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Do Asia and Pacific countries compete in corporate tax rates?

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  • Y. Chen
  • W. H. Huang
  • P. J. Regis

Abstract

Do governments in the emerging Asia and Pacific region independently set corporate tax rates? This paper answers the question and contributes to the growing empirical tax competition literature by (1) generating a predictable tax reaction function considering the ‘lumpy’ nature of economic geography; (2) using GMM to estimate the tax reaction functions using panel data of 14 countries in the Asia and Pacific region between 1980 and 2007. We find evidence of strategic fiscal policy interaction. Globalization has positive effects on the interactive policy setting. Country size has also positive effect but the effects are offset when the openness deepens. Furthermore, a substitution relation between capital and labor is implied. Overtime, countries in the Asia and Pacific region seem to become more competitive in corporate tax rates.

Suggested Citation

  • Y. Chen & W. H. Huang & P. J. Regis, 2014. "Do Asia and Pacific countries compete in corporate tax rates?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 19(1), pages 25-51, January.
    • Handle: RePEc:taf:rjapxx:v:19:y:2014:i:1:p:25-51
    DOI: 10.1080/13547860.2012.745239
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    References listed on IDEAS

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    1. Zsolt Becsi, 1998. "Fiscal competition and reality: A time series approach," FRB Atlanta Working Paper 98-19, Federal Reserve Bank of Atlanta.
    2. Roger H. Gordon & Joel Slemrod, 1998. "Are "Real" Responses to Taxes Simply Income Shifting Between Corporate and Personal Tax Bases?," NBER Working Papers 6576, National Bureau of Economic Research, Inc.
    3. Rosanne Altshuler & Timothy J. Goodspeed, 2015. "Follow the Leader? Evidence on European and US Tax Competition," Public Finance Review, , vol. 43(4), pages 485-504, July.
    4. Dani Rodrik, 1997. "Trade, Social Insurance, and the Limits to Globalization," NBER Working Papers 5905, National Bureau of Economic Research, Inc.
    5. Kenneth G. Stewart & Michael C. Webb, 2003. "Capital Taxation, Globalization, and International Tax Competition," Econometrics Working Papers 0301, Department of Economics, University of Victoria.
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    Cited by:

    1. Jean-François Brun & Seydou Coulibaly, 2019. "Domestic and cross border spillover effects of corporate tax policy in Africa," Working Papers halshs-02108168, HAL.
    2. Chen, Yang & Regis, Paulo José, 2014. "Strategic interactions in corporate tax between Chinese local governments," RIEI Working Papers 2014-01, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration, revised 27 Oct 2015.
    3. Boly Amadou & Seydou Coulibaly & Eric Kéré Nazindigouba, 2019. "Working Paper 310 - Tax Policy, Foreign Direct Investment and Spillover Effects," Working Paper Series 2436, African Development Bank.
    4. Jean-François Brun & Seydou Coulibaly, 2019. "Domestic and cross border spillover effects of corporate tax policy in Africa," CERDI Working papers halshs-02108168, HAL.
    5. Yang Chen & Juan Cuestas & Paulo Regis, 2014. "Corporate Tax Convergence in Asian and Pacific Economies," TUT Economic Research Series 17, Department of Finance and Economics, Tallinn University of Technology.

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