Recent decades have seen a downward trend in corporate taxation, with headline corporate tax rates falling by 20 percentage points since the early 1980s. The average for advanced economies dipped to 22% in 2015, and investment incentives have further reduced effective rates for transnational corporations. After the 2007-08 global financial crisis, many countries had to slash spending and raise revenue to rein in deficits, but lower corporate taxes persisted. In the face of post-crisis austerity, however, public tolerance of corporate tax avoidance has dissipated, thus increasing political momentum to improve transparency and limit loopholes. The OECD, in cooperation with the G20, partner countries and emerging markets, has led this charge.

Developed Markets

In a 2017 review of its 35 member countries’ tax policies, the OECD highlighted intensifying competition. For example, 12 countries reduced or announced plans to reduce headline corporate tax rates in 2016-17, with only Chile and Slovenia raising them. The most dramatic change was Hungary’s corporate tax rate reduction from 19% to 9%.

The US had resisted cutting corporate tax rates until late 2017. With a headline rate of 39.1%, its corporate taxes were more than 10 points above the advanced economy average. In December 2017 the US Congress reduced this to 21% and limited liability to income generated in the US rather than worldwide profits, following the global trend. A 15.5% amnesty rate is to be applied to historical profits to encourage repatriation.

Emerging Markets

Reductions are also taking place in emerging markets, with the OECD highlighting Slovakia and Israel within this trend. The Czech Republic and Slovenia have also reduced rates since 2008. Turkey, with the introduction of its so-called super tax incentive model, was another main mover in 2016, while Hungary, Poland and Mexico signalled intentions to improve tax incentives.

The IMF has labelled this a “partial race to the bottom” in global corporate tax regimes. Evidence is particularly strong in Africa, where many effective corporate tax rates had fallen to zero. Large declines also took place in Egypt, Ghana, Kenya and Morocco in the decade leading up to the financial crisis.


One of the most important implications of downward corporate tax convergence is the reinforcement of inequality. Reduced taxation on corporate profits means that wealth remains more concentrated in the hands of shareholders, leaving governments to rely on a combination of increases in other taxes or reduced spending to maintain healthy public finances. In sub-Saharan Africa, for example, countries rely on indirect taxes for around two-thirds of their tax revenues compared to less than one-third in advanced economies. At the same time, overall tax revenues in less developed economies are generally much lower, meaning there are less resources available for public investment or social spending.

Lower rates of corporate tax in advanced and emerging economies has also meant that in some cases profits on activities carried out in developing countries are diverted to economies with friendlier tax regimes. According to Oxfam, corporate tax avoidance causes $100bn in lost revenue for developing countries, while the NGO Action Aid puts this figure at $138bn.

In theory, low corporate taxes should encourage productive investment, however, investment slowed in the 2007-17 period. Rather than reinvesting earnings to expand, large corporates have generally hoarded cash or returned it to shareholders as dividends or share buy-backs. Nonetheless, many countries are working on phased multi-year rate reductions. The medium-term outlook for corporate taxes is therefore clear: globally coordinated efforts to improve transparency and curb legal tax avoidance schemes are changing the landscape to some degree, but have not slowed the emergence of new or redesigned incentives. This appears to be the more intense arena for tax competition among countries, albeit perhaps with clearer rules of the game.