The Impact of Globalization on Corporate Income Taxation

With the use of a cross-country pooled time series regression, including 36 OECD countries between 1980 and 2018, the relation between globalization and the corporate income tax rate and the corporate income tax revenue is reassessed. To proxy for globalization, five different indicators are used, the trade openness indicator, KOF Globalization index, and three variations of an FDI indicator, instead of the trade openness indicator alone. The effect of these five indicators on corporate income tax rates and corporate income tax revenues is tested. It seems that, in line with existing evidence, there is no significant relationship between trade openness and corporate tax rates or revenues. However, there seems to be a significant negative relation of the KOF Globalization Index and FDI inflows on the corporate income tax rate and an ambiguous effect of these on the corporate income tax revenue. These results shed new light on the unclear source of the experienced decline in corporate tax rates and open new ways to investigate this phenomenon further. The slightly significant relation between globalization and corporate tax revenue is a reason to investigate this relationship further, to create more evidence and create ways to maintaining the welfare state.