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The macro-economic impact of changing the rate of corporation tax

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  • Conefrey, Thomas
  • Fitz Gerald, John D.

Abstract

This paper considers the impact of changes in the rate of corporation tax in Ireland affecting the business and financial services sector. A model is estimated that relates services exports and output to world activity, competitiveness and the rate of corporation tax. This model indicates that a reduction in the rate of corporation tax in the 1990s stimulated exports and, even allowing for profit repatriations by foreign firms and replacement of lost tax revenue, it resulted in an increase in domestic output. The increase in profitability suggests that some of the increased output involved relocation of profits to Ireland by multinational firms.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 3 (May)
Pages: 991-999

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:3:p:991-999

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Corporation tax Ireland Services sector;

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  1. Bradley, John & Fitz Gerald, John & Kearney, Ide, 1993. "Modelling supply in an open economy using a restricted cost function," Economic Modelling, Elsevier, vol. 10(1), pages 11-21, January.
  2. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June.
  3. Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 201-222 National Bureau of Economic Research, Inc.
  4. Ruud de Mooij & S. Ederveen, 2001. "Taxation and foreign direct investment; a synthesis of empirical research," CPB Discussion Paper 3, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 149-82, February.
  6. Bergin, Adele & Kearney, Ide, 2007. "Human capital accumulation in an open labour market: Ireland in the 1990s," Economic Modelling, Elsevier, vol. 24(6), pages 839-858, November.
  7. Clausing, Kimberly A., 2003. "Tax-motivated transfer pricing and US intrafirm trade prices," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2207-2223, September.
  8. Devereux, Michael P. & Griffith, Rachel, 2003. "The Impact of Corporate Taxation on the Location of Capital: A Review," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 33(2), pages 275-292, September.
  9. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
  10. Barry, Frank, 2003. "Tax Policy, FDI and the Irish Economic Boom of the 1990s," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 33(2), pages 221-236, September.
  11. Patrick Honohan & Brendan Walsh, 2002. "Catching Up with the Leaders: The Irish Hare," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 1-78.
  12. Lee, Young & Gordon, Roger H., 2005. "Tax structure and economic growth," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1027-1043, June.
  13. Bartelsman, Eric J & Beetsma, Roel, 2000. "Why Pay More? Corporate Tax Avoidance Through Transfer Pricing in OECD Countries," CEPR Discussion Papers 2543, C.E.P.R. Discussion Papers.
  14. Frances Ruane & Xiaoheng Zhang, 2007. "Location Choices of the Pharmaceutical Industry in Europe after 1992," The Institute for International Integration Studies Discussion Paper Series iiisdp220, IIIS.
  15. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
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Citations

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Cited by:
  1. Kelly, Robert & McQuinn, Kieran, 2013. "On the hook for impaired bank lending: Do sovereign-bank inter-linkages affect the fiscal multiplier?," Research Technical Papers 01/RT/13, Central Bank of Ireland.
  2. Eoin O'Malley, 2012. "A Survey of Explanations for the Celtic Tiger Boom," The Institute for International Integration Studies Discussion Paper Series iiisdp417, IIIS.
  3. Bergin, Adele & Conefrey, Thomas & FitzGerald, John & Kearney, Ide, 2010. "Recovery Scenarios for Ireland: An Update," Forecasting Report, Economic and Social Research Institute (ESRI), number jacb201051, March.
  4. Callan, Tim & Savage, Michael, 2013. "Tax and Taxable Capacity: Ireland in Comparative Perspective," Research Notes RN2012/4/1, Economic and Social Research Institute (ESRI).
  5. FitzGerald, John & Kearney, Ide & Bergin, Adele & Conefrey, Thomas & Duffy, David & Timoney, Kevin & Znuderl, Nusa, 2013. "Medium-Term Review: 2013-2020, No. 12," Forecasting Report, Economic and Social Research Institute (ESRI), number MTR12, March.
  6. repec:esr:wpaper:rn2012/4/1 is not listed on IDEAS
  7. Bergin, Adele & Conefrey, Thomas & FitzGerald, John & Kearney, Ide & Znuderl, Nusa, 2013. "The HERMES-13 macroeconomic model of the Irish economy," Papers WP460, Economic and Social Research Institute (ESRI).
  8. Fernández-de-Córdoba, Gonzalo & Torres, José L., 2012. "Fiscal harmonization in the European Union with public inputs," Economic Modelling, Elsevier, vol. 29(5), pages 2024-2034.

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