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Why Is Corporate Tax Revenue Stable While Tax Rates Fall? Evidence from Firm-Level Data

Author

Listed:
  • Clemens Fuest
  • Felix Hugger
  • Susanne Wildgruber

Abstract

While corporate tax rates in OECD countries declined over the last decades, revenues from corporate taxation relative to gross domestic product (GDP) remained remarkably stable. This paper uses a comprehensive firm-level data set to analyze this rate-revenue puzzle in corporate taxation. Focusing on the period 1995–2016, we show that the reduction in corporate tax rates was counterbalanced by a pronounced increase in corporate profits. We decompose the rise in profits into changes in earnings before interest and depreciation, depreciation, and financial profits. On average, these factors contributed almost equally to the tax-base expansion, albeit differently across sectors, countries, and firm sizes.

Suggested Citation

  • Clemens Fuest & Felix Hugger & Susanne Wildgruber, 2022. "Why Is Corporate Tax Revenue Stable While Tax Rates Fall? Evidence from Firm-Level Data," National Tax Journal, University of Chicago Press, vol. 75(3), pages 481-515.
    • Handle: RePEc:ucp:nattax:doi:10.1086/720704
    DOI: 10.1086/720704
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    Cited by:

    1. Jules Ducept & Sarah Godar, 2025. "Declining Effective Tax Rates of Multinationals: The Hidden Role of Tax Base Reforms," Working Papers 030, EU Tax Observatory.
    2. Georg U. Thunecke, 2023. "Are Consumers Paying the Bill? How International Tax Competition Affects Consumption Taxation," Working Papers tax-mpg-rps-2023-26, Max Planck Institute for Tax Law and Public Finance.
    3. Jorge Martínez-Vázquez, 2025. "The Art of Tax Reform," Hacienda Pública Española / Review of Public Economics, IEF, vol. 255(4), pages 87-131, December.
    4. Victoria J. Perry, 2023. "Pillar 2: tax competition in low‐income countries and substance‐based income exclusion," Fiscal Studies, John Wiley & Sons, vol. 44(1), pages 23-36, March.
    5. Alena Andrejovská & Ivana Andrejkovičova, 2024. "Tax revenues and tax rates in the context of macroeconomic determinants," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 12(1), pages 253-267, September.
    6. Javier Garcia-Bernardo & Petr Janský & Thomas Tørsløv, 2022. "Decomposing Multinational Corporations’ Declining Effective Tax Rates," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(2), pages 338-381, June.

    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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