Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Higher corporate taxes may attract foreign investment

30.03.2007
A team of leading economists has challenged the current political drive to cut corporate taxes — with new research showing that countries with higher taxes and higher social welfare spending are more successful in attracting overseas investment.

Last week, Chancellor Gordon Brown announced that corporation tax for larger companies will be cut to 28% from April 2008. This followed an earlier pledge from the Conservatives to cut corporation tax to 27% on the grounds that the current 30% level is uncompetitive.

But in a new joint research paper, Dr Holger Görg from GEP — the Globalisation and Economic Policy Centre, based at The University of Nottingham — and Professor Hassan Molana and Dr Catia Montagna from the University of Dundee, claimed cutting taxes to become more competitive will not necessarily attract new investment.

After analysing data from 18 OECD countries over a 14 year period, the team found that the countries which attracted the highest levels of foreign investment — a key economic target of most governments — were actually the ones with higher taxes, and higher public social expenditure as a proportion of GDP.

Dr Görg, Associate Professor and Reader in Economics at GEP, said: “The results may be startling and appear to be counterintuitive.

“Most economists have always argued that globalisation leads to a ‘race-to-the-bottom’ as countries compete to cut tax rates in the hope of attracting multinational investment and the jobs that come with it. The traditional theory is that this then leads to a shrinking of tax revenues and undermines the welfare state.

“But our evidence shows that overall effective corporate tax burdens do not appear to have fallen in response to capital and trade liberalisation, that countries aren’t competing to cut taxes and actually, when investing abroad, firms find countries with higher taxes attractive because they associate them with a happy, stable workforce.”

The fear that globalisation will force countries to compete in cutting taxes and therefore welfare spending to attract investment is behind much of the recent drive to harmonise tax policies within the EU and OECD.

But the research showed that tax revenues as a percentage of GDP are on the rise in many OECD countries. Whilst many governments have reduced statutory corporate income tax rates, most have simultaneously broadened the tax base and closed various loopholes so total revenue from capital taxation has not declined. And differences in corporate tax treatments between OECD countries remain very large.

Dr Görg said: “This research suggests that commentators and economists have overstated the degree to which international investment decisions are driven by relative tax-treatment considerations.”

Among the reasons suggested by the researchers for their lack of sensitivity to taxation is the fact that multinationals have the ability to shift profits to lower-tax locations — for example by transfer pricing or intra-firm debt contracting.

Dr Görg said: “Perceptions about the host country’s economic and social environment are key to the choice of location for many multinationals. It seems that investment decisions depend on the combination of taxation and the provision of public goods and services that host countries can offer because of taxation. So an ‘unfavourable’ tax differential may lead to more and not less investment flowing into a country.”

Emma Thorne | alfa
Further information:
http://www.nottingham.ac.uk/public-affairs/press-releases/index.phtml?menu=pressreleases&code=HIGH-50/07&create_date=26-mar-2007

More articles from Business and Finance:

nachricht Uncovering decades of questionable investments
18.01.2018 | University of Texas at Austin, Texas Advanced Computing Center

nachricht Corporate coworking as a driver of innovation
22.11.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Artificial agent designs quantum experiments

On the way to an intelligent laboratory, physicists from Innsbruck and Vienna present an artificial agent that autonomously designs quantum experiments. In initial experiments, the system has independently (re)discovered experimental techniques that are nowadays standard in modern quantum optical laboratories. This shows how machines could play a more creative role in research in the future.

We carry smartphones in our pockets, the streets are dotted with semi-autonomous cars, but in the research laboratory experiments are still being designed by...

Im Focus: Scientists decipher key principle behind reaction of metalloenzymes

So-called pre-distorted states accelerate photochemical reactions too

What enables electrons to be transferred swiftly, for example during photosynthesis? An interdisciplinary team of researchers has worked out the details of how...

Im Focus: The first precise measurement of a single molecule's effective charge

For the first time, scientists have precisely measured the effective electrical charge of a single molecule in solution. This fundamental insight of an SNSF Professor could also pave the way for future medical diagnostics.

Electrical charge is one of the key properties that allows molecules to interact. Life itself depends on this phenomenon: many biological processes involve...

Im Focus: Paradigm shift in Paris: Encouraging an holistic view of laser machining

At the JEC World Composite Show in Paris in March 2018, the Fraunhofer Institute for Laser Technology ILT will be focusing on the latest trends and innovations in laser machining of composites. Among other things, researchers at the booth shared with the Aachen Center for Integrative Lightweight Production (AZL) will demonstrate how lasers can be used for joining, structuring, cutting and drilling composite materials.

No other industry has attracted as much public attention to composite materials as the automotive industry, which along with the aerospace industry is a driver...

Im Focus: Room-temperature multiferroic thin films and their properties

Scientists at Tokyo Institute of Technology (Tokyo Tech) and Tohoku University have developed high-quality GFO epitaxial films and systematically investigated their ferroelectric and ferromagnetic properties. They also demonstrated the room-temperature magnetocapacitance effects of these GFO thin films.

Multiferroic materials show magnetically driven ferroelectricity. They are attracting increasing attention because of their fascinating properties such as...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

10th International Symposium: “Advanced Battery Power – Kraftwerk Batterie” Münster, 10-11 April 2018

08.01.2018 | Event News

See, understand and experience the work of the future

11.12.2017 | Event News

Innovative strategies to tackle parasitic worms

08.12.2017 | Event News

 
Latest News

More genes are active in high-performance maize

19.01.2018 | Life Sciences

How plants see light

19.01.2018 | Life Sciences

Artificial agent designs quantum experiments

19.01.2018 | Physics and Astronomy

VideoLinks
B2B-VideoLinks
More VideoLinks >>>