Abstract
Over the past two decades there has been a worldwide fall in statutory corporate tax (CT) rates. Focusing on Australia, this article establishes three empirical facts which challenge much of the existing literature. First, CT competition was the crucial driving force behind CT cuts. Second, policy makers had to abandon tax‐related investment incentives in order to pay for lower CT rates. This broadening of the CT base is costly, because it potentially disadvantages domestic firms and may, over the longer term, erode the CT base. Third, CT cuts have put pressure on the personal income tax base, as low corporate rates provide tax avoidance opportunities for high‐income earners.
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