IDEAS home Printed from
   My bibliography  Save this paper

Changing Views of the Corporate Income Tax


  • Peter Birch Soerensen


(The introduction): Under a "classical" corporate tax system such as that prevailing in the United States, income from equity-financed corporate investment is taxed twice: at the corporate level a tax is levied on corporate profits after deduction for interest payments, and at the shareholder level dividends and realized capital gains on shares are subject to full personal income tax. - Over the years many economists have argued that this system of "double taxation" significantly reduces the overall investment level and drives capital from the corporate sector into lower-yielding projects in the non-corporate sector. Influenced by this line of argument, many governments in the OECD area haveintroduced measures to alleviate the double taxation of corporate source income, e.g. by granting a credit for the underlying corporate tax against the personal tax on dividends, and/or by offering favorable personal tax treatment of capital gains on shares. - On the other hand, some economists have claimed that the traditional view greatly overstates the distortionary efects of a classical corporate tax system, implying that double tax relief may cause a considerable loss of government revenue without generating much stimulus to investment. - It is clearly important for public policy which view of the corporation tax is the more correct one. This article attempts to explain in a non-technical manner the different viewpoints on the nature and impact of the corporate income tax. I will focus on the effects of double taxation of corporate source income on the cost of corporate capital, defined as the minimum pre-tax rate of return a corporate investment project must earn to be profitable. To limit the scope of the paper, the emphasis will be on theoretical ideas, with no systematic review of empirical evidence. In the first two parts of the paper I will abstract from the complications caused by international capital mobility, but the third part will address the special problems for corporate tax policy arising in the open economy.

Suggested Citation

  • Peter Birch Soerensen, "undated". "Changing Views of the Corporate Income Tax," EPRU Working Paper Series 95-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:95-05

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    1. Hopkin, Bryan, 1970. "Aid and the Balance of Payments," Economic Journal, Royal Economic Society, vol. 80(317), pages 1-23, March.
    2. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March.
    3. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-618, September.
    4. Dudley, Leonard & Montmarquette, Claude, 1976. "A Model of the Supply of Bilateral Foreign Aid," American Economic Review, American Economic Association, vol. 66(1), pages 132-142, March.
    5. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-265, May.
    6. Sajal Lahiri & Pascalis Raimondos-Møller & Kar-yiu Wong & Alan D. Woodland, "undated". "Optimal Income Transfers and Tariffs," EPRU Working Paper Series 97-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    7. Khilji, Nasir M. & Zampelli, Ernest M., 1994. "The fungibility of U.S. military and non-military assistance and the impacts on expenditures of major aid recipients," Journal of Development Economics, Elsevier, vol. 43(2), pages 345-362, April.
    8. Maizels, Alfred & Nissanke, Machiko K., 1984. "Motivations for aid to developing countries," World Development, Elsevier, vol. 12(9), pages 879-900, September.
    9. Kemp, Murray C. & Wong, Kar-yiu, 1993. "Paradoxes associated with the administration of foreign aid," Journal of Development Economics, Elsevier, vol. 42(1), pages 197-204, October.
    10. Turunen-Red, Arja H. & Woodland, Alan D., 1988. "On the multilateral transfer problem : Existence of Pareto improving international transfers," Journal of International Economics, Elsevier, vol. 25(3-4), pages 249-269, November.
    11. Gale, David, 1974. "Exchange equilibrium and coalitions : An example," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 63-66, March.
    12. Jagdish N. Bhagwati & Richard A. Brecher & Tatsuo Hatta, 1985. "The Generalized Theory of Transfers and Welfare: Exogenous (policy-Imposed) and Endogenous (Transfer-Induced) Distortion," The Quarterly Journal of Economics, Oxford University Press, vol. 100(3), pages 697-714.
    13. Dani Rodrik, 1992. "The Limits of Trade Policy Reform in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 87-105, Winter.
    14. Lahiri, Sajal & Raimondos, Pascalis, 1995. "Welfare effects of aid under quantitative trade restrictions," Journal of International Economics, Elsevier, vol. 39(3-4), pages 297-315, November.
    15. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    16. Trumbull, William N & Wall, Howard J, 1994. "Estimating Aid-Allocation Criteria with Panel Data," Economic Journal, Royal Economic Society, vol. 104(425), pages 876-882, July.
    17. Lahiri, Sajal & Raimondos-Moller, Pascalis, 1997. "On the tying of aid to tariff reform," Journal of Development Economics, Elsevier, vol. 54(2), pages 479-491, December.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Dethier, Jean-Jacques & John, Christoph, 1998. "Taxing capital income in Hungary and the European Union," Policy Research Working Paper Series 1903, The World Bank.
    2. Howell H Zee, 2005. "Personal Income Tax Reform; Concepts, Issues, and Comparative Country Developments," IMF Working Papers 05/87, International Monetary Fund.
    3. Schreiber, Ulrich & Spengel, Christoph & Lammersen, Lothar, 2001. "Effektive Steuerbelastungen bei Vorliegen ökonomischer Renten," ZEW Discussion Papers 01-26, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Schönemann, Kristin, 2009. "Finanzierungsstrategien und ihre Auswirkungen auf den Unternehmenswert deutscher Immobilien-Kapitalgesellschaften," arqus Discussion Papers in Quantitative Tax Research 94, arqus - Arbeitskreis Quantitative Steuerlehre.

    More about this item


    Access and download statistics


    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:kud:epruwp:95-05. 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: (Thomas Hoffmann). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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.