Tax Competition and Employment

Tax Competition and Employment Stephen Glaeser University of North Carolina at Chapel Hill [email protected] Marcel Olbert University of Mannheim [email protected] Ann-Catherin Werner University of Mannheim [email protected] Preliminary – please do not quote without permission This version: August 09, 2019 ABSTRACT: We examine the effects of international tax competition on domestic employment. We find that increases in corporate statutory tax rate differentials between domestic and foreign firms reduce domestic employment through the distinct channels of competition from importers and competition from foreign-owned domestic firms. These effects are stronger for domestic firms located in countries with weaker labor market protections, manufacturing firms, firms with fewer intangible assets, and standalone firms. International tax competition appears to primarily affect domestic employment via changes in within-firm employment at smaller firms. Our results suggest that international tax competition can affect domestic employment even when domestic capital or income is immobile. Consequently, limits on tax base mobility or on tax planning opportunities are likely insufficient to prevent tax competition. Keywords: Tax competition, Competition, Employment, Real effects, Trade JEL classifications: E24, F14, F16, H23, H35 Acknowledgements: We gratefully acknowledge valuable comments and suggestions from Jeff Hoopes, Ed Maydew, Terry Shevlin, Christoph Spengel, Ryan Wilson, the WHU - Otto Beisheim School of Management tax reading group, and seminar participants at the University of Mannheim and the University of California-Irvine. We appreciate the collaboration of Yannik Maximilian Schneider and Peter Severin during the data collection process. Part of this research was conducted while Ann-Catherin Werner visited the accounting group at the University of California-Irvine and while Marcel Olbert visited the accounting group at the University of North Carolina at Chapel Hill. They thank the groups at UCI and UNC for their hospitality and gratefully acknowledge financial support from the University of Mannheim Business School and the Julius-Paul-Stiegler Gedaechtnis Foundation as well as the German Academic Exchange Service (DAAD IPID4all). Stephen Glaeser gratefully acknowledges the financial support of the University of North Carolina at Chapel Hill. The authors gratefully acknowledge research support from Leibniz ScienceCampus MannheimTaxation (MaTax).

Tax Competition and Employment

Documents

employment

tax competition

tax

taxation

tax law

tax policy