Corporation Tax Asymmetries:Effective Tax Rates and Profit Shifting
AbstractThis paper examines the way in which the asymmetric treatment of losses within corporate tax codes can be expected to affect behavioural responses to changes in tax rates. The paper introduces the concept of an equivalent tax function, raising the same present value of tax payments as the actual function, in which the effective rate on losses in any period, and thus the degree of asymmetry, is explicit. The influence on the elasticity of tax revenue with respect to the tax rate of this effective rate is then examined, where ‘loss-shifting’ occurs. Results suggest that estimates of the behavioural effect of changes in tax rates on tax revenues can be expected in general to be smaller in regimes that involve greater asymmetries in the tax treatement of losses. As losses vary over the economic cycle, asymmetric treatment also generates effects on tax revenues that are asymmetric (non-linear) between above-trend and below-trend parts of the cycle.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1028.
Length: 26 pages
Date of creation: 2008
Date of revision:
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Other versions of this item:
- John Creedy & Norman Gemmell, 2011. "Corporation tax asymmetries: effective tax rates and profit shifting," International Tax and Public Finance, Springer, vol. 18(4), pages 422-435, August.
- 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-2008-11-25 (Accounting & Auditing)
- NEP-ALL-2008-11-25 (All new papers)
- NEP-PBE-2008-11-25 (Public Economics)
- NEP-PUB-2008-11-25 (Public Finance)
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