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The relevance of depreciation allowances as a fiscal policy instrument: A hybrid approach to CCCTB?

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  • Kunka Petkova

    (Vienna University of Economics and Business)

  • Alfons J. Weichenrieder

    (Goethe University Frankfurt, Vienna University of Economics and Business & CESifo)

Abstract

A major goal of the EU Commission in the area of direct taxation is the introduction of a common consolidated corporate tax base in Europe. While hardly discussed in the literature, such a system would limit national discretion over tax depreciation. In a sample of up to 47 countries, we find that the probability of a tax reform that improves the depreciation allowances increases, if the macroeconomic situation is weak. This suggests that changes in depreciation allowances are used as a fiscal instrument for stabilization. A common consolidated tax base deprives national governments from implementing investment incentives via accelerated depreciation. This paper discusses the possible implementation of a hybrid system that combines features of formula apportionment and separate accounting. Such a hybrid system may substantially mitigate transfer pricing problems and other tax planning issues, whilst preserving national discretion over depreciation allowances.

Suggested Citation

  • Kunka Petkova & Alfons J. Weichenrieder, 2020. "The relevance of depreciation allowances as a fiscal policy instrument: A hybrid approach to CCCTB?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(3), pages 579-610, August.
    • Handle: RePEc:kap:empiri:v:47:y:2020:i:3:d:10.1007_s10663-019-09441-w
    DOI: 10.1007/s10663-019-09441-w
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    Cited by:

    1. Alina Zh. Sakun & Kateryna A. Pylypenko & Svitlana V. Skrypnyk & Oleksandr S. Prystemskyi & Inesa V. Shepel, 2022. "Accounting and analytical space of providing the depreciation policy of Ukrainian enterprises," RIVISTA DI STUDI SULLA SOSTENIBILITA', FrancoAngeli Editore, vol. 0(2), pages 247-270.
    2. Estian Calitz & Eva Muwanga-Zake & Alexius Sithole & Wynnona Steyn, 2021. "Depreciation allowances in South Africa," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 45(1), pages 1-22, January.

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    More about this item

    Keywords

    CCCTB; Corporate taxation; Investment incentives; Macro fiscal policy;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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