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The corporate income tax rate-revenue paradox: Evidence in the EU

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  • Joanna Piotrowska

    (Ministry of Finance, Poland)

  • Werner Vanborren

    ()
    (European Commission)

Abstract

In Europe, the decline in the corporate tax rates has not been reflected in the tax-to-GDP ratios. This paper explores to what extent the observed trend can be explained by changes in the effective tax burden on corporate income, in the share of total income accruing to the corporate sector and in total business income relative to GDP. We present an overview of the findings from previous literature, apply the methodology developed by S?rensen to decompose the most complete data available on the European level and make use of information collected from parallel studies on the effective tax burden and corporatization. The results suggest that corporatization is the driving factor for the trend observed in corporate tax revenues.

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File URL: http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_papers/taxation_paper_12_en.pdf
File Function: final version, 2008
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Bibliographic Info

Paper provided by Directorate General Taxation and Customs Union, European Commission in its series Taxation Papers with number 12.

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Length: 41 pages
Date of creation: Oct 2008
Date of revision: Oct 2008
Handle: RePEc:tax:taxpap:0012

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Keywords: corporate taxation; tax revenues; incorporation; corporatization;

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References

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  1. Gordon, R.H. & Mackie-Mason, J.K., 1994. "Why Is There Corporation Taxation in a Small Open Economy? The Role of Transfer Pricing and Income Shifting," Working Papers 359, Research Seminar in International Economics, University of Michigan.
  2. Ruud Mooij & Gaëtan Nicodème, 2008. "Corporate tax policy and incorporation in the EU," International Tax and Public Finance, Springer, vol. 15(4), pages 478-498, August.
  3. Roger H. Gordon & Jeffrey K. Mackie-Mason, . "Why is There Corporate Taxation in a Small Open Economy? The Role of Transfer Pricing and Income Shifting," EPRU Working Paper Series 93-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  4. European Commission, 2013. "Taxation trends in the European Union: 2013 edition," Taxation trends 2013, Directorate General Taxation and Customs Union, European Commission.
  5. Martin S. Feldstein & Paul R. Krugman, 1990. "International Trade Effects of Value-Added Taxation," NBER Chapters, in: Taxation in the Global Economy, pages 263-282 National Bureau of Economic Research, Inc.
  6. John Creedy & Norman Gemmell, 2007. "Corporation Tax Revenue Growth in the UK: A Microsimulation Analysis," Working Papers 0713, Oxford University Centre for Business Taxation.
  7. David Carey & Harry Tchilinguirian, 2000. "Average Effective Tax Rates on Capital, Labour and Consumption," OECD Economics Department Working Papers 258, OECD Publishing.
  8. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995 Elsevier.
  9. Carone, Giuseppe & Nicodème, Gaëtan & Schmidt, Jan, 2007. "Tax revenues in the European Union: Recent trends and challenges ahead," MPRA Paper 3996, University Library of Munich, Germany.
  10. Ruud Mooij, 2005. "Will Corporate Income Taxation Survive?," De Economist, Springer, vol. 153(3), pages 277-301, 09.
  11. Alan J. Auerbach & James M. Poterba, 1987. "Why Have Corporate Tax Revenues Declined?," NBER Working Papers 2118, National Bureau of Economic Research, Inc.
  12. Rosanne Altshuler & Timothy J. Goodspeed, 2002. "Follow the Leader? Evidence on European and U.S. Tax Competition," Departmental Working Papers 200226, Rutgers University, Department of Economics.
  13. Clemens Fuest & Alfons Weichenrieder, 2002. "Tax Competition and Profit Shifting: On the Relationship between Personal and Corporate Tax Rates," CESifo Working Paper Series 781, CESifo Group Munich.
  14. Rachel Griffith & Alexander Klemm, 2004. "What has been the tax competition experience of the past 20 years?," IFS Working Papers W04/05, Institute for Fiscal Studies.
  15. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR & CES & MSH, vol. 17(35), pages 449-495, October.
  16. European Commission, 2006. "Taxation trends in the European Union: 2006 edition," Taxation trends 2006, Directorate General Taxation and Customs Union, European Commission.
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Citations

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Cited by:
  1. Bernardi, Luigi, 2009. "Le tasse in Europa dagli anni novanta
    [Taxation in Europe since the Years 1990s]
    ," MPRA Paper 23441, University Library of Munich, Germany.
  2. Yongzheng Liu & Jorge Martinez-Vazquez, 2010. "The Growth-Inequality Tradeo in the Design of Tax Structure: Evidence from a Large Panel of Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1320, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Boryana Madzharova, 2012. "Intertemporal Income Shifting in Expectation of Lower Corporate Tax Rates: The Tax Reforms in Central and Eastern Europe," CERGE-EI Working Papers wp462, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. De Laet, Jean-Pierre & Wöhlbier, Florian, 2008. "Tax burden by economic function A comparison for the EU Member States," MPRA Paper 14761, University Library of Munich, Germany.

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