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An applied analysis of ACE and CBIT reform in the EU


  • Ruud de Mooij


  • M.P. Devereux


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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  • Ruud de Mooij & M.P. Devereux, 2009. "An applied analysis of ACE and CBIT reform in the EU," CPB Discussion Paper 128, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:128

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    References listed on IDEAS

    1. Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
    2. Ruud de Mooij & Michael P. Devereux, 2008. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Studies 0023, Directorate General Taxation and Customs Union, European Commission.
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    15. Doina Radulescu & Michael Stimmelmayr, "undated". "ACE Vs. CBIT: Which Is Better for Investment and Welfare?," EcoMod2006 272100072, EcoMod.
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    Cited by:

    1. Devereux, Michael P., 2012. "Issues in the Design of Taxes on Corporate Profit," National Tax Journal, National Tax Association, vol. 65(3), pages 709-730, September.
    2. Karpavičius, Sigitas & Yu, Fan, 2016. "Should interest expenses be tax deductible?," Economic Modelling, Elsevier, vol. 54(C), pages 100-116.
    3. Paul Eckerstorfer, 2013. "Optimal Redistributive Taxation in a Multiexternality Model," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(1), pages 115-128, March.
    4. Fabrice Collard & Harris Dellas & Behzad Diba & Olivier Loisel, 2017. "Optimal Monetary and Prudential Policies," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(1), pages 40-87, January.
    5. Manzo, Marco & Monteduro, Maria Teresa, 2010. "From IRAP to CBIT: tax distortions and redistributive effects," MPRA Paper 28070, University Library of Munich, Germany.
    6. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
    7. Brekke, Kurt R. & Garcia Pires, Armando J. & Schindler, Dirk & Schjelderup, Guttorm, 2017. "Capital taxation and imperfect competition: ACE vs. CBIT," Journal of Public Economics, Elsevier, vol. 147(C), pages 1-15.
    8. Chris Murphy, 2016. "The effects on consumer welfare of a corporate tax cut," Departmental Working Papers 2016-10, The Australian National University, Arndt-Corden Department of Economics.
    9. Serena Fatica & Thomas Hemmelgarn & Gaëtan Nicodème, 2013. "The Debt-Equity Tax Bias: Consequences and Solutions," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(1), pages 5-18.
    10. repec:eee:pubeco:v:156:y:2017:i:c:p:131-149 is not listed on IDEAS
    11. Alvarez Martinez, Maria Teresa & Barrios, Salvador & Bettendorf, Leon & d'Andria, Diego & Gesualdo, Maria & Loretz, Simon & Pontikakis, Dimitrios & Pycroft, Jonathan, 2016. "A New Calibration for CORTAX: A computable general equilibrium model for simulating corporate tax reforms," JRC Working Papers on Taxation & Structural Reforms 2016-09, Joint Research Centre (Seville site).
    12. Petutschnig, Matthias & Rünger, Silke, 2017. "The effects of a tax allowance for growth and investment: Empirical evidence from a firm-level analysis," arqus Discussion Papers in Quantitative Tax Research 221, arqus - Arbeitskreis Quantitative Steuerlehre.
    13. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2015. "Zukunftsfähigkeit in den Mittelpunkt. Jahresgutachten 2015/16," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201516.
    14. Koethenbuerger, Marko & Stimmelmayr, Michael, 2014. "Corporate deductibility provisions and managerial incentives," Journal of Public Economics, Elsevier, vol. 111(C), pages 120-130.
    15. Michael Kouparitsas & Dinar Prihardini & Alexander Beames, 2016. "Analysis of the long term effects of a company tax cut," Treasury Working Papers 2016-02, The Treasury, Australian Government, revised May 2016.

    More about this item

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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