This paper examines behavioural responses by companies to changes in profit taxation in their home country. It argues that as well as distinguishing real from shifting responses for profits, it is important to separate the responses of gross profits from those for deductions (such as claims for past or current losses) where these are endogenously related to gross profits declared at home. This occurs in the UK and many other corporate tax regimes. This endogenous response can be expected to differ over the business cycle and, using a microsimulation model of the UK corporate tax regime, it is shown that this can be important for empirical estimates of firms’ overall behavioural responses especially, but not exclusively, during cyclical downturns. It is shown also that endogenous responses of deductions to real or shifting responses for gross profits can be expected to be asymmetrical between periods of above- and below-trend growth.
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Length: 52 pages Date of creation: 2007 Date of revision: Handle: RePEc:mlb:wpaper:998
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References listed on IDEAS 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.:
Michael P. Devereux & R. Glenn Hubbard, 2000.
"Taxing Multinationals,"
NBER Working Papers
7920, National Bureau of Economic Research, Inc.
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Slemrod, Joel & Yitzhaki, Shlomo, 2002.
"Tax avoidance, evasion, and administration,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470
Elsevier.
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