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An applied analysis of ACE and CBIT reforms in the EU

  • Ruud Mooij


  • Michael Devereux

We assess the quantitative impact of two reforms of the corporation tax that would eliminate the differential treatment of debt and equity. The two reforms are: the allowance for corporate equity (ACE), and the comprehensive business income tax (CBIT). We investigate the impact of these reforms on various decision margins, using an applied general equilibrium model for the EU calibrated with recent empirical elasticities. The results suggest that, if governments adjust statutory corporate tax rates to balance their budgets, profit shifting and discrete location render CBIT more attractive for most individual European countries. European coordination makes a joint ACE more, and a joint CBIT less, efficient. A combination of ACE and CBIT is always welfare improving.

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Article provided by Springer & International Institute of Public Finance in its journal International Tax and Public Finance.

Volume (Year): 18 (2011)
Issue (Month): 1 (February)
Pages: 93-120

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Handle: RePEc:kap:itaxpf:v:18:y:2011:i:1:p:93-120
DOI: 10.1007/s10797-010-9138-8
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