner, Ann-Catherin, Tax Competition and Employment (December 12, 2019). Available at SSRN: https://ssrn.com/abstract=3485551 or http://dx.doi.org/10.2139/ssrn.3485551

Stephen Glaeser

University of North Carolina (UNC) at Chapel Hill - Accounting Area ( email )

McColl Building
Chapel Hill, NC 27599
United States

Marcel Olbert (Contact Author)

London Business School - Department of Accounting ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research ( email )

United States

Ann-Catherin Werner

University of Mannheim Business School ( email )

Chair of International Taxation
Schloss
Mannheim, 68131
Germany

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