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How Large is the Corporate Tax Base Erosion and Profit Shifting? A General Equlibrium Approach

Author

Listed:
  • María T. Alvarez-Martínez
  • Salvador Barrios
  • Diego d'Andria
  • Maria Gesualdo
  • Gaëtan Nicodème
  • Jonathan Pycroft

Abstract

This paper estimates the size and macroeconomic effects of base erosion and profit shifting (BEPS) using a computable general equilibrium model designed for corporate taxation and multinationals. Our central estimate of the impact of BEPS on corporate tax losses for the EU amounts to €36 billion annually or 7.7% of total corporate tax revenues. The USA and Japan also appear to loose tax revenues respectively of €101 and €24 billion per year or 10.7% of corporate tax revenues in both cases. These estimates are consistent with gaps in bilateral multinationals´ activities reported by creditor and debtor countries using official statistics for the EU. Our results suggest that by increasing the cost of capital, eliminating profit shifting would slightly reduce investment and GDP. It would however raise corporate tax revenues thanks to enhanced domestic production. This in turn could reduce other taxes and increase welfare.

Suggested Citation

  • María T. Alvarez-Martínez & Salvador Barrios & Diego d'Andria & Maria Gesualdo & Gaëtan Nicodème & Jonathan Pycroft, 2018. "How Large is the Corporate Tax Base Erosion and Profit Shifting? A General Equlibrium Approach," CESifo Working Paper Series 6870, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6870
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    References listed on IDEAS

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    More about this item

    Keywords

    BEPS; corporate taxation; profit shifting; tax avoidance; CGE model;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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