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What Happened to CIT Collection? Solving the Rates-Revenues Puzzle

Author

Listed:
  • Nicodeme Gaetan
  • Caiumi Antonella
  • Majewski Ina

Abstract

Despite sharp reductions in corporate income tax (CIT) rates worldwide, CIT revenues have not fallen dramatically in the last two decades. This paper investigates the recent developments in CIT in the European Union, by taking a closer look at the potential driving forces behind this puzzle. Using a unique dataset of national sectoral accounts, we decompose the CIT revenue to GDP ratio for the EU and find that while the decrease in the statutory rates has driven down tax collection, the effect was more than offset by a broadening of the taxable base and a slight increase in the size of the corporate sector. However, this result holds for the period 1995-2015 but not for the last decade where base broadening has not been able to match further cuts in rates.

Suggested Citation

  • Nicodeme Gaetan & Caiumi Antonella & Majewski Ina, 2018. "What Happened to CIT Collection? Solving the Rates-Revenues Puzzle," Taxation Papers 74, Directorate General Taxation and Customs Union, European Commission.
    • Handle: RePEc:tax:taxpap:0074
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    File URL: https://ec.europa.eu/taxation_customs/sites/taxation/files/taxation_paper_74.pdf
    File Function: final version, 2018
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    Cited by:

    1. Clemens Fuest & Felix Hugger & Susanne Wildgruber, 2022. "Why Is Corporate Tax Revenue Stable While Tax Rates Fall? Evidence from Firm-Level Data," National Tax Journal, University of Chicago Press, vol. 75(3), pages 481-515.
    2. Jadranka N. Đurović Todorović & Marina S. Đorđević & Milica B. Ristić Cakić, 2022. "Do the Effective Tax Incentives Reduce Tax Revenues? Investigating the Paradox of Corporate Income Tax in Serbia," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 8(2), pages 108-126.
    3. European Commission, 2018. "Tax Policies in the European Union: 2018 Survey," Taxation Survey 2018, Directorate General Taxation and Customs Union, European Commission.
    4. Cláudia Braz & Sónia Cabral & Maria Manuel Campos, 2022. "A micro-level analysis of corporate income taxation in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    5. repec:ptu:bdpart:e202203 is not listed on IDEAS
    6. European Commission, 2019. "Tax Policies in the European Union: 2020 Survey," Taxation Survey 2020, Directorate General Taxation and Customs Union, European Commission.
    7. Victoria J. Perry, 2023. "Pillar 2: tax competition in low‐income countries and substance‐based income exclusion," Fiscal Studies, John Wiley & Sons, vol. 44(1), pages 23-36, March.

    More about this item

    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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