Tax Competition and Employment
83 Pages Posted: 23 Nov 2019 Last revised: 5 Dec 2019
Date Written: November 12, 2019
We examine the effects of tax competition on domestic employment. We find that increases in corporate statutory tax rate differentials between domestic and foreign firms reduce domestic employment through the distinct channels of import competition and competition from foreign-owned domestic firms. These effects are stronger for domestic firms located in countries with less labor organization, non-service firms, firms with fewer intangible assets, and standalone firms. Tax competition appears to primarily affect domestic employment via changes in within-firm employment at smaller firms. Our results suggest that tax competition can affect domestic employment even when domestic capital or income is immobile.
Keywords: Tax competition, Competition, Employment, Real effects, Trade
JEL Classification: E24, F14, F16, H23, H35
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