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The effective average tax burden in the European Union and the USA: a computer-based calculation and comparison with the model of the European tax analyzer

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  • Jacobs, Otto H.
  • Spengel, Christoph

Abstract

In this paper we present a computer-based model (so-called European Tax Analyzer) for the international computation and comparison of company tax burdens. The methodology follows the forward-looking concepts for the measurement of effective average tax rates (EATR) on the basis of a model-firm. The EATR is computed for investments generating economic rents (i.e. pure profits above the market interest rate). In contrast to the prevailing approaches for calculating EATR based on separate and isolate investment projects the model-firm approach allows to calculate EATR for more complex and realistic conditions that are relevant for the decision making. Due to its flexibility another important advantage of the model-firm approach is the possibility to include the most relevant and complex provisions of the tax codes (i.e. tax systems, taxes, tax rates, and tax bases). A concrete computation and comparison of the EATR of corporations and their shareholders in five different countries reveals the wide spread between the national EATR. Moreover, for the time series 1995-2000 it could be shown that the differences between the EATR have declined a little. In spite of this convergence, however, tax distortions of competition did not become significantly less.

Suggested Citation

  • Jacobs, Otto H. & Spengel, Christoph, 1999. "The effective average tax burden in the European Union and the USA: a computer-based calculation and comparison with the model of the European tax analyzer," ZEW Discussion Papers 99-54, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:5267
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    References listed on IDEAS

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    1. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, January.
    2. Cummins, Jason G. & Hassett, Kevin A. & Hubbard, R. Glenn, 1996. "Tax reforms and investment: A cross-country comparison," Journal of Public Economics, Elsevier, pages 237-273.
    3. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    4. Lans Bovenberg & Krister Anderson & Kenji Aramaki & Sheetal K. Chand, 1990. "Tax Incentives and International Capital Flows: The Case of the United States and Japan," NBER Chapters,in: Taxation in the Global Economy, pages 283-328 National Bureau of Economic Research, Inc.
    5. Bond, Stephen R & Devereux, Michael P & Gammie, Malcolm J, 1996. "Tax Reform to Promote Investment," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 109-117, Summer.
    6. Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
    7. Cummins, J.G. & Hassett, K.A. & Hubbard, R.G., 1995. "tax Reforms and Investment: A Cross-Country Comparison," Working Papers 95-28, C.V. Starr Center for Applied Economics, New York University.
    8. Cummins, Jason G. & Hassett, Kevin A. & Hubbard, R. Glenn, 1996. "Tax reforms and investment: A cross-country comparison," Journal of Public Economics, Elsevier, pages 237-273.
    9. Michael P. Devereux & Rachel Griffith, 1998. "The Taxation of Discrete Investment Choices," Keele Department of Economics Discussion Papers (1995-2001) 98/08, Department of Economics, Keele University.
    10. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, pages 335-367.
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    12. David F. Bradford & Charles Stuart, 1986. "Issues in the Measurement and Interpretation of Effective Tax Rates," NBER Working Papers 1975, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Kayis-Kumar, Ann, 2016. "International tax planning by multinationals: Simulating a tax-minimising intercompany response to the OECD's recommendation on BEPS Action 4," MPRA Paper 72828, University Library of Munich, Germany.
    2. Keller, Sara & Schanz, Deborah, 2013. "Measuring tax attractiveness across countries," arqus Discussion Papers in Quantitative Tax Research 143, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. Kayis-Kumar, Ann, 2016. "What's BEPS got to do with it? Exploring the effectiveness of thin capitalisation rules," MPRA Paper 75741, University Library of Munich, Germany.

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