Corporation Tax Asymmetries:Effective Tax Rates and Profit Shifting

John Creedy and Norman Gemmell

No 1028, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: This paper examines the way in which the asymmetric treatment of losses within corporate tax codes can be expected to affect behavioural responses to changes in tax rates. The paper introduces the concept of an equivalent tax function, raising the same present value of tax payments as the actual function, in which the effective rate on losses in any period, and thus the degree of asymmetry, is explicit. The influence on the elasticity of tax revenue with respect to the tax rate of this effective rate is then examined, where ‘loss-shifting’ occurs. Results suggest that estimates of the behavioural effect of changes in tax rates on tax revenues can be expected in general to be smaller in regimes that involve greater asymmetries in the tax treatment of losses. As losses vary over the economic cycle, asymmetric treatment also generates effects on tax revenues that are asymmetric (non-linear) between above-trend and below-trend parts of the cycle.

Pages: 26 pages
Date: 2008
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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Related works:
Journal Article: Corporation tax asymmetries: effective tax rates and profit shifting (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:1028

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