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The Effect of Tax Rates and Tax Bases on Corporate Tax Revenues: Estimates with New Measures of the Corporate Tax Base

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Listed author(s):
  • Laura Kawano

    ()

    (U.S. Department of Treasury, Office of Tax Analysis)

  • Joel Slemrod

    ()

    (University of Michigan, Department of Economics)

Abstract

Several recent analyses have suggested that the revenue-maximizing corporate tax rate resides in the low-30’s. We challenge this result by re-examining this relationship using a new compilation of changes in corporate tax base definition for OECD countries between 1980 and 2004. By considering tax base changes in addition to tax rate changes, we can address the estimation bias that applies to tax rates absent their consideration. We find that the relationship between corporate tax rates and corporate tax revenues is tenuous. The large behavioral response to corporate tax rates implied in the literature does not obtain when accounting for persistent differences in tax policy and business environments across countries.

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File URL: http://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/WP1219.pdf
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Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1219.

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Date of creation: 2012
Handle: RePEc:btx:wpaper:1219
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  • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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  1. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(4), pages 773-788, December.
  2. Saez, Emmanuel, 2003. "The effect of marginal tax rates on income: a panel study of 'bracket creep'," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1231-1258, May.
  3. Lawrence H. Summers, 1987. "Tax Policy and the Economy, Volume 1," NBER Books, National Bureau of Economic Research, Inc, number summ87-1, June.
  4. repec:aei:rpaper:25839 is not listed on IDEAS
  5. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 773-88, December.
  6. Leslie Robinson & Joel Slemrod, 2012. "Understanding multidimensional tax systems," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(2), pages 237-267, April.
  7. Kevin A. Hassett & Alex Brill, 2007. "Revenue-Maximizing Corporate Income Taxes," AEI Economics Working Papers 49742, American Enterprise Institute.
  8. Alan J. Auerbach, 2006. "Who Bears the Corporate Tax? A Review of What We Know," NBER Chapters,in: Tax Policy and the Economy, Volume 20, pages 1-40 National Bureau of Economic Research, Inc.
  9. Johannes Becker & Clemens Fuest, 2011. "Optimal tax policy when firms are internationally mobile," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(5), pages 580-604, October.
  10. Kimberly Clausing, 2007. "Corporate tax revenues in OECD countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(2), pages 115-133, April.
  11. Rosanne Altshuler & Harry Grubert, 2004. "Taxpayer Responses to Competitive Tax Policies and Tax Policy Responses to Competitive Taxpayers: Recent Evidence," Departmental Working Papers 200406, Rutgers University, Department of Economics.
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