International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Wednesday, February 11, 2015

How Do Corporate Tax Bases Changes When Corporate Tax Rates Change? With Implications for the Tax Rate Elasticity of Corporate Revenues

LAURA KAWANOUS Department of Treasury - Office of Tax Analysis and JOEL B. SLEMRODUniversity of Michigan, Stephen M. Ross School of Business, National Bureau of Economic Research (NBER)

Treasury-Dept.-Seal-of-the-IRSWe construct a new database of changes to multiple aspects of corporate tax bases for OECD countries between 1980 and 2004. We use our data to systematically document the tendency of countries to implement policies that both lower the corporate tax rate and broaden the corporate tax base. This correlation informs our interpretation of previous estimates of the relationship between corporate tax rates and corporate tax revenues, which typically do not include comprehensive measures of the corporate tax base definition.

We then re-examine the relationship between corporate tax rates and corporate tax revenues when controlling for our new tax base measures. We find that accounting for unobserved heterogeneity and changes to the corporate tax base attenuates the relationship between corporate tax rates and corporate tax revenues.

https://lawprofessors.typepad.com/intfinlaw/2015/02/how-do-corporate-tax-bases-changes-when-corporate-tax-rates-change-with-implications-for-the-tax-rat.html

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