Working Paper: CEPR ID: DP13385
Authors: Gatan Nicodeme; Antonella Caiumi; Ina Majewski
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.
Keywords: Corporate Tax; Implicit Tax Rate; Tax Reforms; Incorporation; European Union
JEL Codes: E62; H25; O52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decrease in statutory corporate income tax rates (K34) | decrease in tax collection (H26) |
| broadening of the taxable base (H29) | offset decrease in tax collection (H26) |
| increase in size of the corporate sector (G38) | offset decrease in tax collection (H26) |
| implicit tax rate (H29) | development of the CIT to GDP ratio (H54) |
| lack of base broadening post-2010 (D39) | observed trends in CIT to GDP ratio (H54) |