The existing literature on the political economy of taxation explores how the mobility of firms affects the ability of governments to tax capital. In this article the author tests the relationship between corporate tax rates and multinational investment decisions in advanced, industrialized economies. He utilizes a time-series cross-sectional general error correction model to explore the impact of corporate taxation rates and foreign direct investment (FDI) inflows in up to 19 Organisation for Economic Co-operation and Development economies from 1980 to 2000. To mitigate potential endogeneity problems, the author’s identification strategy takes advantage of delays between the passage of tax reductions and the implementation of these policies. The author finds no relationship between corporate tax rates and flows of foreign direct investment. This finding has implications on the link between globalization and domestic politics.
AliberRobert Z. (1971). The multinational enterprise in a multiple currency world. In DunningJohn H. (Ed.), The multinational enterprise (pp. 49-56). London, UK: Allen and Unwin.
2.
AltshulerRosanneGrubertHarryNewlonT. Scott. (2001). Has U.S. investment abroad become more sensitive to tax rates? In HinesJames (Ed.), International taxation and multinational activity (pp. 9-38). Chicago, IL: University of Chicago Press.
3.
AndrewsDavid. (1994). Capital mobility and state autonomy: Toward a structural theory of international relations. International Studies Quarterly, 38, 193-218.
4.
ArellanoM.BondS. (1991). Some tests of specification for panel data. Journal of Economic Studies, 58, 277-297.
5.
AuerbachAlan J.HinesJames R.Jr. (2001). Perfect taxation with imperfect competition (Working Paper 8138). Cambridge, MA: National Bureau of Economic Research.
6.
BasingerScott J.HallerbergMark. (2004). Remodeling the competition for capital: How domestic politics erases the race to the bottom. American Political Science Review, 98, 261-276.
7.
BeckNathaniel. (2001). Time-series data: What have we learned in the past few years. Annual Review of Political Science, 4, 271-293.
8.
BeckNathanielKatzJonathan N. (2004). Time-series-cross-section issues: Dynamics (Working paper). New York, NY: New York University.
9.
BiglaiserGaryMezzettiClaudio. (1997). Politicians’ decision making with re-election concerns. Journal of Public Economics, 66, 425-447.
10.
BlonigenBruce A. (2005). A review of the empirical literature on FDI determinants. Atlantic Economic Journal, 33, 383-403.
11.
BlonigenBruce A.DavisRonald B.WaddellGlen R.NaughtonHelen T. (2007). FDI in space: Spatial autoregressive relationships in foreign direct investment. European Economic Review, 51, 1303-1325.
12.
BlonigenBruce A.WangMiao. (2005). Inappropriate pooling of wealthy and poor countries in empirical FDI studies. In MoranT.GrahamE.BlomstromM. (Eds.), Does foreign direct investment promote development? (pp. 221-243). Washington, DC: Institute for International Economics.
CavesRichard E. (1971). International corporations: The industrial economics of foreign investment. Economica, 38, 1-27.
15.
CernyPhilip G. (1990). The changing architecture of politics. London, UK: SAGE.
16.
ChoiSeung-WhanSamyYiagadeesen. (2008). Reexamining the effect of democratic institutions on inflows of foreign direct investment in developing countries. Foreign Policy Analysis, 4, 83-103.
17.
De BoefSuzannaKeeleLuke. (2005, July). Taking time seriously: Dynamic regression models. Paper presented at the annual meeting of the Society of Political Methodology, Tallahassee, FL.
18.
DevereuxMichael P.FreemanHarold. (1995). The impact of tax on foreign direct investment: Empirical evidence and the implications for tax integration schemes. International Tax and Public Finance, 2, 85-106.
19.
DevereuxMichael P.GriffithRachel. (2003). Evaluating tax policy for location decisions. International Tax and Public Finance, 10, 107-126.
20.
DunningJohn H. (1977). The multinational enterprise. London, UK: Allen and Unwin.
21.
FranzeseRobert J.Jr.HaysJude C. (2007). Spatial econometric models and the analysis of TSCS data in political science. Political Analysis, 15(2), 140-164.
22.
GarrettGeoffrey. (1998a). Global markets and national politics: Collision course or virtuous circle?International Organization, 52, 787-824.
23.
GarrettGeoffrey. (1998b). Partisan politics in the global economy. Cambridge, UK: Cambridge University Press.
24.
GuerinSelen. (2006). The role of geography in financial and economic integration: A comparative analysis of foreign direct investment, trade and portfolio investment flows. World Economy, 29, 189-209.
25.
HaysJude C. (2003). Globalization and capital taxation in consensus and majoritarian democracies. World Politics, 56, 79-113.
26.
HinesJames R.Jr. (1997). Tax policy and the activities of multinational corporations. In AuerbachA. (Ed.), Fiscal policy: Lessons from economic research (pp. 401-445). Cambridge, MA: MIT Press.
27.
HinesJames R.Jr. (1999). Lessons from the behavior responses to international taxation. National Tax Journal, 52, 305-322.
28.
HuberEvelyneRaginCharlesStephensJohn D.BradyDavidBeckfieldJason. (2004). Comparative welfare states data set. Evanston, IL: Northwestern University, University of North Carolina, Duke University, and Indiana University.
29.
HymerStephan H. (1976). The international operations of national firms: A study of direct foreign investment. Cambridge, MA: MIT Press.
30.
ImKyung SoPesaranM. HashemShinYongcheol. (2003). testing for unit roots in heterogeneous panels. Journal of Econometrics, 115, 53-74.
31.
JensenNathan M. (2008). Political regimes and political risk: Democratic institutions and expropriation risk for multinational investors. Journal of Politics, 70, 1040-1052.
32.
JensenNathan M.LindstädtRené. (in press). Leaning right and learning from the left: Diffusion of corporate tax policy in the OECD. Comparative Political Studies.
33.
JensenNathan M.MaleskyEdmundMedinaMarianaOzdemirUgur. (2010). Pass the bucks: Investment incentives as political credit-claiming devices. Evidence from a survey experiment (Working paper). St. Louis, WA: Washington University.
34.
KindHans J.MidelfartKarenSchjelderupGuttorm. (2005). Corporate tax systems, multinational enterprises, and economic integration. Journal of International Economics, 65, 507-521.
35.
KindlebergerCharles P. (1969). American business abroad. New Haven, CT: Yale University Press.
36.
KurzerPaulette. (1993). Business and banking: Political change and economic integration in Western Europe. Ithaca, NY: Cornell University Press.
37.
LeviMargaret. (1988). Of rule and revenue. Berkeley: University of California Press.
38.
LiQuan. (2006). Democracy, autocracy, and tax incentives to foreign direct investors: A cross-national analysis. Journal of Politics, 68, 62-74.
39.
MarkusenJames R. (1995). The boundaries of multinational enterprises and the theory of international trade. Journal of Economic Perspectives, 9, 169-189.
40.
MintzJ. (2001). Taxation of investment and finance in an international setting: Implications for tax competition (CoFE Discussion Paper 00-33). Germany: University of Konstanz.
41.
MuttiJohn H. (2003). Foreign direct investment and tax competition. Washington, DC: Institute for International Economics.
42.
OECD. (2003). OECD Heath Data/OCED Eco-Sante. Paris: Organization for Economic Cooperation and Development.
43.
PeraltaSusanaWauthyXaviervan YperseleTanguy. (2006). Should countries control international profit shifting. Journal of International Economics, 68, 24-37.
44.
PlümperThomasTroegerVera E.WinnerHannes. (2009). Why there is no race to the bottom in capital taxation. International Studies Quarterly, 53, 761-786.
QuinnDennis. (1997). The correlates of change in international financial regulation. American Political Science Review, 91, 531-552.
47.
RodrikDani. (1997). Has globalization gone too far?Washington, DC: Institute for International Economics.
48.
SlemrodJ. (1990). Tax effects of foreign direct investment in the U.S.: Evidence from a cross-country comparison. In RazinA.SlemrodJ. (Eds.), Taxation in the global economy (pp. 97-117). Chicago, IL: University of Chicago Press and NBER.
49.
SwankDuane. (2006). Tax policy in an era of internationalization: Explaining the spread of neoliberalism. International Organization, 60, 847-882.
50.
SwankDuaneSteinmoSven. (2002). The new political economy of taxation in advanced capitalist democracies. American Journal of Political Science, 46, 642-655.
51.
WibblesErikArceMoisés. (2003). Globalization, taxation, and burden-shifting in Latin America. International Organization, 57, 111-136.
52.
WilsonJohn Douglas. (1991). Tax competition with interregional differences in factor endowments. Regional Science and Urban Economics, 21, 423-451.
53.
World Bank. (2004). World Development Indicators (CD-ROM). Washington, DC: Author.
