Peer Pressure: Tax Competition and Developing Economies

2019-03-25T13:48:39-04:00July 11, 2017|

By Michael Keen and Jim Brumby

July 11, 2017

Versions in عربي (Arabic), 中文 (Chinese), Français (French),  日本語 (Japanese), Русский (Russian), and Español (Spanish)

A salesman checks an iphone in New Delhi, India: governments compete to attract investors with low corporate tax rates (photo: Adnan Abidi/Reuters/Newscom)

Economists tend to agree on the importance of competition for a sound market economy. So, what’s the problem when it comes to governments competing to attract investors through the tax treatment they provide? The trouble is that by competing with one another and eroding each other’s revenues, countries end up having to rely on other—typically more distortive—sources of financing or reduce much-needed public spending, or both. […]