Globalisation and the mix of wage and profit taxes

This paper analyses the development of the ratio of corporate taxes
to wage taxes using a simple political economy model with
internationally mobile and immobile firms. Among other results, our
model predicts that countries reduce their corporate tax rate,
relative to the wage tax, either when preferences for public goods
increase or when a rising share of capital is employed in
multinational firms. The predicted relationships are tested using
panel data for 23 OECD countries for the period 1980 through 2001.
The results of the empirical analysis support our central
hypotheses.