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Industry-specific analysis of the impact of changes in the macroeconomic environment on corporate profits and estimation of corporate tax revenue

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  • Etsusaku Shimada

    (Government of Japan)

Abstract

This study aims to present a methodology and construct a model for estimating corporate tax revenue, which is one of the main revenues. There is a need for a new tax revenue estimation model to replace both the existing tax revenue elasticity values that have been adopted for estimating tax revenue and the method of directly estimating tax revenue without first analyzing the increase and decrease in the taxable amount. The author focuses on the estimation of corporate tax revenue. To do it, the author focuses on the taxable object, that is, corporate profits, and the corporation that records it (the profit-making corporation). In addition, it hypothesizes the factors that increase or decrease the declared income, which are GDP growth rate, inflation rate, unemployment rate, interest rate, and population, and hypothesizes how the influence of these macro-variables differs in each industry. The author estimates the declared profit for each industry. The author then estimates the corporate tax revenue by multiplying the declared income that the model estimated for each industry by the given tax rates. The result of this two-stage estimation method reveals that the accuracy of the estimation of this model is higher than the estimation values based on the conventional tax revenue elasticity. Furthermore, unlike the conventional tax revenue elasticity method, the author reveals that this model can accurately estimate (approximate) the actual increase in tax revenue in FY2020, when the economic growth was negative.

Suggested Citation

  • Etsusaku Shimada, 2023. "Industry-specific analysis of the impact of changes in the macroeconomic environment on corporate profits and estimation of corporate tax revenue," International Journal of Economic Policy Studies, Springer, vol. 17(1), pages 1-61, February.
    • Handle: RePEc:spr:ijoeps:v:17:y:2023:i:1:d:10.1007_s42495-022-00090-9
    DOI: 10.1007/s42495-022-00090-9
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    References listed on IDEAS

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    1. Tadashi Morita & Yasuhiro Sato & Kazuhiro Yamamoto, 2016. "Demographics and tax competition in political economy," Discussion Papers in Economics and Business 16-13, Osaka University, Graduate School of Economics.
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    6. Creedy, John & Gemmell, Norman, 1982. "The Built-In Flexibility of Progressive Income Taxes: A Simple Model," Public Finance = Finances publiques, , vol. 37(3), pages 361-371.
    7. Paul Johnson & Peter Lambert, 1989. "Measuring the responsiveness of income tax revenue to income growth: a review and some UK values," Fiscal Studies, Institute for Fiscal Studies, vol. 10(4), pages 1-18, November.
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    More about this item

    Keywords

    Corporate income tax; Corporate profit; Elasticity; Tax revenue estimate;
    All these keywords.

    JEL classification:

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

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