Business, Management and Accounting
4 years ago

Corporate tax competition leads to significant decrease in public capital investment.

LSE Research Online Documents on Economics
Corporate tax competition and public capital stock
Pedro Gomes, François Pouget

Paper Summary

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The paper shows that when countries lower corporate taxes to attract businesses, they also reduce public investment in things like infrastructure. This happens because governments compete for corporate profits by offering lower taxes, which leads to less money for public projects. The study found that a 20% drop in corporate tax rates can decrease public investment by 0.5% to 0.9% of GDP. This competition is more intense in countries with open economies.