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How Does Tax Relief Influence Economic Development and Tax Revenue? A Quantitative Analysis with a CGE Model

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  • Florian Dorn
  • Fuest Clemens
  • Florian Neumeier
  • Michael Stimmelmayr

Abstract

This paper examines the effects of various tax reforms currently under discussion on tax revenue and other economic variables. Reducing the corporate income tax by 5 percentage points leads in the short run to a decrease in tax revenue of EUR 13.8 billion. In the long term, the annual tax losses are smaller because investment and employment increase. A combination of a corporate tax cut and accelerated depreciation would reduce tax revenue by as much as EUR 30 billion in the short term. In return, investment and employment would increase so strongly that annual tax revenue would rise back up to its initial level in the medium term. However, gross domestic product and private household consumption would be around 3 percent higher than without reform.

Suggested Citation

  • Florian Dorn & Fuest Clemens & Florian Neumeier & Michael Stimmelmayr, 2021. "How Does Tax Relief Influence Economic Development and Tax Revenue? A Quantitative Analysis with a CGE Model," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 74(10), pages 03-11, October.
  • Handle: RePEc:ces:ifosdt:v:74:y:2021:i:10:p:03-11
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    File URL: https://www.ifo.de/DocDL/sd-2021-10-dorn-fuest-neumeier-stimmelmayr-steuerentlastungen.pdf
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    Cited by:

    1. Eichfelder, Sebastian & Kluska, Mike & Knaisch, Jonas & Selle, Juliane, 2021. "Senkung der Unternehmenssteuerlast versus Förderung von Investitionen: Was ist die bessere Strategie zur Förderung der Standortattraktivität Deutschlands?," arqus Discussion Papers in Quantitative Tax Research 266, arqus - Arbeitskreis Quantitative Steuerlehre.
    2. Clemens Fuest, 2021. "Finanzpolitik in der neuen Legislaturperiode: Auf wirtschaftliche Erholung und Wachstum setzen!," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 101(10), pages 754-758, October.
    3. Jens Südekum, 2021. "Wirtschaftspolitische Differenzen und mögliche Kompromisse für die nächste Bundesregierung," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 101(10), pages 761-765, October.
    4. Michael Funke & Raphael Terasa, 2022. "Temporary Super Depreciation Allowances for Green and Digital Investments," CESifo Working Paper Series 9838, CESifo.

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