Tax Competition and Employment

The Accounting Review, Forthcoming

61 Pages Posted: 23 Nov 2019 Last revised: 6 Apr 2023

See all articles by Stephen Glaeser

Stephen Glaeser

University of North Carolina (UNC) at Chapel Hill

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 examine how exposure to international tax competition affects domestic firms’ employment. Consistent with prior work, we find evidence that reductions in foreign tax rates affect the domestic competitive environment via increases in import competition and investment in foreign-owned subsidiaries. We posit that these changes in the domestic competitive environment can cause managers to reduce their firms’ employment levels. Consistent with our expectation, we find that relative decreases in foreign tax rates negatively affect total labor compensation at domestic firms ex ante exposed to import competition and competition from foreign-owned peers. The effect of exposure to tax competition is greater for firms more exposed to product market competition and those that are less able to expand investment without also increasing employment levels. Taken together, our results suggest that foreign tax rate changes can affect managers’ domestic employment decisions by changing the domestic competitive environment.

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). The Accounting Review, Forthcoming, 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 ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
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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