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The Effect of Tax Rates and Tax Bases on Corporate Tax Revenues: Estimates with New Measures of the Corporate Tax Base

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  • Laura Kawano
  • Joel Slemrod

Abstract

Several recent analyses have suggested that the revenue-maximizing corporate tax rate resides in the low-30's. We challenge this result by re-examining this relationship using a new compilation of changes in corporate tax base definitions for OECD countries between 1980 and 2004. By considering tax base changes in addition to tax rate changes, we can address the estimation bias that applies to tax rates absent their consideration. We find that the relationship between corporate tax rates and corporate tax revenues is tenuous. The large behavioral response to corporate tax rates implied in the literature does not obtain when accounting for persistent differences in tax policy and business environments across countries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18440.

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Date of creation: Oct 2012
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Publication status: Forthcoming: The Effect of Tax Rates and Tax Bases on Corporate Tax Revenues: Estimates with New Measures of the Corporate Tax Base , Laura Kawano, Joel Slemrod. in Trans-Atlantic Public Economics Seminar , Devereux and Gordon. 2014
Handle: RePEc:nbr:nberwo:18440

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  1. Lawrence H. Summers, 1987. "Tax Policy and the Economy, Volume 1," NBER Books, National Bureau of Economic Research, Inc, number summ87-1.
  2. Leslie Robinson & Joel Slemrod, 2012. "Understanding multidimensional tax systems," International Tax and Public Finance, Springer, vol. 19(2), pages 237-267, April.
  3. Saez, Emmanuel, 2003. "The effect of marginal tax rates on income: a panel study of 'bracket creep'," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1231-1258, May.
  4. Johannes Becker & Clemens Fuest, 2011. "Optimal tax policy when firms are internationally mobile," International Tax and Public Finance, Springer, vol. 18(5), pages 580-604, October.
  5. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
  6. Alan J. Auerbach, 2006. "Who Bears the Corporate Tax? A Review of What We Know," NBER Chapters, in: Tax Policy and the Economy, Volume 20, pages 1-40 National Bureau of Economic Research, Inc.
  7. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 773-88, December.
  8. repec:aei:rpaper:25839 is not listed on IDEAS
  9. Kimberly Clausing, 2007. "Corporate tax revenues in OECD countries," International Tax and Public Finance, Springer, vol. 14(2), pages 115-133, April.
  10. Rosanne Altshuler & Harry Grubert, 2004. "Taxpayer Responses to Competitive Tax Policies and Tax Policy Responses to Competitive Taxpayers: Recent Evidence," Departmental Working Papers 200406, Rutgers University, Department of Economics.
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Cited by:
  1. Christian Bauer & Ronald B Davies & Andreas Haufler, 2011. "Economic integration and the optimal corporate tax structure with heterogeneous firms," Working Papers 201115, School Of Economics, University College Dublin.
  2. Nicholas Sly & Caroline Weber, 2013. "International Fiscal Policy Coordination and GDP Comovement," CESifo Working Paper Series 4358, CESifo Group Munich.

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