DP3952 | Foreign Ownership and Corporate Income Taxation: An Empirical Evaluation

Publication Date

23/06/2003

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Abstract

Economic integration in Europe has not led to a ?race to the bottom? regarding corporate income taxes. This Paper documents trends in the foreign ownership of companies in Europe and examines whether foreign ownership has exerted a positive influence on corporate income tax levels. Using company-level data, we document that foreign ownership share in Europe stood at around 21.5% in the year 2000. The estimation suggests that a one percentage point increase in foreign ownership increases the average corporate income tax rate between 0.5-1%. Further international economic integration is likely to lead to higher foreign ownership shares with a concomitant positive influence on corporate taxation levels.