Prague Economic Papers 2025, 34(4):442-469 | DOI: 10.18267/j.pep.901

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

İrem Didinmez ORCID..., Nazmiye Tekdemir ORCID..., Pelin Varol İyidoğan ORCID...
İrem Didinmez (Corresponding author), Hacettepe University, Faculty of Economics and Administrative Sciences, Department of Public Finance, Ankara, Türkiye
Nazmiye Tekdemir, Kirikkale University, Faculty of Economics and Administrative Sciences, Department of Public Finance, Kirikkale, Türkiye
Pelin Varol İyidoğan, Hacettepe University, Faculty of Economics and Administrative Sciences, Department of Public Finance, Ankara, Türkiye

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.

Keywords: tax competition, financial globalization, dynamic panel threshold., Jel codes: C23, F36, H26
JEL classification: C23, F36, H26

Received: August 18, 2025; Revised: November 14, 2025; Accepted: December 2, 2025; Prepublished online: December 19, 2025; Published: December 22, 2025  Show citation

ACS AIP APA ASA Harvard Chicago Chicago Notes IEEE ISO690 MLA NLM Turabian Vancouver
Didinmez, İ., Tekdemir, N., & İyidoğan, P.V. (2025). Tax Competition in the Era of Financial Globalization: An Empirical Non-Linear Analysis for European Countries. Prague Economic Papers, 34(4), 442-469. doi: 10.18267/j.pep.901
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Adeneye, Y. B., Kammoun, I., Ab Wahab, S. N. A. (2023). Capital structure and speed of adjustment: the impact of environmental, social and governance (ESG) performance. Sustainability Accounting, Management and Policy Journal, 14(5), 945-977. https://doi.org/10.1108/SAMPJ-01-2022-0060 Go to original source...
    2. Alkhawaja, A., Hu, F., Johl, S., Nadarajah, S. (2023). Board gender diversity, quotas, and ESG disclosure: Global evidence. International Review of Financial Analysis, 90, 102823. https://doi.org/10.1016/j.irfa.2023.102823 Go to original source...
    3. Almubarak, W. I., Chebbi, K., Ammer, M. A. (2023). Unveiling the connection among ESG, earnings management, and financial distress: Insights from an emerging market. Sustainability, 15(16), 12348. https://doi.org/10.3390/su151612348 Go to original source...
    4. Al-Shaer, H., Zaman, M., Albitar, K. (2024). CEO gender, critical mass of board gender diversity and ESG performance: UK evidence. Journal of Accounting Literature. https://doi.org/10.1108/JAL-10-2023-0181 Go to original source...
    5. Antunes, J., Wanke, P., Fonseca, T. and Tan, Y., 2023. Do ESG risk scores influence financial distress? Evidence from a dynamic NDEA approach. Sustainability, 15(9), p.7560. https://doi.org/10.3390/su15097560 Go to original source...
    6. Berkey, C.S., Hoaglin, D.C., Mosteller, F. and Colditz, G.A., 1995. A random-effects regression model for meta-analysis. Statistics in medicine, 14(4), pp.395-411. https://doi.org/10.1002/sim.4780140406 Go to original source...
    7. Bhatia, S., Marwaha, D. (2022). The influence of board factors and gender diversity on the ESG disclosure score: a study on Indian companies. Global Business Review, 23(6), 1544-1557. https://doi.org/10.1177/09721509221132067 Go to original source...
    8. Binesh, F., E-Vahdati, S., Ozdemir, O. (2025). ESG performance and financial distress during COVID-19: the moderating effects of innovation and capital intensity. Asia-Pacific Journal of Business Administration, 17(1), 212-238. https://doi.org/10.1108/APJBA-12-2022-0515 Go to original source...
    9. Busch, T., Hoffmann, V. H. (2007). Emerging carbon constraints for corporate risk management. Ecological Economics, 62(3-4), 518-528. https://doi.org/10.1016/j.ecolecon.2006.05.022 Go to original source...
    10. Citterio, A., King, T. (2023). The role of Environmental, Social, and Governance (ESG) in predicting bank financial distress. Finance Research Letters, 51, 103411. https://doi.org/10.1016/j.frl.2022.103411 Go to original source...
    11. Eccles, R. G., Ioannou, I., Serafeim, G. (2014). The impact of corporate sustainability on organizational processes and performance. Management science, 60(11), 2835-2857. https://doi.org/10.1287/mnsc.2014.1984 Go to original source...
    12. Edeigba, J. (2023). Firms human rights practices and resource use: Impacts on firms ESG and financial performance. Available at SSRN 4456512. http://dx.doi.org/10.2139/ssrn.4456512 Go to original source...
    13. Giese, G., Lee, L.E., Melas, D., Nagy, Z. and Nishikawa, L., (2019). Foundations of ESG investing: How ESG affects equity valuation, risk, and performance. Journal of portfolio management, 45(5), pp.69-83. DOI:10.3905/jpm.2019.45.5.069 Go to original source...
    14. Giesselmann, M. and Schmidt-Catran, A.W., 2022. Interactions in fixed effects regression models. Sociological Methods & Research, 51(3), pp.1100-1127. https://doi.org/10.1177/0049124120914934 Go to original source...
    15. Habib, A. M. (2023). Do business strategies and environmental, social, and governance (ESG) performance mitigate the likelihood of financial distress? A multiple mediation model. Heliyon, 9(7). https://doi.org/10.1016/j.heliyon.2023.e17847 Go to original source...
    16. Hart, S. L. (1995). A natural-resource-based view of the firm. Academy of Management Review, 20(4), 986-1014. https://doi.org/10.5465/amr.1995.9512280033 Go to original source...
    17. Husted, B. W., de Sousa-Filho, J. M. (2019). Board structure and environmental, social, and governance disclosure in Latin America. Journal of Business Research, 102, 220-227. https://doi.org/10.1016/j.jbusres.2018.01.017 Go to original source...
    18. Imai, K. and Kim, I.S., 2019. When should we use unit fixed effects regression models for causal inference with longitudinal data?. American Journal of Political Science, 63(2), pp.467-490. https://doi.org/10.1111/ajps.12417 Go to original source...
    19. Ionescu, G. H., Firoiu, D., Pirvu, R., Vilag, R. D. (2019). The impact of ESG factors on market value of companies from travel and tourism industry. Technological and Economic Development of Economy, 25(5), 820-849. https://doi.org/10.3846/tede.2019.10294 Go to original source...
    20. Khemakhem, H., Arroyo, P., Montecinos, J. (2023). Gender diversity on board committees and ESG disclosure: evidence from Canada. Journal of Management and Governance, 27(4), 1397-1422. https://doi.org/10.1007/s10997-022-09658-1 Go to original source...
    21. Lanzalonga, F., Oppioli, M., Calandra, D., Secinaro, S. (2025). The impact of ESG performance on intangible assets and intellectual capital in the food and beverage industry. Management Decision, 63(2), 423-442. Go to original source...
    22. Limkriangkrai, M., Koh, S., Durand, R. B. (2017). Environmental, social, and governance (ESG) profiles, stock returns, and financial policy: Australian evidence. International Review of Finance, 17(3), 461-471. Go to original source...
    23. Lisin, A., Kushnir, A., Koryakov, A. G., Fomenko, N., Shchukina, T. (2022). Financial stability in companies with high ESG scores: Evidence from North America using the Ohlson O-Score. Sustainability, 14(1), 479. https://doi.org/10.3390/su14010479 Go to original source...
    24. Liu, J., Xie, J. (2024). The effect of ESG performance on bank liquidity risk. Sustainability, 16(12), 4927. https://doi.org/10.3390/su16124927 Go to original source...
    25. Liwa, K. H., Daromes, F. E., Asri, M. (2024). The Effect of ESG disclosure on risk of financial distress: Role of industry sensitivity. AJAR, 7(02), 208-235. https://doi.org/10.35129/ajar.v7i02.522 Go to original source...
    26. Lohmann, C., Möllenhoff, S., Lehner, S. (2025). On the Relationship between financial distress and ESG scores. Available at SSRN 4751503. http://dx.doi.org/10.2139/ssrn.4751503 Go to original source...
    27. Makhija, H., Raghukumari, P. S., Sethiya, A. (2025). Does board gender diversity moderate the impact of ESG on firms' economic value added? Evidence from an emerging economy. International Journal of Productivity and Performance Management, 74(3), 819-840. https://doi.org/10.1108/IJPPM-12-2023-0664 Go to original source...
    28. Meng-tao, C., Da-peng, Y., Wei-qi, Z., Qi-jun, W. (2023). How does ESG disclosure improve stock liquidity for enterprises-empirical evidence from China. Environmental Impact Assessment Review, 98, 106926. https://doi.org/10.1016/j.eiar.2022.106926 Go to original source...
    29. Mummolo, J. and Peterson, E., 2018. Improving the interpretation of fixed effects regression results. Political Science Research and Methods, 6(4), pp.829-835. https://doi.org/10.1017/psrm.2017.44 Go to original source...
    30. Odriozola, M. D., Blanco-González, A., Baraibar-Diez, E. (2024). The link of ESG performance and board gender diversity in European firms. Corporate Social Responsibility and Environmental Management, 31(6), 5656-5669. https://doi.org/10.1002/csr.2881 Go to original source...
    31. Paolone, F., Pozzoli, M., Chhabra, M., Di Vaio, A. (2024). Cultural and gender diversity for ESG performance towards knowledge sharing: empirical evidence from European banks. Journal of Knowledge Management, 28(11), 106-131. https://doi.org/10.1108/JKM-05-2023-0445 Go to original source...
    32. Romano, M., Cirillo, A., Favino, C., Netti, A. (2020). ESG (Environmental, Social and Governance) performance and board gender diversity: The moderating role of CEO duality. Sustainability, 12(21), 9298. https://doi.org/10.3390/su12219298 Go to original source...
    33. Russo, M. V., Fouts, P. A. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of management Journal, 40(3), 534-559. https://doi.org/10.5465/257052 Go to original source...
    34. Sandretto, D., Rizzi, A., Esposito, G. (2025). Gender diversity leadership and ESG performance: The influence of women on boards and in management. Business Strategy and the Environment. https://doi.org/10.1002/bse.4241 Go to original source...
    35. Sastroredjo, P. E., Suganda, T. R. (2025). ESG and financial distress: the role of bribery, corruption, and fraud in FTSE All-Share companies. Risks, 13(3), 41. https://doi.org/10.3390/risks13030041 Go to original source...
    36. Schwartz, M. S., Cragg, W. (2017). Corporate social responsibility. In Business Ethics. Routledge Go to original source...
    37. Singh, K. (2024). Listing on environmental, social and governance index and financial distress: does the difference-in-differences matter?. Asian Review of Accounting, 32(2), 302-326. https://doi.org/10.1108/ARA-07-2023-0197 Go to original source...
    38. Song, Y., Li, R., Zhang, Z., Sahut, J. M. (2024). ESG performance and financial distress prediction of energy enterprises. Finance Research Letters, 65, 105546. https://doi.org/10.1016/j.frl.2024.105546 Go to original source...
    39. Spineli, L.M. and Pandis, N., 2020. Fixed-effect versus random-effects model in meta-regression analysis. American Journal of Orthodontics and Dentofacial Orthopedics, 158(5), pp.770-772. Go to original source...
    40. Sullivan, R., Mackenzie, C. (2017). Responsible investment: Guide to ESG data providers and relevant trends. The Journal of Sustainable Finance & Investment, 7(2), 131-143.
    41. Sumiati Isnaini, A. (2024). The effect of tangible assets and green intellectual capital on profitability: The mediating role of esg performance (study on go public companies in Indonesia). (2024). IBAF E-Proceedings, 11(1), 852-870. https://doi.org/10.33102/ck83zg48 Go to original source...
    42. Suprabha, K. R., Sreepriya, J., Prasad, K. (2024). The impact of ESG disclosure on mitigating financial distress: exploring the moderating role of firm life cycle. International Journal of Disclosure and Governance, 1-14. https://doi.org/10.1057/s41310-024-00225-8 Go to original source...
    43. Suprabha, K.R., Sreepriya, J. and Prasad, K., 2024. The impact of ESG disclosure on mitigating financial distress: exploring the moderating role of firm life cycle. International Journal of Disclosure and Governance, pp.1-14. https://doi.org/10.1057/s41310-024-00225-8 Go to original source...
    44. Truong, Q. T., Tran, Q. N., Srivuttichan, T., Chen, R. (2025). The significance of ESG performance for financial distress: new evidence. Applied Economics Letters, 1-7. https://doi.org/10.1080/13504851.2025.2471553 Go to original source...
    45. Wang, H., Jiao, S., Ma, C. (2024). The impact of ESG responsibility performance on corporate resilience. International Review of Economics & Finance, 93, 1115-1129. https://doi.org/10.1016/j.iref.2024.05.033 Go to original source...
    46. Wang, K., Li, T., San, Z., Gao, H. (2023). How does corporate ESG performance affect stock liquidity? Evidence from China. Pacific-Basin Finance Journal, 80, 102087. https://doi.org/10.1016/j.pacfin.2023.102087 Go to original source...
    47. Wasiuzzaman, S., Subramaniam, V. (2023). Board gender diversity and environmental, social and governance (ESG) disclosure: is it different for developed and developing nations?. Corporate Social Responsibility and Environmental Management, 30(5), 2145-2165. https://doi.org/10.1002/csr.2475 Go to original source...
    48. Wood, S.N., 2013. A simple test for random effects in regression models. Biometrika, 100(4), pp.1005-1010. https://doi.org/10.1093/biomet/ast038 Go to original source...
    49. Zhou, G., Liu, L., Luo, S. (2022). Sustainable development, ESG performance and company market value: Mediating effect of financial performance. Business Strategy and the Environment, 31(7), 3371-3387. https://doi.org/10.1002/bse.3089 Go to original source...
    50. Tanzi, V., Globalization, Tax System, and the Architecture of the Global Economic System, 2005, Inter-American Development Bank, 23. http://dx.doi.org/10.18235/0011033 Go to original source...
    51. Tiebout, C. M., "A Pure Theory of Local Expenditures", 1956, Journal of Political Economy, vol. 64, no. 5, pp. 416-424. https://doi.org/10.1086/257839 Go to original source...
    52. Tobin, J., "Financial Globalization", 2000, World Development, vol. 28, no. 6, pp. 1101-1104. Go to original source...
    53. Van De Velde, E. and Cannas, F., Harmful tax practices within the EU: definition, identification and recommendations, 2021, Policy Department for Economic, Scientific and Quality of Life Policies Directorate-General for Internal Policies. https://www.europarl.europa.eu/RegData/etudes/STUD/2021/662905/IPOL_STU(2021)662905_EN.pdf
    54. Windmeijer, F., "A finite sample correction for the variance of linear efficient two-step GMM estimators", 2005, Journal of Econometrics, vol. 126, no. 1, pp. 25-51. https://doi.org/10.1016/j.jeconom.2004.02.005 Go to original source...
    55. Winner, H., "Has Tax Competition Emerged in OECD Countries? Evidence from Panel Data", 2005, International Tax and Public Finance, vol. 12, pp. 667-687. https://doi.org/10.1007/s10797-005-2915-0 Go to original source...
    56. Wolff, G. B., Measuring tax burdens in Europe, 2005, ZEI Working Paper No. https://www.econstor.eu/bitstream/10419/39644/1/512934088.pdf
    57. Zodrow, G., "Tax Competition and Tax Coordination in the European Union", 2003, International Tax and Public Finance, vol. 10, no. 6, pp. 651-671. https://doi.org/10.1023/A:1026377819946 Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content