Leaning Right and Learning From the Left

Abstract

There is an increased focus in comparative politics and international relations on how choices of governments are dependent on choices made by other governments. The authors argue that although the relationship between policy choices across countries is often labeled as either diffusion or competition, in many cases the theoretical mechanisms underpinning these labels are unclear. In this article, the authors build a model of social learning with a specific application to the diffusion of corporate tax reductions. The model yields predictions that are differentiable from existing models of tax competition. Specifically, the authors argue that social learning is most likely in the wake of tax policy cuts by left governments. They test the model using an existing data set of corporate tax rate changes and an author-created data set of changes in tax legislation, covering 20 Organisation for Economic Co-operation and Development countries. The authors’ empirical findings show that social learning is an important determinant of corporate tax policy making.