2013/02/24 by Nathan M. Jensen · 38 citations
Business, Management and Accounting · Economics, Econometrics and Finance · Social Sciences · #Business #Competition (biology) #Corporate Taxation and Avoidance #Corporate tax #Democracy #Double taxation #Economics #Finance #Foreign direct investment #Incentive #International economics #International taxation #Local Government Finance and Decentralization #Macroeconomics #Market economy #Multinational corporation #Political science #Politics #Public economics #Tax avoidance #Tax competition #Tax reform #Taxation and Compliance Studies
paper · pdf · doi:10.1111/isqu.12015
published in International Studies Quarterly 57(3), 440-448 (Oxford University Press)
openalex publication_date 2013/02/24 · openalex created_date 2025/10/10 · openalex updated_date 2026/05/19
Political scientists have examined how domestic politics and the competition for international capital affect the setting of national tax rates. In this paper, I explore how political institutions, specifically the level of democracy, affect firm-level taxation across the world. I argue that electoral competition leads democratic governments to higher levels of taxation on firms. Using a data set on firm tax payments on the foreign affiliates of US multinational corporations from the US Bureau of Economic Analysis, I show that there are large variations within countries on the tax burdens faced by firms that are not explained by national tax rates. I find evidence that the mobility of the specific investment project, the types of spillovers these investments provide to a community, and attributes of the parent firm are all important determinants of taxation. While firm-level factors clearly affect corporate taxation, I argue that democratic institutions limit the offering of tax incentives and generate electoral benefits to policing tax avoidance by multinational corporations. After controlling for parent firm and foreign affiliate–level factors, I find that democratic countries generate as much as 26% more tax revenues from multinational corporations relative to authoritarian countries.