International Tax competition after Global Financial Crisis

Abstract

Since the early 1980s, competition to attract international investments by cutting the corporate income tax rate and overall tax burden of international companies was a major issue in social science. Decrease of companies tax burden is to lead to reduction of the counties tax revenue and can be the reason of welfare state degradation and reduction of public service provision. There is two main purposes of this thesis. One is to analyze the effect of the international tax competition on tax revenue, and the other is to examine whether such effect has changed after the global financial crisis. Among other reasons international tax competition contributed to the international lowering CIT rate. However, it affected not only the CIT but also the PIT as well

thus the overall effect on tax rates is positive but statically insignificant. Based on the panel date analysis main findings of the research are as follows. Contrary to the race-to-the-bottom theory, the international tax competition positively affects tax revenue level through two main channels: 1. Rebalancing the tax system (shifting focuses to the local factors, such as consumption), 2. Rebalancing tax structure (widening tax base). Widening tax base is believed to be a main factor contributing to maintaining tax revenue, however the effect of tax system rebalancing shall also be taken into consideration. In addition attracting mobile capital by reduction of tax rates lost its efficiency after crisis.