We investigate whether technological change predicts tax policy changes in 34 OECD countries from 1996 to 2016. To examine tax policy reactions, we construct two new country-level indexes, one capturing tax-related investment incentives and one capturing anti-tax avoidance rules in a country. We document a decreasing trend in statutory tax rates, stable capital investment incentives, and a trend toward stricter anti-tax avoidance rules across countries over the last two decades. Our main finding is that country-specific exposure to technological change predicts variation in these trends. We find that, following technological changes, countries tighten their anti-tax avoidance rules. Cross-sectional tests show that smaller countries deviate from this general trend and use less stringent anti-tax avoidance rules. In the competition for firms’ mobile capital, smaller countries thus appear to create indirect investment incentives by opting for less salient tax policy tools (i.e., anti-tax avoidance rules).