Modelling Behavioural Responses to Profit Taxation: The Case of the UK Corporation Tax
AbstractThis 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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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 998.
Length: 52 pages
Date of creation: 2007
Date of revision:
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Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
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Web page: http://www.economics.unimelb.edu.au
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-24 (All new papers)
- NEP-EEC-2007-09-24 (European Economics)
- NEP-PBE-2007-09-24 (Public Economics)
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