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The Effect of Tax Rates and Tax Bases on Corporate Tax Revenues: Estimates with New Measures of the Corporate Tax Base

  • Laura Kawano
  • Joel Slemrod

Several recent analyses have suggested that the revenue-maximizing corporate tax rate resides in the low-30's. We challenge this result by re-examining this relationship using a new compilation of changes in corporate tax base definitions for OECD countries between 1980 and 2004. By considering tax base changes in addition to tax rate changes, we can address the estimation bias that applies to tax rates absent their consideration. We find that the relationship between corporate tax rates and corporate tax revenues is tenuous. The large behavioral response to corporate tax rates implied in the literature does not obtain when accounting for persistent differences in tax policy and business environments across countries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18440.

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Date of creation: Oct 2012
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Publication status: published as The Effect of Tax Rates and Tax Bases on Corporate Tax Revenues: Estimates with New Measures of the Corporate Tax Base , Laura Kawano, Joel Slemrod. in Business Taxation (Trans-Atlantic Public Economics Seminar) , Devereux and Gordon. 2014
Handle: RePEc:nbr:nberwo:18440
Note: PE
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  1. Saez, Emmanuel, 2003. "The effect of marginal tax rates on income: a panel study of 'bracket creep'," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1231-1258, May.
  2. Kevin A. Hassett & Alex Brill, 2007. "Revenue-Maximizing Corporate Income Taxes," Working Papers 49742, American Enterprise Institute.
  3. Leslie Robinson & Joel Slemrod, 2012. "Understanding multidimensional tax systems," International Tax and Public Finance, Springer, vol. 19(2), pages 237-267, April.
  4. Lawrence H. Summers, 1987. "Tax Policy and the Economy, Volume 1," NBER Books, National Bureau of Economic Research, Inc, number summ87-1, August.
  5. repec:aei:rpaper:25839 is not listed on IDEAS
  6. Johannes Becker & Clemens Fuest, 2009. "Optimal tax policy when firms are internationallly mobile," Working Papers 0907, Oxford University Centre for Business Taxation.
  7. Alan J. Auerbach, 2005. "Who Bears the Corporate Tax? A review of What We Know," NBER Working Papers 11686, National Bureau of Economic Research, Inc.
  8. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 773-88, December.
  9. Rosanne Altshuler & Harry Grubert, 2004. "Taxpayer Responses to Competitive Tax Policies and Tax Policy Responses to Competitive Taxpayers: Recent Evidence," Departmental Working Papers 200406, Rutgers University, Department of Economics.
  10. Kimberly Clausing, 2007. "Corporate tax revenues in OECD countries," International Tax and Public Finance, Springer, vol. 14(2), pages 115-133, April.
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