Tax competition effects of a minimum tax rate: Empirical evidence from German municipalities

This paper explores the effects of a federal law that obligates previously unregulated municipalities in Germany to set a minimum tax rate on firms' taxable profits. In particular, we examine the tax -policy response of municipalities that compete locally with "tax -haven municipalities", i.e. municipalities that originally have set lower and, in some cases, even zero tax rates. The analysis distinguishes treated and not -treated municipalities based on their distance to a tax -haven. Our results show that the majority of municipalities do not change their tax policy. Apart from the tax -havens, only high -tax municipalities show a response - they reduce the business tax rate without experiencing a decline in tax revenues.