Tax competition in European Union: The threshold effect of gross domestic product per capita


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Günel T.

Gazi Journal of Economics &Business, vol.8, no.1, pp.115-123, 2022 (Peer-Reviewed Journal)

  • Publication Type: Article / Article
  • Volume: 8 Issue: 1
  • Publication Date: 2022
  • Journal Name: Gazi Journal of Economics &Business
  • Journal Indexes: TR DİZİN (ULAKBİM)
  • Page Numbers: pp.115-123
  • Çukurova University Affiliated: Yes

Abstract

The aim of this study is to investigate tax competition in the EU countries using the panel data method from 1996 to 2019. Since the EU countries primarily attempt to attract foreign direct investment through the alteration of corporate tax revenues or rates, the corporate tax rate is used as an indicator of tax competition. This study differs from previous studies by examining the effect of corporate tax on foreign capital investment according to the threshold value of per capita income of the countries. The main result shows the existence of tax competition in the European Union. Moreover, the threshold value of per capita income was found to be $30,000, according to the results achieved. Changes in the corporate tax rate above and below the threshold value have different effects on foreign direct investment. This finding indicates that tax competition is fiercer in the countries with lower economic growth rates. However, this negative association becomes positive in the countries with per capita income which is more than this value.