Abstract
Fiscal policy implications become an important tool to soften the negative consequences of the COVID-19 pandemic. Given this backdrop, this paper analyses the drivers of corporate tax rates during the COVID-19 pandemic (i.e., in 2020 and 2021). The results from 113 advanced and developing economies show that a higher level of the COVID-19-related uncertainty is positively associated with the corporate tax rates. Similarly, the country size (measured by total population) increases the corporate tax rates. Per capita income is negatively related to the corporate tax rates, but this evidence is insufficient to consider different estimation techniques. The paper also discusses potential fiscal policy implications for the driving mechanism of corporate tax rates for the post-COVID-19 era.
Highlights
The COVID-19 pandemic has significantly affected economic indicators and societies [1]
The per capita GDP is negatively associated with the corporate tax rates, but this result is not robust to utilize different estimation techniques, such as the Ordinary Least Squares (OLS) and the KernelBased Regularized Least Squares (KRLS)
We found that a higher level of the COVID-19-related uncertainty, which the World Pandemic Uncertainty Index measures, is positively related to the corporate tax rates
Summary
The COVID-19 pandemic has significantly affected economic indicators and societies [1]. Policymakers have implemented fiscal policy [8, 9], income policy [10], monetary policy [11], and tax policy [12] implications. These implications are supported by stimulus packages to promote business investments and household consumption [13, 14]. These stimulus packages have created cash crunch and fiscal deficit problems in some countries [15]. The fiscal deficits have raised the interest on corporate tax rates, providing minimum corporate tax rates globally [16]
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