IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_8715.html
   My bibliography  Save this paper

The Corporate Elasticity of Taxable Income: Event Study Evidence from Switzerland

Author

Listed:
  • Matthias Krapf
  • David Staubli

Abstract

We estimate the corporate elasticity of taxable income. Our analysis draws on panel variation in the decentralized system of corporate taxation in Switzerland. We find that an increase in a jurisdiction's corporate net-of-tax rate by 1% results in an increase in aggregate corporate income by about 3.5% over a time span of 4 years. The elasticity is larger in remote, non-central locations. Firm entry, exit, and mobility only account for a small share of the overall elasticity.

Suggested Citation

  • Matthias Krapf & David Staubli, 2020. "The Corporate Elasticity of Taxable Income: Event Study Evidence from Switzerland," CESifo Working Paper Series 8715, CESifo.
  • Handle: RePEc:ces:ceswps:_8715
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp8715.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Huizinga, Harry & Laeven, Luc, 2008. "International profit shifting within multinationals: A multi-country perspective," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1164-1182, June.
    2. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(2), pages 107-126, March.
    3. Marius Brülhart & Jonathan Gruber & Matthias Krapf & Kurt Schmidheiny, 2016. "Taxing Wealth: Evidence from Switzerland," NBER Working Papers 22376, National Bureau of Economic Research, Inc.
    4. Brülhart, Marius & Jametti, Mario, 2019. "Does tax competition tame the Leviathan?," Journal of Public Economics, Elsevier, vol. 177(C), pages 1-1.
    5. Brülhart, Marius & Bucovetsky, Sam & Schmidheiny, Kurt, 2015. "Taxes in Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1123-1196, Elsevier.
    6. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
    7. Kurt Schmidheiny, 2017. "Emerging Lessons from Half a Century of Fiscal Federalism in Switzerland," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 153(2), pages 73-101, April.
    8. Dharmapala, Dhammika & Riedel, Nadine, 2013. "Earnings shocks and tax-motivated income-shifting: Evidence from European multinationals," Journal of Public Economics, Elsevier, vol. 97(C), pages 95-107.
    9. Marcus Roller & Kurt Schmidheiny, 2016. "Effective Tax Rates and Effective Progressivity in a Fiscally Decentralized Country," CESifo Working Paper Series 5834, CESifo.
    10. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    11. Laura Kawano & Joel Slemrod, 2016. "How do corporate tax bases change when corporate tax rates change? With implications for the tax rate elasticity of corporate tax revenues," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 401-433, June.
    12. Schmidheiny, Kurt & Siegloch, Sebastian, 2020. "On event studies and distributed-lags in two-way fixed effects models: Identification, equivalence, and generalization," ZEW Discussion Papers 20-017, ZEW - Leibniz Centre for European Economic Research.
    13. Enrico Rubolino & Daniel Waldenström, 2020. "Tax progressivity and top incomes evidence from tax reforms," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(3), pages 261-289, September.
    14. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
    15. Raphaël Parchet, 2019. "Are Local Tax Rates Strategic Complements or Strategic Substitutes?," American Economic Journal: Economic Policy, American Economic Association, vol. 11(2), pages 189-224, May.
    16. Wian Boonzaaier & Jarkko Harju & Tuomas Matikka & Jukka Pirttilä, 2019. "How do small firms respond to tax schedule discontinuities? Evidence from South African tax registers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(5), pages 1104-1136, October.
    17. Bartelsman, Eric J. & Beetsma, Roel M. W. J., 2003. "Why pay more? Corporate tax avoidance through transfer pricing in OECD countries," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2225-2252, September.
    18. Aleksandra Riedl & Silvia Rocha-Akis, 2012. "How elastic are national corporate income tax bases in OECD countries? The role of domestic and foreign tax rates," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 632-671, May.
    19. Marius Brülhart & Jonathan Gruber & Matthias Krapf & Kurt Schmidheiny, 2016. "Taxing Wealth: Evidence from Switzerland," NBER Working Papers 22376, National Bureau of Economic Research, Inc.
    20. Egger, Peter & Eggert, Wolfgang & Winner, Hannes, 2010. "Saving taxes through foreign plant ownership," Journal of International Economics, Elsevier, vol. 81(1), pages 99-108, May.
    21. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 149-182.
    22. Brülhart, Marius & Parchet, Raphaël, 2014. "Alleged tax competition: The mysterious death of bequest taxes in Switzerland," Journal of Public Economics, Elsevier, vol. 111(C), pages 63-78.
    23. Alberto Abadie & Javier Gardeazabal, 2003. "The Economic Costs of Conflict: A Case Study of the Basque Country," American Economic Review, American Economic Association, vol. 93(1), pages 113-132, March.
    24. Michael P. Devereux & Li Liu & Simon Loretz, 2014. "The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 19-53, May.
    25. Lars P. Feld & Gebhard Kirchgaessner & Christoph A. Schaltegger, 2010. "Decentralized Taxation and the Size of Government: Evidence from Swiss State and Local Governments," Southern Economic Journal, Southern Economic Association, vol. 77(1), pages 27-48, July.
    26. Marius Brülhart & Mario Jametti & Kurt Schmidheiny, 2012. "Do agglomeration economies reduce the sensitivity of firm location to tax differentials?," Economic Journal, Royal Economic Society, vol. 122(563), pages 1069-1093, September.
    27. Jost H. Heckemeyer & Michael Overesch, 2017. "Multinationals profit response to tax differentials: Effect size and shifting channels," Canadian Journal of Economics, Canadian Economics Association, vol. 50(4), pages 965-994, November.
    28. Henrik Jacobsen Kleven & Camille Landais & Emmanuel Saez, 2013. "Taxation and International Migration of Superstars: Evidence from the European Football Market," American Economic Review, American Economic Association, vol. 103(5), pages 1892-1924, August.
    29. Bachas,Pierre Jean & Soto,Mauricio, 2018. "Not(ch) your average tax system : corporate taxation under weak enforcement," Policy Research Working Paper Series 8524, The World Bank.
    30. Schmidheiny, Kurt & Slotwinski, Michaela, 2018. "Tax-induced mobility: Evidence from a foreigners' tax scheme in Switzerland," Journal of Public Economics, Elsevier, vol. 167(C), pages 293-324.
    31. David Staubli, 2018. "The Elasticity of Corporate Income: Panel Data Evidence from Switzerland," Cahiers de Recherches Economiques du Département d'économie 18.01, Université de Lausanne, Faculté des HEC, Département d’économie.
    32. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
    33. Beatrix Eugster & Raphaël Parchet, 2019. "Culture and Taxes," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 296-337.
    34. Kumar, Anil & Liang, Che-Yuan, 2020. "Estimating taxable income responses with elasticity heterogeneity," Journal of Public Economics, Elsevier, vol. 188(C).
    35. Lars Feld & Gebhard Kirchgässner & Christoph Schaltegger, 2011. "Municipal debt in Switzerland: new empirical results," Public Choice, Springer, vol. 149(1), pages 49-64, October.
    36. Dwenger, Nadja & Steiner, Viktor, 2012. "Profit Taxation and the Elasticity of the Corporate Income Tax Base: Evidence From German Corporate Tax Return Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(1), pages 118-150, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David Staubli, 2018. "The Elasticity of Corporate Income: Panel Data Evidence from Switzerland," Cahiers de Recherches Economiques du Département d'économie 18.01, Université de Lausanne, Faculté des HEC, Département d’économie.
    2. Kurt Schmidheiny, 2017. "Emerging Lessons from Half a Century of Fiscal Federalism in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 153(II), pages 73-101, June.
    3. Cooper, Maggie & Nguyen, Quyen T.K., 2020. "Multinational enterprises and corporate tax planning: A review of literature and suggestions for a future research agenda," International Business Review, Elsevier, vol. 29(3).
    4. Marius Brülhart & Jonathan Gruber & Matthias Krapf & Kurt Schmidheiny, 2016. "Taxing Wealth: Evidence from Switzerland," NBER Working Papers 22376, National Bureau of Economic Research, Inc.
    5. David R. Agrawal & Dirk Foremny & Clara Martínez-Toledano, 2020. ""Paraísos fiscales", wealth taxation, and mobility," Working Papers 2020/15, Institut d'Economia de Barcelona (IEB).
    6. Beatrix Eugster & Raphaël Parchet, 2019. "Culture and Taxes," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 296-337.
    7. Brülhart, Marius & Gruber, Jonathan & Krapf, Matthias & Schmidheiny, Kurt, 2019. "Behavioral Responses to Wealth Taxes: Evidence from Switzerland," CEPR Discussion Papers 14054, C.E.P.R. Discussion Papers.
    8. Elek, Péter & Lőrincz, László, 2015. "Az effektív társasági adókulcs rugalmassága Magyarországon a 2009-2011 közötti adókulcscsökkentés alapján [The elasticity of the effective corporate tax rate in Hungary: evidence from the tax cut b," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 27-47.
    9. Kleven, Henrik & Landais, Camille & Munoz, Mathilde & Stantcheva, Stefanie, 2019. "Taxation and Migration: Evidence and Policy Implications," CEPR Discussion Papers 13649, C.E.P.R. Discussion Papers.
    10. Peter Egger & Michael Stimmelmayr, 2017. "Taxation and the Multinational Firm," CESifo Working Paper Series 6384, CESifo.
    11. M. Chatib Basri & Mayara Felix & Rema Hanna & Benjamin A. Olken, 2019. "Tax Administration vs. Tax Rates: Evidence from Corporate Taxation in Indonesia," NBER Working Papers 26150, National Bureau of Economic Research, Inc.
    12. David R. Agrawal & Dirk Foremny, 2019. "Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Reforms," The Review of Economics and Statistics, MIT Press, vol. 101(2), pages 214-232, May.
    13. Henrik Kleven & Camille Landais & Mathilde Muñoz & Stefanie Stantcheva, 2020. "Taxation and Migration: Evidence and Policy Implications," Journal of Economic Perspectives, American Economic Association, vol. 34(2), pages 119-142, Spring.
    14. Petr Janský & Miroslav Palanský, 2019. "Estimating the scale of profit shifting and tax revenue losses related to foreign direct investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(5), pages 1048-1103, October.
    15. Sabine Schenkelberg, 2020. "The Cadbury Schweppes judgment and its implications on profit shifting activities within Europe," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 1-31, February.
    16. Jost H. Heckemeyer & Michael Overesch, 2017. "Multinationals profit response to tax differentials: Effect size and shifting channels," Canadian Journal of Economics, Canadian Economics Association, vol. 50(4), pages 965-994, November.
    17. Jost H. Heckemeyer & Michael Overesch, 2017. "Multinationals’ profit response to tax differentials: Effect size and shifting channels," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(4), pages 965-994, November.
    18. Fuest, Clemens & Spengel, Christoph & Finke, Katharina & Heckemeyer, Jost H. & Nusser, Hannah, 2013. "Profit shifting and 'aggressive' tax planning by multinational firms: Issues and options for reform," ZEW Discussion Papers 13-078, ZEW - Leibniz Centre for European Economic Research.
    19. Isabel Z. Martínez & Emmanuel Saez & Michael Siegenthaler, 2021. "Intertemporal Labor Supply Substitution? Evidence from the Swiss Income Tax Holidays," American Economic Review, American Economic Association, vol. 111(2), pages 506-546, February.
    20. Arnt Ove Hopland & Petro Lisowsky & Mohammed Mardan & Dirk Schindler, 2014. "Income Shifting under Losses," CESifo Working Paper Series 5130, CESifo.

    More about this item

    Keywords

    corporate income tax; tax elasticity; fiscal federalism;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_8715. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.