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Corporation Tax Buoyancy and Revenue Elasticity in the UK

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  • John Creedy
  • Norman Gemmell

Abstract

Observed changes in corporation tax revenues from year to year, which include the effects of changes in tax rates, deductions and compliance, appear to be highly volatile relative to profits, the tax base. This paper examines whether the ‘built-in’ fiscal drag properties of corporation tax can be expected to display similar properties. Simple, conceptual modelling demonstrates that the corporate tax revenue elasticity does indeed display this property in the presence of regular cyclical fluctuation in profit growth, suggesting that much of the observed volatility is inherent to the corporation tax system.

Suggested Citation

  • John Creedy & Norman Gemmell, 2007. "Corporation Tax Buoyancy and Revenue Elasticity in the UK," Department of Economics - Working Papers Series 985, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:985
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    References listed on IDEAS

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    1. Michael P. Devereux, 2003. "Measuring Taxes on Income from Capital," CESifo Working Paper Series 962, CESifo.
    2. Michael Devereux & Rachel Griffith & Alexander Klemm, 2004. "Why has the UK corporation tax raised so much revenue?," Fiscal Studies, Institute for Fiscal Studies, vol. 25(4), pages 367-388, December.
    3. Creedy, John & Gemmell, Norman, 2002. "The Revenue Responsiveness of Consumption Taxes," The Economic Record, The Economic Society of Australia, vol. 78(241), pages 186-194, June.
    4. John Creedy & Norman Gemmell, 2002. "The Built‐in Flexibility of Income and Consumption Taxes," Journal of Economic Surveys, Wiley Blackwell, vol. 16(4), pages 509-532, September.
    5. Nicodeme, Gaetan, 2001. "Computing effective corporate tax rates: comparisons and results," MPRA Paper 3808, University Library of Munich, Germany.
    6. John Creedy & Norman Gemmell, 2003. "The Revenue Responsiveness of Income and Consumption Taxes in the UK," Manchester School, University of Manchester, vol. 71(6), pages 641-658, December.
    7. Garry Young, 1992. "A New Approach to Modelling Corporation Tax," National Institute Economic Review, National Institute of Economic and Social Research, vol. 140(1), pages 98-115, May.
    8. Michael Devereux & Alexander Klemm, 2003. "Measuring taxes on income from capital: evidence from the UK," IFS Working Papers W03/03, Institute for Fiscal Studies.
    9. John Creedy & Norman Gemmell, 2006. "Modelling Tax Revenue Growth," Books, Edward Elgar Publishing, number 4073.
    10. Creedy, John & Gemmell, Norman, 2002. "The Built-In Flexibility of Income and Consumption Taxes," Journal of Economic Surveys, Wiley Blackwell, vol. 16(4), pages 509-532, September.
    11. Friedrich Heinemann, 2001. "After the death of inflation: will fiscal drag survive?," Fiscal Studies, Institute for Fiscal Studies, vol. 22(4), pages 527-546., December.
    12. Suman Basu & Carl Emmerson & Christine Frayne, 2003. "An examination of the IFS corporation tax forecasting record," IFS Working Papers W03/21, Institute for Fiscal Studies.
    13. John Creedy & Norman Gemmell, 2002. "The Revenue Responsiveness of Consumption Taxes," The Economic Record, The Economic Society of Australia, vol. 78(241), pages 186-194, June.
    14. Michael Devereux & Rachel Griffith & Alexander Klemm, 2004. "How has the UK corporation tax raised so much revenue?," IFS Working Papers W04/04, Institute for Fiscal Studies.
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    Cited by:

    1. Acheson, Jean & Lawless, Martina & Lawlor, Donough & Tarrant, Oisín & Weymes, Laura, 2021. "Responsiveness of corporation tax revenues to taxable income: A firm-level approach," Papers WP715, Economic and Social Research Institute (ESRI).
    2. John Creedy & Norman Gemmell, 2010. "Behavioural responses to corporate profit taxation," Hacienda Pública Española / Review of Public Economics, IEF, vol. 193(2), pages 109-130, June.
    3. Bernd Hayo & Sascha Mierzwa & Umut Unal, 2021. "Estimating Policy-Corrected Long-Term and Short-Term Tax Elasticities for the United States, Germany, and the United Kingdom," MAGKS Papers on Economics 202112, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    4. Creedy, John & Gemmell, Norman, 2009. "Corporation tax revenue growth in the UK: A microsimulation analysis," Economic Modelling, Elsevier, vol. 26(3), pages 614-625, May.
    5. Tomas Havranek & Zuzana Irsova & Jiri Schwarz, 2016. "Dynamic elasticities of tax revenue: evidence from the Czech Republic," Applied Economics, Taylor & Francis Journals, vol. 48(60), pages 5866-5881, December.
    6. John Creedy & Norman Gemmell, 2011. "Corporation tax asymmetries: effective tax rates and profit shifting," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 422-435, August.
    7. Bernd Hayo & Sascha Mierzwa & Umut Ünal, 2023. "Estimating policy-corrected long-term and short-term tax elasticities for the USA, Germany, and the United Kingdom," Empirical Economics, Springer, vol. 64(1), pages 465-504, January.
    8. Paredes, Joan & Pedregal, Diego J. & Pérez, Javier J., 2014. "Fiscal policy analysis in the euro area: Expanding the toolkit," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 800-823.
    9. John Creedy & Norman Gemmell, 2007. "Modelling Behavioural Responses to Profit Taxation: The Case of the UK Corporation Tax," Department of Economics - Working Papers Series 998, The University of Melbourne.
    10. Hassen, Azime A., 2016. "Agricultural taxation and economic growth in Ethiopia," 2016 Fifth International Conference, September 23-26, 2016, Addis Ababa, Ethiopia 246395, African Association of Agricultural Economists (AAAE).

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