Corporate taxation and the impact of governance, political and economic factors

In this paper we investigate how, next to traditional economic factors, governance and political arguments may contribute to the determination of the corporate income tax rates. Therefore we .rst extend a standard model of tax competition in order to introduce those new arguments; we nest that model in the theory of lobbying. Then we propose an empiri-cal test of that extension using two international data sets and we show that good governance reduces the rates; parliamentary system, especially plurality election, and religious or nationalist executives, push rates up-ward. Regarding traditional economic factors, economic openness has a negative effect on rates and market size has a positive one; though not robust, interaction among neighbors plays a role. JEL: H73, H70. Keywords: Taxation and political institutions, tax competition, lobbying, governance