Corporation Tax Revenue Growth in the UK:A Microsimulation Analysis

John Creedy and Norman Gemmell

No 984, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: This paper examines the built-in flexibility properties — as measured by the elasticity of revenue with respect to profits — of the UK corporation tax system. Emphasis is placed on determining some of the major influences on the extent to which total corporation tax revenue changes when profits change over the economic cycle. A microsimulation model, CorpSim, is constructed and used to obtain numerical results. In the model, corporations use group relief, capital allowances and losses in a tax-minimising manner. The growth of aggregate corporation tax revenue in practice in the UK appears to be highly volatile in relation to the growth of profits. High volatility in revenue elasticities is found to be especially associated with economic downturns. In mild economic downturns, corporation tax revenue elasticities may rise (because tax growth falls less than profit growth), but in more severe downturns, large but temporary decreases in revenue elasticities (and even negative elasticities) can be expected.

Pages: 50 pages
Date: 2007
New Economics Papers: this item is included in nep-eec and nep-pub
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Corporation tax revenue growth in the UK: A microsimulation analysis (2009)
Working Paper: Corporation Tax Revenue Growth in the UK: A Microsimulation Analysis (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:984

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