Tax Competition in the Era of Financial Globalization: An Empirical Non-Linear Analysis for European Countries

DİDİNMEZ İ., Tekdemir N., Iyidogan P. V.

PRAGUE ECONOMIC PAPERS, vol.34, no.4, pp.442-469, 2025 (SSCI, Scopus) identifier

  • Publication Type: Article / Article
  • Volume: 34 Issue: 4
  • Publication Date: 2025
  • Doi Number: 10.18267/j.pep.901
  • Journal Name: PRAGUE ECONOMIC PAPERS
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, EconLit, Political Science Complete
  • Page Numbers: pp.442-469
  • Hacettepe University Affiliated: Yes

Abstract

The aim of this study is to empirically investigate how financial globalization affects tax competition, focusing on implicit and effective tax rates across 29 European countries over the period 2010-2021. Our linear dynamic panel findings suggest that while financial globalization increases implicit tax rates on labor and consumption, it exerts downward pressure on corporate tax rates. The non-linear analysis further reveals threshold effects, where the influence of financial globalization varies depending on its intensity. These results highlight the critical role of tax policy adjustments in response to globalization, emphasizing the need for international regulatory coordination to mitigate the adverse effects of tax competition.