Is it any EU Corporate Income Tax Rate-Revenue Paradox?

Abstract

As a consequence of globalization, countries competitively undercut their corporate tax rates in order to lure and boost foreign capital investments. This context induces a race to the bottom in corporate income taxes and threatens the corporate tax revenues collection. This paper aims to establish if there is a paradox in relation to the corporate tax rate and corporate-tax-to-GDP-ratio in the European Union (the corporate tax rates reduction did not cause a corporate-tax-to-GDP-ratio drop), as this trend was observed by researchers. In order to assess the outcome of corporate tax competition as it is reflected by the firms’ behavioural responses, a panel data for EU countries was used. The findings do not confirm that the downward pressures on corporate tax rates are not translated in a fall in corporate revenues over the time.