News that Burger King and Tim Horton’s are merging and that the new company will be headquartered in Canada has taken the business and political world by storm. U.S. politicians and left-of-centre groups denounced the transaction as “tax dodging” and warned of a public backlash against the well-known burger chain. Canadian politicians have refrained from saying much about the deal but spoke positively about the country’s corporate tax regime. What are we to make of this late-summer kerfuffle?

Politicians are talking about taxes because taxes are at the heart of this deal (although other factors are also at play). It’s called a “tax inversion” whereby an American company merges with a foreign one and in so doing, reincorporates abroad to take advantage of lower taxes. It’s a powerful reminder that competitive business taxes matter.

A considerable body of research finds that corporate income tax rates are an important contributor to a jurisdiction’s economic performance. High rates can diminish a jurisdiction’s appeal as a destination for business investment and hurt its ability to compete with others for investment and ultimately job creation.

This is because high taxes change the incentives people face. Higher corporate tax rates decrease the after-tax rate of return that investors receive and thus reduce their incentives to invest and grow, leaving firms with less capital to invest in productivity-enhancing machinery, equipment, and technology. Because productivity is a key driver of wages, lower productivity means that workers ultimately suffer.

And a growing economy characterized by more investment, increased job creation, and higher incomes for workers eventually leads to more government revenue of all types, including personal and corporate income taxes, and sales taxes. In fact, research finds that lower corporate taxes can lead to a growing business tax base – a direct result of how taxes affect incentives and the mobility of capital.

Put differently: when corporate taxes are uncompetitive, the economic costs can mean less investment, fewer jobs, and potentially less government revenue.

Canadian governments of all political stripes got this message loud and clear over past two decades. The federal government – starting with the Liberals and followed by the Conservatives – cut the general corporate income tax rate from 28 per cent in 1997 to 15 percent in 2012. Many provinces – from an NDP government in Saskatchewan to Liberals in BC and Progressive Conservatives in Alberta – did so too, although there’s been some backsliding in recent years. As of last year, the average combined (federal and provincial) corporate tax rate is 26.3 per cent, down markedly from 34.2 per cent in 2005.

Canada is hardly unique in this regard. We’ve seen a global trend to lower corporate taxes. Among the most developed countries, the average corporate tax rate in 2013 was 25.5 per cent compared to 28.2 percent in 2005.

But the United States is an outlier. It continues to impose one of the highest corporate tax rates in the world. The U.S. average federal-state corporate tax rate is 39.1 per cent. Making matters worse, it’s the only G-7 country that taxes a company’s global income regardless of where it’s earned. The new merger and move to Canada means Burger King will no longer be subject to such a rule.

Part of Burger King’s decision to acquire Tim Horton’s and relocate to Canada is undoubtedly our more competitive corporate tax regime. U.S. politicians may lament the company’s northern move but ultimately the responsibility rests with government policy and the inaction in improving American tax competitiveness. The Burger King-Tim Horton’s transaction is a real-life reminder that uncompetitive corporate tax rates can deter business investment and encourage firms to relocate elsewhere.

Despite this, some voices continue to call on Canadian governments to raise corporate tax rates. Apparently “evidence-based” policy doesn’t seem to apply in this case. But ignoring the facts won’t help the Canadian economy. Raising corporate income tax rates isn’t costless. Just ask the Americans.