Globalization and Government Policy Independence: The Issue of Taxation

Abstract

This study examines the relationship between national corporate tax policies and globalization. Specifically, we empirically focus on whether the internationalization of markets has led to lower corporate taxes across OECD countries. In contrast to other studies, we consider whether government education and research programs provide policymakers additional capacity to deal with the pressures of globalization. Such government programs may enhance tax policy independence in an era of globalization. Additionally, we consider whether the interaction of government education and research programs with global capital flows permits governments to modify the demand to lower corporate taxes. Using Ordinary Least Square analysis on a cross-sectional time series data set comprised of 17 OECD countries for the years 1982-1991, we find evidence of an association between government education and higher corporate taxes. Moreover, we demonstrate that the interaction between education policies and capital flow dampens the need for national governments to lower corporate taxes.

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