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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. 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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  • Ruud Mooij & Michael Devereux, 2011. "An applied analysis of ACE and CBIT reforms in the EU," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(1), pages 93-120, February.
    • Handle: RePEc:kap:itaxpf:v:18:y:2011:i:1:p:93-120
    DOI: 10.1007/s10797-010-9138-8
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    More about this item

    Keywords

    Corporate tax reform; European Union; Tax coordination; CGE model; ACE; CBIT; D58; H25;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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