Race to the bottom in international tax competition: some conceptual issues

Olena V. Sokolovska


The purpose of the article is to provide analysis of conceptual background of the international tax competition, and its negative externality - the race to the bottom situation. We distinguished the three types of tax competition models, notably, traditional, asymmetric and Leviathan models. Also we analyzed briefly the main benefits and disadvantages of international tax competition in the modern world. Using both comparative and graphical analysis we provide a brief evaluation of the dynamics of statutory corporate income tax rates in countries worldwide. For the purpose of such analysis we distinguished the four regions: Europe, Latin America, Africa and countries of the former USSR. We used panel data on statutory corporate income tax rates for 70 countries for the period of 2006-2015. We found that in the three regions, notably Europe, Latin America and countries of the former USSR there were no significant changes in statutory corporate income tax rates while in African countries they have changed substantially. This can be explained by the weakness of these tax systems, i.e. the countries compete with each other, primarily by reducing statutory tax rates. But in order to make some conclusions both about taxation of corporate income and possibility of the race-to-bottom situation occurrence in neighboring countries, the real tax rates, taking into account the tax incentives and eliminations should be considered in future research. The obtained results could be useful for the elaboration of guidelines in order to create an attractive investment climate both for domestic and non-resident investors.


international taxation; tax competition; investment; corporate income tax; race to the bottom

Full Text



Rudra N. Globalization and the Race to the Bottom in Developing Countries: Who Really Gets Hurt? Cambridge University Press, 2008. 314 p.

Tax competition in East Africa: A race to the bottom? Tax Justice Network-Africa & Action Aid International, 2012. 33 p.

Keen M., Konrad K. The Theory of International Tax Competition and Coordination Ch. 5. In Auerbach A., Chetty R., Feldstein M., Saez E. (eds). Handbook of Public Economics. Elsevier, 2013. 474 p.

Olney W. A race to the bottom? Employment protection and foreign direct investment. Journal of International Economics, 2013, vol. 91 (2), pp. 191–203.

Anguelov N. Lowering the marginal corporate tax rate: why the debate? PPC Working Paper Series, No. PMG-2015-01, University of Massachusetts, Dartmouth. 31 p.

Bretschger L., Hettich F. Globalization and International Tax Competition: Empirical Evidence Based on Effective Tax Rates. Journal of Economic Integration, 2005, vol. 20 (3), pp. 530–542.

Devereux M., Lockwood B., Redoano M. Do Countries Compete over Corporate Tax Rates? Journal of Public Economics, 2008, vol. 92 (5-6), pp. 1210–1235.

Yao Y., Zhang X. Race to the Top and Race to the Bottom. Tax Competition in Rural China. IFPRI Discussion Paper No. 00799. 2008. 28 p.

Ali Abbas S., Klemm A., Bedi S., Park J. Partial Race to the Bottom: Corporate Tax Developments in Emerging and Developing Economies. Fiscal Affairs Department, WP/12/28– IMF, 2012. 31 p.

Vezina P. Race-to-the-bottom Tariff Cutting. Review of International Economics, 2014, vol. 22 (3), pp. 444–458.

Krogstrup S. Are Corporate Tax Burdens Racing to the Bottom in the European Union? EPRU Working Paper Series. No. 2004-04. University of Copenhagen, 2004. 45 p.

Mendoza E., Tesar L. Why hasn’t tax competition triggered a race to the bottom? Some quantitative lessons from the EU. Journal of Monetary Economics, 2005, vol. 52, pp. 163–204.

Nicodème G. Corporate tax competition and coordination in the European Union: What do we know? Where do we stand? Directorate-General for Economic and Financial Affairs. No. 250. European Commission, 2006. 45 p.

Fourçans A., Warin T. Can Tax Competition Lead to a Race to the Bottom in Europe? A Skeptical View. Middlebury College working paper series. No. 06-04. Middlebury, VT, 2006. 24 p.

Devereux M., Loretz S. What do we know about corporate tax competition? National Tax Journal, 2013, vol. 66 (3), pp. 745–773.

Dvořáková V. Are the tendencies of the race to the bottom real in the European Union? Acta Universitatis Agriculturaeet Silviculturae Mendelianae Brunensis, 2013, vol. LXI, no. 4, pp. 893–898. DOI: 10.11118/actaun201361040893.

Baskaran T., Lopes da Fonseca M. The Economics and Empirics of Tax Competition: A Survey and Lessons for the EU. Erasmus Law Review, 2014, vol. 7 (1), pp. 3–12.

Azémar C., Desbordes R., Wooton I. Testing Tax Competition. Working Paper CESifo Area Conference on Global Economy, 2015, May, 31 p.

Teather R. The benefits of tax competition. The Institute of Economic Affairs, 2005. 165 p.

Oates W. Fiscal Federalism. Harcourt Brace Jovanovich, 1972. 256 p.

Krogstrup S. What do Theories of Tax Competition Predict for Capital Taxes in EU Countries? A Review of the Tax Competition Literature. HEI Working Paper No. 05/2002. Graduate Institute of International Studies, 2002. 27 p.

Zodrow G., Mieszkowski P. Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods. Journal of Urban Economics, 1986, vol. 19, pp. 356–370.

Wilson J., Wildasin D. Capital tax competition: bane or boon? Journal of Public Economics, 2004, vol. 88 (6), pp. 1065–1091.

Tiebout C. A Pure Theory of Local Expenditures. Journal of Political Economy, 1956, vol. 64, pp. 416–424.

Edwards C., Rugy de V. International Tax Competition. Ch. 3. In Economic Freedom of the World: 2002 Annual Report. The Fraser Institute, 2002. 183 p.

Wildasin D. Nash Equilibria in Models of Fiscal Competition. Journal of Public Economics, 1988, vol. 35 (2), pp. 229–240.

Janeba E., Schjelderup G. Tax Competition: A Review of the Theory. Available at: www.regjeringen.no/en/dokumenter/tax_competition-a_review_of_the/id260433/.

Bucovetsky S. Asymmetric Tax Competition. Journal of Urban Economics, 1991, vol. 30 (2), pp. 167–181.

Keen M., Kanbur R. Jeux Sans Frontières: Tax Competition and Tax Coordination When Countries Differ in Size. The American Economic Review, 1993, vol. 83 (4), pp. 877–892.

Lee S. Tax competition among governments and the effects on government performance: empirical evidence from local governments in New Jersey. ProQuest, 2009. 306 p.

Edwards J., Keen M. Tax Competition and Leviathan. European Economic Review, 1996, vol. 40, pp. 113–134.

Brennan G., Buchanan J. The Power to Tax: Analytical Foundations of a Fiscal Constitution. Collected Works of James M. Buchanan. Vol. 9. Available at: www.econlib.org/library/Buchanan/buchCv9.html.

Avi-Yonah R. Globalization, Tax Competition, and the Fiscal Crisis of the Welfare State. Harvard Law Review, 2000, vol. 113 (7), pp. 1573–1676.

Roin J. Competition and Evasion: Another Perspective on International Tax Competition. Georgetown Law Journal, 2000, no. 89, pp. 543–604.

Fichtner J., Michel A. The OECD’s Conquest of the United States: Understanding the Costs and Consequences of the BEPS Project and Tax Harmonization. Mercatus Center at George Mason University, 2016. 44 p.

Harmful tax competition: An emerging global issue. OECD, 1998. 82 p.

Drezner D. The Race to the Bottom Hypothesis: An Empirical and Theoretical Review. Fletcher School. Tufts University, 2006. 20 p.

Razin A., Sadka E. Migration and tax competition within a union. CEPR, 2013. No. 9600. 24 p.

Rizzo L. Interaction between Vertical and Horizontal tax Competition: Theory and Evidence. MPRA. 2005. No. 5334. 38 p.

Sokolovska O. Economic framework of harmful tax competition. Naukovіpracі Donec’kogo nacіonal’nogo tehnіchnogo unіversitetu. Ser.: Ekonomіchna, 2014, no. 2, pp. 85–93.

DOI: https://doi.org/10.15826/jtr.2016.2.2.018

Copyright (c) 2016 Olena V. Sokolovska

eLibrary logoeLibrary logo  DOAJ logo ERIH PLUS logo 

© Journal of Tax Reform : ISSN 2414-9497 (online), ISSN 2412-8872 (print)