Corporate income tax and the race to the bottom phenomenon

Abstract

The taxation of business profits has recently garnered considerable attention, not only in developing countries but also among the member states of the European Union (EU). Significant changes in tax rates, the definition of taxable income, tax benefits, and legislation to avoid double taxation, driven by competition in this tax area, have resulted in significant consequences for the economic growth of countries. Although the balance sheet importance of corporate income tax (CIT) is limited, its significance is directly attributed to its impact on economic activities. The focus of this study is the competition within the area of CIT and the examination of the phenomenon related to the "race to the bottom" that arises as a result of this competitiveness. The main goal of the paper is to examine the repercussions of CIT competitiveness on economic growth in the EU and Serbia in the specified time frame from 2007 to 2023. The research results show that CIT competitiveness has a positive and statistically significant impact on economic growth in most of the analysed countries. Based on the obtained results, the authors make recommendations for increasing revenue from CIT.