Low Corporate Tax Rates and Economic Development

Low corporate tax rates, low regulation and limited disclosure are a common ‘development’ model, but may give unfair competitive advantage and facilitate tax avoidance and criminal activity. Low tax centres are seen as a tool of regional economic development, but tax concessions contradict the principle of tax neutrality. Some argue that competition between tax systems leads to the best outcomes, yet competition can cause a ‘race to the bottom’ in terms of tax rates. Corporate taxes as a percentage of total taxation have generally fallen. Policy based on tax incentives encourages the growth of the tax avoidance industry. The chapter argues that tax incentives erode the tax base, and a tax-based industrial policy leads to an emphasis on tax reduction, not to long-run economic success.