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The corporate income tax rate-revenue paradox: Evidence in the EU

  • Joanna Piotrowska

    (Ministry of Finance, Poland)

  • Werner Vanborren


    (European Commission)

In Europe, the decline in the corporate tax rates has not been reflected in the tax-to-GDP ratios. This paper explores to what extent the observed trend can be explained by changes in the effective tax burden on corporate income, in the share of total income accruing to the corporate sector and in total business income relative to GDP. We present an overview of the findings from previous literature, apply the methodology developed by S?rensen to decompose the most complete data available on the European level and make use of information collected from parallel studies on the effective tax burden and corporatization. The results suggest that corporatization is the driving factor for the trend observed in corporate tax revenues.

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Paper provided by Directorate General Taxation and Customs Union, European Commission in its series Taxation Papers with number 12.

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Length: 41 pages
Date of creation: Oct 2008
Date of revision: Oct 2008
Handle: RePEc:tax:taxpap:0012
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  1. European Commission, 2006. "Taxation trends in the European Union: 2006 edition," Taxation trends 2006, Directorate General Taxation and Customs Union, European Commission.
  2. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1994. "Why Is There Corporate Taxation In a Small Open Economy? The Role of Transfer Pricing and Income Shifting," NBER Working Papers 4690, National Bureau of Economic Research, Inc.
  3. Gordon, R.H. & Mackie-Mason, J.K., 1994. "Why Is There Corporation Taxation in a Small Open Economy? The Role of Transfer Pricing and Income Shifting," Working Papers 359, Research Seminar in International Economics, University of Michigan.
  4. Rosanne Altshuler & Timothy J. Goodspeed, 2015. "Follow the Leader? Evidence on European and US Tax Competition," Public Finance Review, , vol. 43(4), pages 485-504, July.
  5. David Carey & Harry Tchilinguirian, 2000. "Average Effective Tax Rates on Capital, Labour and Consumption," OECD Economics Department Working Papers 258, OECD Publishing.
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  7. Ruud A. de Mooij & Gaetan Nicodeme, 2007. "Corporate Tax Policy, Entrepreneurship and Incorporation in the EU," Tinbergen Institute Discussion Papers 07-030/3, Tinbergen Institute.
  8. Ruud Mooij, 2005. "Will Corporate Income Taxation Survive?," De Economist, Springer, vol. 153(3), pages 277-301, 09.
  9. Ruud Mooij & Gaëtan Nicodème, 2008. "Corporate tax policy and incorporation in the EU," International Tax and Public Finance, Springer, vol. 15(4), pages 478-498, August.
  10. John Creedy & Norman Gemmell, 2007. "Corporation Tax Revenue Growth in the UK: A Microsimulation Analysis," Working Papers 0713, Oxford University Centre for Business Taxation.
  11. Alan J. Auerbach & James M. Poterba, 1987. "Why Have Corporate Tax Revenues Declined?," NBER Working Papers 2118, National Bureau of Economic Research, Inc.
  12. Clemens Fuest & Alfons Weichenrieder, 2002. "Tax Competition and Profit Shifting: On the Relationship between Personal and Corporate Tax Rates," CESifo Working Paper Series 781, CESifo Group Munich.
  13. 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.
  14. European Commission, 2013. "Taxation trends in the European Union: 2013 edition," Taxation trends 2013, Directorate General Taxation and Customs Union, European Commission.
  15. Roger H. Gordon & James R. Hines Jr., 2002. "International Taxation," NBER Working Papers 8854, National Bureau of Economic Research, Inc.
  16. Carone, Giuseppe & Nicodème, Gaëtan & Schmidt, Jan, 2007. "Tax revenues in the European Union: Recent trends and challenges ahead," MPRA Paper 3996, University Library of Munich, Germany.
  17. Rachel Griffith & Alexander Klemm, 2004. "What has been the tax competition experience of the past 20 years?," IFS Working Papers W04/05, Institute for Fiscal Studies.
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