Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms
This paper explores the economic implications of an allowance for corporate equity (ACE), a comprehensive business income tax (CBIT) and a combination of the two in the EU. We illustrate the key trade-offs in designing ACE and CBIT in the presence of tax distortions at various decision margins of firms, such as its financial structure, investment, profit allocation and discrete location. Using an applied general equilibrium model for Europe, we quantitatively assess the effects of ACE, CBIT and combined reforms in EU countries. The results suggest that ACE is welfare improving as long as corporate tax rates are not used to cover the cost of base narrowing. CBIT typically reduces welfare by exacerbating marginal investment distortions. When governments adjust statutory corporate tax rates to balance their budget, however, CBIT reforms become more attractive while ACE reforms are welfare reducing in a number of countries. European coordination of reforms mitigates fiscal spillovers within the EU and renders ACE reforms more, and CBIT reforms less, attractive for welfare. A combination of ACE and CBIT reforms can be designed to be revenue neutral and welfare improving through smaller financial distortions.
|Date of creation:||May 2009|
|Date of revision:|
|Contact details of provider:|| Web page: http://ec.europa.eu/taxation_customs/index_en.htm|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Devereux, Michael P. & Griffith, Rachel, 2002.
"Evaluating Tax Policy for Location Decisions,"
CEPR Discussion Papers
3247, C.E.P.R. Discussion Papers.
- Johannes Becker & Clemens Fuest, 2011.
"Optimal tax policy when firms are internationally mobile,"
International Tax and Public Finance,
Springer, vol. 18(5), pages 580-604, October.
- Johannes Becker & Clemens Fuest, 2005. "Optimal Tax Policy when Firms are Internationally Mobile," CESifo Working Paper Series 1592, CESifo Group Munich.
- Johannes Becker & Clemens Fuest, 2009. "Optimal tax policy when firms are internationallly mobile," Working Papers 0907, Oxford University Centre for Business Taxation.
- Rosanne Altshuler & Harry Grubert, 2001.
"Repatriation Taxes, Repatriation Strategies and Multinational Financial Policy,"
NBER Working Papers
8144, National Bureau of Economic Research, Inc.
- Altshuler, Rosanne & Grubert, Harry, 2003. "Repatriation taxes, repatriation strategies and multinational financial policy," Journal of Public Economics, Elsevier, vol. 87(1), pages 73-107, January.
- Rosanne Altshuler & Harry Grubert, 2002. "Repatriation Taxes, Repatriation Strategies and Multinational Financial Policy," Departmental Working Papers 200009, Rutgers University, Department of Economics.
- Hassett, Kevin A. & Hubbard, R. Glenn, 2002. "Tax policy and business investment," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 20, pages 1293-1343 Elsevier.
- Bonds, Stephen R. & Devereux, Michael P., 1995.
"On the design of a neutral business tax under uncertainty,"
Journal of Public Economics,
Elsevier, vol. 58(1), pages 57-71, September.
- Steve Bond & Michael Devereux, 1993. "On the design of a neutral business tax under uncertainty," IFS Working Papers W93/01, Institute for Fiscal Studies.
- Michael P Devereux & Simon Loretz, 2007.
"The Effects of EU Formula Apportionment on Corporate Tax Revenues,"
0706, Oxford University Centre for Business Taxation.
- Michael P. Devereux & Simon Loretz, 2008. "The Effects of EU Formula Apportionment on Corporate Tax Revenues," Fiscal Studies, Institute for Fiscal Studies, vol. 29(1), pages 1-33, 03.
- Michael Keen & John King, 2002. "The Croatian profit tax: an ACE in practice," Fiscal Studies, Institute for Fiscal Studies, vol. 23(3), pages 401-418, September.
- Massimo Bordignon & Silvia Giannini & Paolo Panteghini, 2001. "Reforming Business Taxation: Lessons from Italy?," International Tax and Public Finance, Springer, vol. 8(2), pages 191-210, March.
- Robin Boadway & Neil Bruce, 1982.
"A General Proposition on the Design of a Neutral Business Tax,"
461, Queen's University, Department of Economics.
- Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July.
- Sorensen, Peter Birch, 2004. "International tax coordination: regionalism versus globalism," Journal of Public Economics, Elsevier, vol. 88(6), pages 1187-1214, June.
- Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
- Albert van der Horst & Leon Bettendorf & Hugo Rojas-Romagosa, 2007.
"Will corporate tax consolidation improve efficiency in the EU?,"
141, CPB Netherlands Bureau for Economic Policy Analysis.
- Albert van der Horst & Leon Bettendorf & Hugo Rojas-Romagosa, 2007. "Will Corporate Tax Consolidation improve Efficiency in the EU ?," Tinbergen Institute Discussion Papers 07-076/2, Tinbergen Institute.
- Alexander Klemm, 2007.
"Allowances for Corporate Equity in Practice,"
CESifo Economic Studies,
CESifo, vol. 53(2), pages 229-262, June.
- Alfons Weichenrieder & Tina Klautke, 2008. "Taxes and the Efficiency Costs of Capital Distortions," CESifo Working Paper Series 2431, CESifo Group Munich.
- Clausing, Kimberly A., 2003. "Tax-motivated transfer pricing and US intrafirm trade prices," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2207-2223, September.
- Leon Bettendorf & Joeri Gorter & Albert van der Horst, 2006. "Who benefits from tax competition in the European Union?," CPB Document 125, CPB Netherlands Bureau for Economic Policy Analysis.
- Mihir A. Desai & C. Fritz Foley & James R. Hines, 2004.
"A Multinational Perspective on Capital Structure Choice and Internal Capital Markets,"
Journal of Finance,
American Finance Association, vol. 59(6), pages 2451-2487, December.
- Mihir A. Desai & C. Fritz Foley & James R. Hines, Jr., 2003. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," NBER Working Papers 9715, National Bureau of Economic Research, Inc.
- Martin D. Dietz & Christian Keuschnigg, 2005.
"A Growth Oriented Dual Income Tax,"
CESifo Working Paper Series
1513, CESifo Group Munich.
- John R. Graham, 2003. "Taxes and Corporate Finance: A Review," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1075-1129.
- Doina Maria Radulescu & Michael Stimmelmayr, 2007. "ACE versus CBIT: Which is Better for Investment and Welfare?," CESifo Economic Studies, CESifo, vol. 53(2), pages 294-328, June.
- Ruud Mooij, 2005. "Will Corporate Income Taxation Survive?," De Economist, Springer, vol. 153(3), pages 277-301, 09.
- R. Glenn Hubbard, 1997.
"Capital-Market Imperfections and Investment,"
NBER Working Papers
5996, National Bureau of Economic Research, Inc.
- Michiel Evers & Ruud Mooij & Daniel Vuuren, 2008. "The Wage Elasticity of Labour Supply: A Synthesis of Empirical Estimates," De Economist, Springer, vol. 156(1), pages 25-43, March.
When requesting a correction, please mention this item's handle: RePEc:tax:taxpap:0017. 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: (Gaetan Nicodeme)or (Freddy De Buysscher) or (Thomas hemmelgarn)
If references are entirely missing, you can add them using this form.