IDEAS home Printed from https://ideas.repec.org/a/kap/itaxpf/v17y2010i6p686-698.html
   My bibliography  Save this article

The role of the corporate income tax as an automatic stabilizer

Author

Listed:
  • Thiess Buettner

    ()

  • Clemens Fuest

    ()

Abstract

This paper analyses the effectiveness of the corporate income tax as an automatic stabilizer. It employs a unique firm-level dataset of German manufacturers combining financial statements with firm-specific information about credit market restrictions. The results show that approximately 20 per cent of all firms report both positive taxable income and capital market restrictions. Taking account of the income tax rates and the size differences of the firms, we find that demand stabilization through the corporate income tax amounts to about 8 per cent of an initial shock to gross revenues. This stabilization effect varies over the business cycle and tends to increase during cyclical downturns.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Thiess Buettner & Clemens Fuest, 2010. "The role of the corporate income tax as an automatic stabilizer," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(6), pages 686-698, December.
    • Handle: RePEc:kap:itaxpf:v:17:y:2010:i:6:p:686-698
    DOI: 10.1007/s10797-010-9155-7
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10797-010-9155-7
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Darrel Cohen & Glenn Follette, 2000. "The automatic fiscal stabilizers: quietly doing their thing," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 35-67.
    2. Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2012. "Automatic stabilizers and economic crisis: US vs. Europe," Journal of Public Economics, Elsevier, vol. 96(3), pages 279-294.
    3. Bayoumi, Tamim & Masson, Paul R., 1995. "Fiscal flows in the United States and Canada: Lessons for monetary union in Europe," European Economic Review, Elsevier, vol. 39(2), pages 253-274, February.
    4. Alan J. Auerbach, 2009. "Implementing the New Fiscal Policy Activism," American Economic Review, American Economic Association, vol. 99(2), pages 543-549, May.
    5. Alan J. Auerbach & Daniel R. Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 37-56, Summer.
    6. Xavier Sala-i-Martin & Jeffrey Sachs, 1991. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States," NBER Working Papers 3855, National Bureau of Economic Research, Inc.
    7. Devereux, Michael P. & Fuest, Clemens, 2009. "Is the Corporation Tax an Effective Automatic Stabilizer?," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(3), pages 429-437, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fidrmuc, Jarko & Hainz, Christa, 2013. "The effect of banking regulation on cross-border lending," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1310-1322.
    2. Daniel Dreßler & Michael Overesch, 2013. "Investment impact of tax loss treatment—empirical insights from a panel of multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 513-543, June.
    3. Rieth, Malte & Checherita-Westphal, Cristina & Attinasi, Maria-Grazia, 2016. "Personal income tax progressivity and output volatility: Evidence from OECD countries," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 968-996.
    4. Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2012. "Automatic stabilizers and economic crisis: US vs. Europe," Journal of Public Economics, Elsevier, vol. 96(3), pages 279-294.
    5. Buettner Thiess & Hoenig Anja, 2016. "Determinants of Business Fixed Investment: Evidence from German Firm-Level Data," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(5), pages 533-556, October.
    6. Funashima, Yoshito, 2015. "Automatic stabilizers in the Japanese tax system," Journal of Asian Economics, Elsevier, vol. 39(C), pages 86-93.
    7. Checherita-Westphal, Cristina & Attinasi, Maria Grazia & Rieth, Malte, 2011. "Labour tax progressivity and output volatility: evidence from OECD countries," Working Paper Series 1380, European Central Bank.
    8. Luis Huesca Reynoso & Abdelkrim Araar, 2016. "Comparison of fiscal system progressivity over time: theory and application in Mexico," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 31(1), pages 3-45.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2012. "Automatic stabilizers and economic crisis: US vs. Europe," Journal of Public Economics, Elsevier, vol. 96(3), pages 279-294.
    2. Alisdair McKay & Ricardo Reis, 2016. "The Role of Automatic Stabilizers in the U.S. Business Cycle," Econometrica, Econometric Society, vol. 84, pages 141-194, January.
    3. Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2009. "Wie wirken die automatischen Stabilisatoren in der Wirtschaftskrise? Deutschland im Vergleich mit der EU und den USA," IZA Standpunkte 19, Institute of Labor Economics (IZA).
    4. Mathias Dolls & Clemens Fuest & Andreas Peichl & Christian Wittneben, 2019. "Fiscal Consolidation and Automatic Stabilization: New Results," CESifo Working Paper Series 8021, CESifo.
    5. Mathias Dolls & Clemens Fuest & Andreas Peichl, 2010. "Wie wirken die automatischen Stabilisatoren in der Wirtschaftskrise? Deutschland im Vergleich zu anderen EU‐Staaten und den USA," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(2), pages 132-145, May.
    6. Mathias Dolls & Clemens Fuest & Andreas Peichl & Christian Wittneben, 2019. "Fiscal Consolidation and Automatic Stabilization: New Results," CESifo Working Paper Series 8021, CESifo.
    7. European Commission, 2010. "Tax Policy after the Crisis: Monitoring Tax Revenues and Tax Reforms in EU Member States 2010 Report," Taxation Papers 24, Directorate General Taxation and Customs Union, European Commission.
    8. Dolls, Mathias & Fuest, Clemens & Kock, Jan & Peichl, Andreas & Wehrhöfer, Nils & Wittneben, Christian, 2014. "Abschlussbericht zu Forschungsvorhaben fe 5/14: "Automatic stabilizers in the Eurozone: Analysis of their effectiveness at the member state and euro area level and in international comparison&quo," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 111444.
    9. Rieth, Malte & Checherita-Westphal, Cristina & Attinasi, Maria-Grazia, 2016. "Personal income tax progressivity and output volatility: Evidence from OECD countries," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 968-996.
    10. AILINCA, Alina Georgeta, 2014. "Automatic Social Stabilizers What They Are And How They Function," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 18(3), pages 45-57.
    11. Funashima, Yoshito, 2015. "Automatic stabilizers in the Japanese tax system," Journal of Asian Economics, Elsevier, vol. 39(C), pages 86-93.
    12. Checherita-Westphal, Cristina & Attinasi, Maria Grazia & Rieth, Malte, 2011. "Labour tax progressivity and output volatility: evidence from OECD countries," Working Paper Series 1380, European Central Bank.
    13. Mathias Dolls & Clemens Fuest & Dirk Neumann & Andreas Peichl, 2018. "An unemployment insurance scheme for the euro area? A comparison of different alternatives using microdata," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(1), pages 273-309, February.
    14. David Cashin & Jamie Lenney & Byron Lutz & William Peterman, 2018. "Fiscal policy and aggregate demand in the USA before, during, and following the Great Recession," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(6), pages 1519-1558, December.
    15. Alari Paulus & Iva Valentinova Tasseva, 2020. "Europe Through the Crisis: Discretionary Policy Changes and Automatic Stabilizers," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(4), pages 864-888, August.
    16. Jan Veld & Martin Larch & Marieke Vandeweyer, 2013. "Automatic Fiscal Stabilisers: What They Are and What They Do," Open Economies Review, Springer, vol. 24(1), pages 147-163, February.
    17. Stevan Luković, 2014. "The Role Of The Automatic Stabilizers In Modern Economy," Ekonomika, Journal for Economic Theory and Practice and Social Issues 2014-01, „Ekonomika“ Society of Economists, Niš (Serbia).
    18. Şen, Hüseyin & Kaya, Ayşe, 2019. "Output-volatility reducing effect of automatic stabilizers: Evidence from nine EMU member states," EconStor Preprints 206687, ZBW - Leibniz Information Centre for Economics.
    19. Oscar Bajo-Rubio & Carmen Díaz-Roldán, 2003. "Insurance Mechanisms against Asymmetric Shocks in a Monetary Union a Proposal with an Application to EMU," Recherches économiques de Louvain, De Boeck Université, vol. 69(1), pages 73-96.
    20. Alari PaulusBy & Francesco Figari & Holly Sutherland, 2017. "The design of fiscal consolidation measures in the European Union: distributional effects and implications for macro-economic recovery," Oxford Economic Papers, Oxford University Press, vol. 69(3), pages 632-654.

    More about this item

    Keywords

    Corporate income tax; Stabilization; Capital market restrictions; Loss offset; Firm-level data; H25; H32; E63;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:17:y:2010:i:6:p:686-698. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Springer Nature Abstracting and Indexing). General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.