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The Corporate Income Tax: international trends and options for fundamental reform

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  • Michael P. Devereux
  • Peter Birch Sørensen

Abstract

This paper discusses the future of the corporate income tax in an integrating world economy. The first part of the paper reviews some important trends in corporate taxation across the OECD area. The second part discusses the role of the corporation tax, laying out guidelines for corporate tax reform and considering some alternatives to existing corporate income taxes. In discussing options for fundamental reform, two sets of concerns are addressed. The first represents the traditional aims of a tax on corporate income. Essentially the traditional aim has been to design a tax system which raises revenue as efficiently as possible - that is, which minimises distortions to the location and scale of investment, to the sources and uses of finance, and to the choice of legal form. These distortions have been the subject of study for many years, and many proposals for reform have been made. One of the most popular and enduring ideas has been to tax only economic rent: in a traditional framework such a tax would not be expected to have any effect on investment or financing decisions.There is also a second set of concerns. Part of this concern has also been the subject of study for many years - the relationship between the personal and corporate sectors, and in particular, the possibility of tax avoidance by shifting income between the two sectors.

Suggested Citation

  • Michael P. Devereux & Peter Birch Sørensen, 2006. "The Corporate Income Tax: international trends and options for fundamental reform," European Economy - Economic Papers 2008 - 2015 264, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0264
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    References listed on IDEAS

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    Cited by:

    1. Ganghof, Steffen & Genschel, Philipp, 2007. "Taxation and Democracy in the EU," MPIfG Discussion Paper 07/2, Max Planck Institute for the Study of Societies.
    2. John Creedy & Norman Gemmell, 2015. "Taxation and the User Cost of Capital: An Introduction," Treasury Working Paper Series 15/02, New Zealand Treasury.
    3. Alan Auerbach & Michael P Devereux & Helen Simpson, 2007. "Taxing corporate income," Working Papers 0705, Oxford University Centre for Business Taxation.
    4. Kosonen, Tuomas, 2007. "The Increased Revenue from Finnish Corporate Income Tax in the 1990s," Discussion Papers 421, VATT Institute for Economic Research.
    5. Claudio M. Radaelli & Ulrike S. Kraemer, 2008. "Governance Areas in EU Direct Tax Policy," Journal of Common Market Studies, Wiley Blackwell, vol. 46, pages 315-336, March.
    6. repec:spr:sptbec:978-3-642-36306-1 is not listed on IDEAS
    7. Dietrich, Maik, 2009. "Entscheidungswirkungen einer europaweit harmonisierten Konzernbesteuerung
      [Impacts of European Group Taxation]
      ," MPRA Paper 59870, University Library of Munich, Germany.
    8. Michael P. Devereux, 2008. "Taxation of outbound direct investment: economic principles and tax policy considerations," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 698-719, winter.
    9. Philipp Genschel & Hanna Lierse & Laura Seelkopf, 2016. "Dictators don't compete: autocracy, democracy, and tax competition," Review of International Political Economy, Taylor & Francis Journals, vol. 23(2), pages 290-315, April.
    10. Margit Schratzenstaller, 2007. "Unternehmensbesteuerung in der Europäischen Union: aktuelle Entwicklungen und Implikationen für die deutsche Steuerpolitik," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 76(2), pages 21-38.
    11. Siemers, Lars-H. R. & Zöller, Daniel, 2011. "Change-over within little scope: On the decision neutrality of recent tax reform proposals," MPRA Paper 27943, University Library of Munich, Germany.
    12. Ossip Hühnerbein & Tobias Seidel, 2010. "Intra-regional Tax Competition and Economic Geography," The World Economy, Wiley Blackwell, vol. 33(8), pages 1042-1051, August.
    13. George R. Zodrow, 2010. "International Taxation and Company Tax Policy in Small Open Economies," Chapters,in: Tax Reform in Open Economies, chapter 6 Edward Elgar Publishing.
    14. Kayis-Kumar, Ann, 2015. "Thin capitalisation rules: A second-best solution to the cross-border debt bias?," MPRA Paper 72031, University Library of Munich, Germany.
    15. Marcel Gérard & Christian Valenduc, 2007. "La politique fiscale sous contraintes," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(1), pages 173-192.

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