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Corporation Tax Revenue Growth in the UK: A Microsimulation Analysis

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  • John Creedy

    (The University of Melbourne)

  • Norman Gemmell

    (University of Nottingham, Oxford University Centre for Business Taxation)

Abstract

This paper examines the built-in flexibility properties — as measured by the elasticity of revenue with respect to profits — of the UK corporation tax system. Emphasis is placed on determining some of the major influences on the extent to which total corporation tax revenue changes when profits change over the economic cycle. A microsimulation model, CorpSim, is constructed and used to obtain numerical results. In the model, corporations use group relief, capital allowances and losses in a tax-minimising manner. The growth of aggregate corporation tax revenue in practice in the UK appears to be highly volatile in relation to the growth of profits. High volatility in revenue elasticities is found to be especially associated with economic downturns. In mild economic downturns, corporation tax revenue elasticities may rise (because tax growth falls less than profit growth), but in more severe downturns, large but temporary decreases in revenue elasticities (and even negative elasticities) can be expected.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0713.

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Date of creation: 2007
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Handle: RePEc:btx:wpaper:0713

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  1. John Creedy & Norman Gemmell, 2007. "Corporation Tax Revenue Growth in the UK: A Microsimulation Analysis," Working Papers 0713, Oxford University Centre for Business Taxation.
  2. Alan J. Auerbach, 1983. "The Dynamic Effects of Tax Law Asymmetries," NBER Working Papers 1152, National Bureau of Economic Research, Inc.
  3. Creedy, J. & Gemmell, N., 2001. "The Revenue Responsiveness of Income and Consumption Taxes in the UK," Department of Economics - Working Papers Series 814, The University of Melbourne.
  4. Rosanne Altshuler & Alan J. Auerbach, 1987. "The Significance of Tax Law Asymmetries: An Empirical Investigation," NBER Working Papers 2279, National Bureau of Economic Research, Inc.
  5. John Creedy & Norman Gemmell, 2007. "Corporation Tax Buoyancy and Revenue Elasticity in the UK," Department of Economics - Working Papers Series 985, The University of Melbourne.
  6. Michael Devereux & Rachel Griffith & Alexander Klemm, 2004. "How has the UK corporation tax raised so much revenue?," IFS Working Papers W04/04, Institute for Fiscal Studies.
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Cited by:
  1. John Creedy & Norman Gemmell, 2007. "Corporation Tax Revenue Growth in the UK:A Microsimulation Analysis," Department of Economics - Working Papers Series 984, The University of Melbourne.
  2. Courtioux, Pierre & Gregoir, Stéphane & Houeto, Dede, 2014. "Modelling the distribution of returns on higher education: A microsimulation approach," Economic Modelling, Elsevier, vol. 38(C), pages 328-340.
  3. Joanna Piotrowska & Werner Vanborren, 2008. "The corporate income tax rate-revenue paradox: Evidence in the EU," Taxation Papers 12, Directorate General Taxation and Customs Union, European Commission, revised Oct 2008.
  4. John Creedy & Norman Gemmell, 2007. "Modelling Behavioural Responses to Profit Taxation: The Case of the UK Corporation Tax," Department of Economics - Working Papers Series 998, The University of Melbourne.

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