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An applied analysis of ACE and CBIT reform in the EU

We assess the quantitative impact of two reforms of the corporation tax that would eliminate the differential treatment of debt and equity. The two reforms are: the allowance for corporate equity (ACE), and the comprehensive business income tax (CBIT). We investigate the impact of these reforms on various decision margins, using an applied general equilibrium model for the EU calibrated with recent empirical elasticities. The results suggest that, if governments adjust statutory corporate tax rates to balance their budgets, profit shifting and discrete location render CBIT more attractive for most individual European countries. European coordination makes a joint ACE more, and a joint CBIT less, efficient. A combination of ACE and CBIT is always welfare improving.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 128.

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Date of creation: Jul 2009
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Handle: RePEc:cpb:discus:128
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  1. Christian Keuschnigg & Martin Dietz, 2007. "A growth oriented dual income tax," International Tax and Public Finance, Springer, vol. 14(2), pages 191-221, April.
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  12. Doina Maria Radulescu & Michael Stimmelmayr, 2006. "ACE vs. CBIT: Which is Better for Investment and Welfare?," CESifo Working Paper Series 1850, CESifo Group Munich.
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  16. Ruud de Mooij & Michael P. Devereux, 2009. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Studies 0028, Directorate General Taxation and Customs Union, European Commission.
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  18. repec:dgr:uvatin:20070076 is not listed on IDEAS
  19. Michael P. Devereux, 2009. "Taxing Risky Investment," Working Papers 0919, Oxford University Centre for Business Taxation.
  20. Ruud Mooij, 2005. "Will Corporate Income Taxation Survive?," De Economist, Springer, vol. 153(3), pages 277-301, 09.
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  23. repec:dgr:uvatin:20070056 is not listed on IDEAS
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  25. Alexander Klemm, 2006. "Allowances for Corporate Equity in Practice," IMF Working Papers 06/259, International Monetary Fund.
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