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Is the Corporation Tax an Effective Automatic Stabilizer?

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  • Devereux, Michael P.
  • Fuest, Clemens

Abstract

We investigate the extent to which the corporation tax can act as an automatic stabilizer by smoothing the effects on investment of shocks to income. The main stabilizing effect would be through a reduced tax liability affecting the internal funds available for investment by credit-constrained companies. We present evidence for the United Kingdom that most credit-constrained firms have also been likely to be in a tax loss-making position, implying that the tax does not smooth investment, and thus is not an effective automatic stabilizer. A more generous treatment of tax losses would introduce significantly more automatic stabilization.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 62 (2009)
Issue (Month): 3 (September)
Pages: 429-37

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Handle: RePEc:ntj:journl:v:62:y:2009:i:3:p:429-37

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Cited by:
  1. Thiess Buettner & Clemens Fuest, 2009. "The Role of the Corporate Income Tax as an Automatic Stabilizer," CESifo Working Paper Series 2798, CESifo Group Munich.
  2. Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2009. "Automatic Stabilizers and Economic Crisis: US vs. Europe," IZA Discussion Papers 4310, Institute for the Study of Labor (IZA).
  3. Mathias Dolls & Clemens Fuest & Andreas Peichl, 2010. "Wie wirken die automatischen Stabilisatoren in der Wirtschaftskrise? Deutschland im Vergleich zu anderen EU-Staaten und den USA," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(2), pages 132-145, 05.
  4. repec:ese:emodwp:em2-10 is not listed on IDEAS
  5. Luigi, Bernardi, 2011. "Economic crisis and taxation in Europe," MPRA Paper 31007, University Library of Munich, Germany.
  6. European Commission, 2010. "Tax Policy after the Crisis: Monitoring Tax Revenues and Tax Reforms in EU Member States 2010 Report," Taxation Papers 24, Directorate General Taxation and Customs Union, European Commission.

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