Intertemporal Income Shifting in Expectation of Lower Corporate Tax Rates: The Tax Reforms in Central and Eastern Europe
AbstractThis paper examines if firms shift income out of years with high corporate tax rates into years when tax cuts are anticipated. Such intertemporal shifting can be one explanation for the stability of corporate tax revenues in Central and Eastern Europe, despite the major decline in the corporate tax rates and overall narrowing of the tax base starting in the late 90s. Using firm-level panel data for Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia from 1999 to 2005, the estimates indicate that the lower corporate tax rates induced a considerable increase in taxable income. Most of this increase, however, was due to short-term shifting of income to years with lower tax rates leading to non-transitory responses ranging from zero to .151, depending on the specification employed. Splitting the sample by firm size shows that income shifting is an appealing tax saving strategy for small and to a lesser extent medium-sized enterprises, but not for big firms. A further disaggregation by country reveals that the driving country behind the results is Romania.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp462.
Date of creation: May 2012
Date of revision:
Contact details of provider:
Postal: P.O. Box 882, Politickych veznu 7, 111 21 Praha 1
Phone: (+420) 224 005 123
Fax: (+420) 224 005 333
Web page: http://www.cerge-ei.cz
More information through EDIRC
corporate tax; income shifting; tax reforms; Central and Eastern Europe;
Find related papers by JEL classification:
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-06-13 (Accounting & Auditing)
- NEP-ALL-2012-06-13 (All new papers)
- NEP-EUR-2012-06-13 (Microeconomic European Issues)
- NEP-PBE-2012-06-13 (Public Economics)
- NEP-TRA-2012-06-13 (Transition Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- King, Mervyn A, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 21-35, January.
- Dwenger, Nadja & Steiner, Viktor, 2008.
"Effective profit taxation and the elasticity of the corporate income tax base: Evidence from German corporate tax return data,"
arqus Discussion Papers in Quantitative Tax Research
57, arqus - Arbeitskreis Quantitative Steuerlehre.
- Nadja Dwenger & Viktor Steiner, 2008. "Effective Profit Taxation and the Elasticity of the Corporate Income Tax Base: Evidence from German Corporate Tax Return Data," Discussion Papers of DIW Berlin 829, DIW Berlin, German Institute for Economic Research.
- Kalwij, Adriaan S., 2003.
"A maximum likelihood estimator based on first differences for a panel data Tobit model with individual specific effects,"
Elsevier, vol. 81(2), pages 165-172, November.
- Kalwij, A.S., 2000. "A Maximum Likelihood Estimator based on First Differences for a Panel Data Tobit Model with Individual Specific Effects," Discussion Paper 2000-28, Tilburg University, Center for Economic Research.
- Da Rin, Marco & Di Giacomo, Marina & Sembenelli, Alessandro, 2011.
"Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe,"
Journal of Public Economics,
Elsevier, vol. 95(9-10), pages 1048-1066, October.
- Da Rin, Marco & Di Giacomo, Marina & Sembenelli, Alessandro, 2011. "Entrepreneurship, firm entry, and the taxation of corporate income: Evidence from Europe," Journal of Public Economics, Elsevier, vol. 95(9), pages 1048-1066.
- Da Rin, M. & Di Giacomo, M. & Sembenelli, A., 2010. "Entrepreneurship, Firm Entry, and the Taxation of Corporate Income: Evidence from Europe," Discussion Paper 2010-026, Tilburg University, Tilburg Law and Economic Center.
- 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.
- Kimberly Clausing, 2007. "Corporate tax revenues in OECD countries," International Tax and Public Finance, Springer, vol. 14(2), pages 115-133, April.
- European Commission, 2010. "Taxation trends in the European Union: 2010 edition," Taxation trends 2010, Directorate General Taxation and Customs Union, European Commission.
- Austan Goolsbee, 1997.
"What Happens When You Tax the Rich? Evidence from Executive Compensation,"
NBER Working Papers
6333, National Bureau of Economic Research, Inc.
- Austan Goolsbee, 2000. "What Happens When You Tax the Rich? Evidence from Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 352-378, April.
- Hong, Qing & Smart, Michael, 2010.
"In praise of tax havens: International tax planning and foreign direct investment,"
European Economic Review,
Elsevier, vol. 54(1), pages 82-95, January.
- Qing Hong & Michael Smart, 2007. "In Praise of Tax Havens: International Tax Planning and Foreign Direct Investment," CESifo Working Paper Series 1942, CESifo Group Munich.
- Qing Hong & Michael Smart, 2006. "In praise of tax havens: International tax planning and foreign direct investment," Working Papers tecipa-265, University of Toronto, Department of Economics.
- European Commission, 2011. "Taxation trends in the European Union: 2011 edition," Taxation trends 2011, Directorate General Taxation and Customs Union, European Commission.
- Devereux, Michael P & Griffith, Rachel, 2003.
"Evaluating Tax Policy for Location Decisions,"
International Tax and Public Finance,
Springer, vol. 10(2), pages 107-26, March.
- European Commission, 2009. "Taxation trends in the European Union: 2009 edition," Taxation trends 2009, Directorate General Taxation and Customs Union, European Commission.
- Michael Devereux & Rachel Griffith & Alexander Klemm, 2004. "Why has the UK corporation tax raised so much revenue?," Fiscal Studies, Institute for Fiscal Studies, vol. 25(4), pages 367-388, December.
- Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2006. "Entry regulation as a barrier to entrepreneurship," Journal of Financial Economics, Elsevier, vol. 82(3), pages 591-629, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jana Koudelkova).
If references are entirely missing, you can add them using this form.