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What Happened to CIT collection? Solving the Rates-Revenues Puzzle

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  • Caiumi, Antonella
  • Majewski, Ina
  • Nicodème, Gaëtan

Abstract

Despite sharp reductions in corporate income tax (CIT) rates worldwide, CIT revenues have not fallen dramatically in the last two decades. This paper investigates the recent developments in CIT in the European Union, by taking a closer look at the potential driving forces behind this puzzle. Using a unique dataset of national sectoral accounts, we decompose the CIT revenue to GDP ratio for the EU and find that while the decrease in the statutory rates has driven down tax collection, the effect was more than offset by a broadening of the taxable base and a slight increase in the size of the corporate sector. However, this result holds for the period 1995-2015 but not for the last decade where base broadening has not been able to match further cuts in rates.

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  • Caiumi, Antonella & Majewski, Ina & Nicodème, Gaëtan, 2018. "What Happened to CIT collection? Solving the Rates-Revenues Puzzle," CEPR Discussion Papers 13385, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13385
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    Cited by:

    1. Clemens Fuest & Felix Hugger & Susanne Wildgruber, 2022. "Why Is Corporate Tax Revenue Stable While Tax Rates Fall? Evidence from Firm-Level Data," National Tax Journal, University of Chicago Press, vol. 75(3), pages 481-515.
    2. European Commission, 2018. "Tax Policies in the European Union: 2018 Survey," Taxation Survey 2018, Directorate General Taxation and Customs Union, European Commission.
    3. Cláudia Braz & Maria Manuel Campos & Sónia Cabral, 2022. "A micro-level analysis of corporate income taxation in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    4. European Commission, 2019. "Tax Policies in the European Union: 2020 Survey," Taxation Survey 2020, Directorate General Taxation and Customs Union, European Commission.

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    More about this item

    Keywords

    corporate tax; European Union; Implicit Tax Rate; Incorporation; Tax Reforms;
    All these keywords.

    JEL classification:

    • 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
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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