1 Closer Economic Integration and Corporate Tax Systems Kimberly A. Clausing June 2007 Determinants of Corporate Tax Rates Determinants of Corporate Tax Revenues Role of International Integration 36 Countries (OECD/EU) over

2 OECD Corporate Tax Rates,

3 EU Integration Measures,

4 Tax Rate Specification Corporate Tax Rate it =  +  1 Individual Tax Rate it +  2 Government Consumption/GDP it +  3 FDI-out/GDP it +  4 ln(GDP) it +  5 ln(GDP per-capita) it +  6 Left it +  7 EU it +  8 EU complete it +  9 EU apply it +  it

5 Determinants of Corporate Statutory Tax Rates,

6 Central Government Corporate Tax Revenues Relative to GDP, OECD Countries

7 Determinants of Revenues

8

9 Estimation Corporate Tax Revenue/ GDP it =  +  1 Tax Rate it +  2 Tax Rate it 2 +  3 Corporate Profitability it +  4 Size of the Corporate Sector it And Later: -Proxies for corporate data -  x Type of Corporate Tax System it -  t Time Dummies or Time Trend

10 Determinants of Revenue/GDP,

11 Determinants of Revenue/GDP,

12 Revenue Curves, EU and Others

13 Findings and Implications Tax rates depend on factors that affect the elasticity of tax base: EU integration, FDI, country size –Other factors as expected: individual rate, government size and type Parabolic relationship between tax rates and revenues –Types of Responsiveness –EU Members and More International Countries => More Responsive Tax Base –Territorial Systems v. Credit Systems