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Corporation tax buoyancy and revenue elasticity in the UK

  • Creedy, John
  • Gemmell, Norman

Observed changes in corporation tax revenues from year to year, which include the effects of changes in tax rates, deductions and compliance, appear to be highly volatile relative to profits, the tax base. This paper examines whether the ‘built-in’ fiscal drag properties of corporation tax can be expected to display similar properties. Simple, conceptual modelling demonstrates that the corporate tax revenue elasticity does indeed display this property in the presence of regular cyclical fluctuation in profit growth, suggesting that much of the observed volatility is inherent to the corporation tax system.

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File URL: http://www.sciencedirect.com/science/article/B6VB1-4P7FHT3-1/2/0b79e9347463ee87822b72090f3eaa4f
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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 25 (2008)
Issue (Month): 1 (January)
Pages: 24-37

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Handle: RePEc:eee:ecmode:v:25:y:2008:i:1:p:24-37
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Michael P. Devereux & Alexander Klemm, 2003. "Measuring Taxes on Income from Capital: Evidence from the UK," CESifo Working Paper Series 968, CESifo Group Munich.
  2. Friedrich Heinemann, 2001. "After the death of inflation: will fiscal drag survive?," Fiscal Studies, Institute for Fiscal Studies, vol. 22(4), pages 527-546., December.
  3. Michael Devereux & Rachel Griffith & Alexander Klemm, 2004. "How has the UK corporation tax raised so much revenue?," IFS Working Papers W04/04, Institute for Fiscal Studies.
  4. Suman Basu & Carl Emmerson & Christine Frayne, 2003. "An examination of the IFS corporation tax forecasting record," IFS Working Papers W03/21, Institute for Fiscal Studies.
  5. Nicodeme, Gaetan, 2001. "Computing effective corporate tax rates: comparisons and results," MPRA Paper 3808, University Library of Munich, Germany.
  6. Creedy, John & Gemmell, Norman, 2002. "The Revenue Responsiveness of Consumption Taxes," The Economic Record, The Economic Society of Australia, vol. 78(241), pages 186-94, June.
  7. Creedy, John & Gemmell, Norman, 2002. " The Built-In Flexibility of Income and Consumption Taxes," Journal of Economic Surveys, Wiley Blackwell, vol. 16(4), pages 509-32, September.
  8. Creedy, J. & Gemmell, N., 2001. "The Revenue Responsiveness of Income and Consumption Taxes in the UK," Department of Economics - Working Papers Series 814, The University of Melbourne.
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