International Tax and Public Finance

, Volume 21, Issue 2, pp 298–323 | Cite as

Trade integration and corporate income tax differentials

  • Nelly Exbrayat
  • Benny Geys


Building on recent contributions to the New Economic Geography literature, this paper analyses the relation between asymmetric market size, trade integration, and corporate income tax differentials across countries. First, relying on Ottaviano and Van Ypersele’s (J. Int. Econ. 67:25–46, 2005) foot-loose capital model of tax competition, we illustrate that trade integration reduces the importance of relative market size for differences in the extent of corporate taxation between countries. Then, using a dataset of 26 OECD countries over the period 1982–2004, we provide supportive evidence of these theoretical predictions, i.e., market size differences are strongly positively correlated with corporate income tax differences across countries, but crucially, trade integration weakens this link. These findings are obtained controlling for the potential endogeneity of trade integration and are robust to alternative specifications.


Tax competition Trade integration New Economic Geography Tax differentials 

JEL Classification

H2 H3 C23 F12 



We are grateful to Simon Loretz for providing the tax data and to the editor, two anonymous referees, Fredrik Andersson, Kristian Behrens, Céline Carrère, Pierre-Philippe Combes, Vianney Dequiedt, Clemens Fuest, Christina Gathmann, Andreas Haufler, Tom Reiel Heggedal, Eckhard Janeba, Per Botolf Maureth, Espen R. Moen, Jordi Jofre-Monseny, Margarita Kalamova, Kai A. Konrad, Dirk Krueger, Simon Loretz, Gianmarco Ottaviano, Rodrigo Paillacar, Sonia Paty, Sandra Poncet, Grégoire Rota-Graziosi, Stéphane Riou, José de Sousa, Ian Wooton, Tanguy van Ypersele as well as participants of seminars at WZB, CERDI, University of Luxembourg (CREA) and IEB Barcelona, Journées Gérard-Varet (Marseille, France), Journées Économie et Espace (Rennes, France), Tax Policy Decision-Making (Mannheim, Germany) and COMPNASTA (Lyon, France) for helpful comments and suggestions. The usual caveat applies.


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.GATE Lyon-Saint-Etienne, Université de LyonUniversité Jean MonnetSaint-Etienne cedex 02France
  2. 2.Norwegian Business School BIOsloNorway
  3. 3.Vrije Universiteit Brussel (VUB)BrusselsBelgium

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