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An applied analysis of ACE and CBIT reforms in the EU

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  • Ruud Mooij

    ()

  • Michael Devereux

Abstract

We assess the quantitative impact of two reforms of the corporation tax that would eliminate the differential treatment of debt and equity. The two reforms are: the allowance for corporate equity (ACE), and the comprehensive business income tax (CBIT). We investigate the impact of these reforms on various decision margins, using an applied general equilibrium model for the EU calibrated with recent empirical elasticities. The results suggest that, if governments adjust statutory corporate tax rates to balance their budgets, profit shifting and discrete location render CBIT more attractive for most individual European countries. European coordination makes a joint ACE more, and a joint CBIT less, efficient. A combination of ACE and CBIT is always welfare improving.

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 18 (2011)
Issue (Month): 1 (February)
Pages: 93-120

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Handle: RePEc:kap:itaxpf:v:18:y:2011:i:1:p:93-120

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Web page: http://www.springerlink.com/link.asp?id=102915

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Keywords: Corporate tax reform; European Union; Tax coordination; CGE model; ACE; CBIT; D58; H25;

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  1. Robin Boadway & Neil Bruce, 1982. "A General Proposition on the Design of a Neutral Business Tax," Working Papers 461, Queen's University, Department of Economics.
  2. Ruud A. de Mooij & Sjef Ederveen, 2008. "Corporate Tax Elasticities A Reader’s Guide to Empirical Findings," Working Papers 0822, Oxford University Centre for Business Taxation.
  3. Leon Bettendorf & Joeri Gorter & Albert van der Horst, 2006. "Who benefits from tax competition in the European Union?," CPB Document 125, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Thiess Büttner & Michael Overesch & Ulrich Schreiber & Georg Wamser, 2006. "The Impact of Thin-Capitalization Rules on Multinationals’ Financing and Investment Decisions," CESifo Working Paper Series 1817, CESifo Group Munich.
  5. Alan J. Auerbach & Michael P. Devereux & Helen Simpson, 2008. "Taxing Corporate Income," NBER Working Papers 14494, National Bureau of Economic Research, Inc.
  6. Christian Keuschnigg & Evelyn Ribi, 2010. "Profit Taxation and Finance Constraints," CESifo Working Paper Series 2914, CESifo Group Munich.
  7. Ruud de Mooij & Michael P. Devereux, 2009. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Papers 17, Directorate General Taxation and Customs Union, European Commission.
  8. Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
  9. Leon Bettendorf & Albert van der Horst & Ruud A. de Mooij, 2007. "Corporate Tax Policy and Unemployment in Europe: An Applied General Equilibrium Analysis," Tinbergen Institute Discussion Papers 07-056/2, Tinbergen Institute.
  10. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
  11. Devereux, Michael P & Griffith, Rachel, 2002. "Evaluating Tax Policy for Location Decisions," CEPR Discussion Papers 3247, C.E.P.R. Discussion Papers.
  12. Steve Bond & Michael Devereux, 1993. "On the design of a neutral business tax under uncertainty," IFS Working Papers W93/01, Institute for Fiscal Studies.
  13. Devereux, Michael P, 2003. "Taxing Risky Investment," CEPR Discussion Papers 4053, C.E.P.R. Discussion Papers.
  14. Alexander Klemm, 2006. "Allowances for Corporate Equity in Practice," IMF Working Papers 06/259, International Monetary Fund.
  15. Hassett, Kevin A. & Hubbard, R. Glenn, 2002. "Tax policy and business investment," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 20, pages 1293-1343 Elsevier.
  16. Ruud Mooij, 2005. "Will Corporate Income Taxation Survive?," De Economist, Springer, vol. 153(3), pages 277-301, 09.
  17. Doina Maria Radulescu & Michael Stimmelmayr, 2006. "ACE vs. CBIT: Which is Better for Investment and Welfare?," CESifo Working Paper Series 1850, CESifo Group Munich.
  18. Albert van der Horst & Leon Bettendorf & Hugo Rojas-Romagosa, 2007. "Will Corporate Tax Consolidation improve Efficiency in the EU ?," Tinbergen Institute Discussion Papers 07-076/2, Tinbergen Institute.
  19. Michael Devereux & Rachel Griffith, 1996. "Taxes and the location of production: evidence from a panel of US multinationals," IFS Working Papers W96/14, Institute for Fiscal Studies.
  20. Ruud de Mooij & Michael P. Devereux, 2009. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Studies 0028, Directorate General Taxation and Customs Union, European Commission.
  21. Marko Köthenbürger & Michael Stimmelmayr, 2009. "Corporate Taxation and Corporate Governance," CESifo Working Paper Series 2881, CESifo Group Munich.
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  24. Leon Bettendorf & Albert van der Horst, 2006. "Documentation of CORTAX," CPB Memorandum 161, CPB Netherlands Bureau for Economic Policy Analysis.
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Cited by:
  1. Marko Köthenbürger & Michael Stimmelmayr, 2013. "Corporate Deductibility Provisions and Managerial Incentives," CESifo Working Paper Series 4549, CESifo Group Munich.
  2. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
  3. Michael P. Devereux, 2012. "Issues in the Design of Taxes on Corporate Profit," Working Papers 1215, Oxford University Centre for Business Taxation.
  4. Serena Fatica & Thomas Hemmelgarn & Gaetan Nicodeme, 2012. "The Debt-Equity Bias: consequences and solutions," Taxation Papers 33, Directorate General Taxation and Customs Union, European Commission.

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