The Role of the Corporate Income Tax as an Automatic Stabilizer

Fuest, Clemens and Buettner, Thiess (2010) The Role of the Corporate Income Tax as an Automatic Stabilizer. International Tax and Public Finance, 17 (6). pp. 686-698.

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This paper analyses the effectiveness of the corporate income tax as an automatic stabilizer. It employs a unique firm-level data set of German manufacturers combining financial statements with firm-specific information about credit market restrictions. The results show that approximately 20 per cent of all firms report both positive taxable income and capital market restrictions. Taking account of the income tax rates and the size differences of the firms, we find that demand stabilization through the corporate income tax amounts to about 8 per cent of an initial shock to gross revenues. This stabilization effect varies over the business cycle and tends to increase during cyclical downturns.

Item Type: Article
Keywords: Corporate income tax · Stabilization · Capital market restrictions · Loss offset · Firm-level data
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 28 May 2012 17:29
Last Modified: 23 Oct 2015 14:07

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