Do Asia and Pacific Countries Compete in the Corporate Tax Rates?

Do governments in the emerging Asia and Pacific region independently set their corporate tax rates? The answer is no. This paper contributes to the growing empirical tax competition literature by (i) generating a predictable tax reaction function within the new tax competition framework considering the "lumpy" nature of economic geography; and (ii) estimating the parameters of the national level tax reaction functions using panel data of 14 countries in the Asia and Pacific region between 1980 and 2007. We find that consistent with the model-evidence of strategic interaction is present among governments in this region and market integration plays the catalyst role. Country size has a positive effect on the corporate tax rate setting but is offset when the openness degree deepens. Furthermore, the mobile capital and immobile labor are possibly substitutes implied by the insignificant coefficient on the top individual income tax rate considering the effect of unemployment. Overtime, contrary to our expectation, countries in the Asia and Pacific region seem to become less competitive among themselves