Corporate Tax Policy and Incorporation in the EU

de Mooij, Ruud and Nicodème, Gaetan (2007) Corporate Tax Policy and Incorporation in the EU. Centre for Business Taxation WP 07/16.

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Abstract

In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on legal form of business to analyze income shifting via incorporation. The results suggest that the effect is significant and large. It implies that the revenue effects of lower corporate tax rates – possibly induced by tax competition -- will partly show up in lower personal tax revenues rather than lower corporate tax revenues. Simulations suggest that between 12% and 21% of corporate tax revenue can be attributed to income shifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some 0.25%-points since the early 1990s.

Item Type: Other Working Paper
Keywords: Corporate tax; Personal tax; Incorporation; Income shifting
Centre: Oxford University Centre for Business Taxation > CBT Working Papers
Date Deposited: 24 May 2012 14:02
Last Modified: 15 Oct 2015 02:18
URI: http://eureka.sbs.ox.ac.uk/id/eprint/3381

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