IDEAS home Printed from https://ideas.repec.org/p/eca/wpaper/2013-264399.html
   My bibliography  Save this paper

Do Corporate Income Tax Rates Cuts Create Jobs? The European Experience

Author

Listed:
  • Antonio Estache
  • Brigitta Gersey

Abstract

The paper assesses the impact of changes in the effective corporate tax rate on the unemployment rate in Europe between 1999 and 2014. The results suggest, for this sample, that a 1% decrease in the effective tax rate was associated with a 0.34% increase in the unemployment rate on average. This means that, in the region, lower corporate income taxes were linked to the replacement of labor by capital. This this substitution effect has been stronger than the output effect conservative administrations tend to focus on in their motivation for the rates cut. The substitution may be needed to achieved longer run growth payoffs, but these results suggest that transition cost are likely to be paid by workers and these should be addressed jointly with the corporate tax cut decisions.

Suggested Citation

  • Antonio Estache & Brigitta Gersey, 2018. "Do Corporate Income Tax Rates Cuts Create Jobs? The European Experience," Working Papers ECARES 2018-01, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/264399
    as

    Download full text from publisher

    File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/264399/3/2018-01-ESTACHE_GERSEY-do.pdf
    File Function: Œuvre complète ou partie de l'œuvre
    Download Restriction: no

    References listed on IDEAS

    as
    1. Gravelle, Jennifer, 2013. "Corporate Tax Incidence: Review of General Equilibrium Estimates and Analysis," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 185-214, March.
    2. Siegloch, Sebastian, 2014. "Employment Effects of Local Business Taxes," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100325, Verein für Socialpolitik / German Economic Association.
    3. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215-215.
    4. Alison Felix, 2007. "Passing the burden: corporate tax incidence in open economies," Regional Research Working Paper RRWP 07-01, Federal Reserve Bank of Kansas City.
    5. repec:taf:jbemgt:v:18:y:2017:i:3:p:412-426 is not listed on IDEAS
    6. Leon Bettendorf & Albert van der Horst & Ruud A. de Mooij, 2009. "Corporate Tax Policy and Unemployment in Europe: An Applied General Equilibrium Analysis," The World Economy, Wiley Blackwell, vol. 32(9), pages 1319-1347, September.
    7. Gaëtan Nicodème, 2001. "Computing effective corporate tax rates: comparisons and results," European Economy - Economic Papers 2008 - 2015 153, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    8. Michael P Devereux, 2007. "The Impact of Taxation on the Location of Capital, Firms and Profit: a Survey of Empirical Evidence," Working Papers 0702, Oxford University Centre for Business Taxation.
    9. Andrea Bassanini & Romain Duval, 2007. "The determinants of unemployment across OECD countries: Reassessing the role of policies and institutions," OECD Economic Studies, OECD Publishing, vol. 2006(1), pages 7-86.
    10. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
    11. Clausing, Kimberly A., 2013. "Who Pays the Corporate Tax in a Global Economy?," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 151-184, March.
    12. Bouzid,Bechir Naier, 2016. "Dynamic relationship between corruption and youth unemployment : empirical evidences from a system GMM approach," Policy Research Working Paper Series 7842, The World Bank.
    13. Xiaobing Shuai & Christine Chmura, 2013. "The Effect of State Corporate Income Tax Rate Cuts on Job Creation," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 48(3), pages 183-193, July.
    14. Horst Feldmann, 2011. "The Unemployment Puzzle of Corporate Taxation," Public Finance Review, , vol. 39(6), pages 743-769, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    corporate taxation; unemployment rate; fixed effects; EU panel data;

    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:eca:wpaper:2013/264399. 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: (Benoit Pauwels). General contact details of provider: http://edirc.repec.org/data/arulbbe.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.