Tax Competition and Its Short-term and Long-term Consequences for the Structure of Tax Revenues in Developing Countries

Along with the globalization process and the permanent mobility of capital and production factors among countries all over the globe, an intense competition has emerged between them to attract foreign direct investment (FDI). This competition has been created through tax rate reductions on capital and compensating the decreased revenues by those generated from other tax bases which is known as 'tax competition'. The purpose of this study was to investigate the existence of tax competition and its consequences on the structure of tax revenues in a selection of developing countries during the period of 1995-2020 using panel data approach in the short term and Dynamic Ordinary Least Squares (DOLS) cointegration technique in long term horizons. The results of the study indicated that there was a negative and significant relationship between the corporate tax revenues and the revenues generated from personal tax, tax on goods and services and property tax. In addition, due to the phenomenon of tax competition, any decrease in revenues from transferable tax bases such as corporate tax is compensated with an increase in tax revenues from less transferable tax bases, such as personal tax and indirect taxes (such as goods and services tax and property tax) in the long term.