The Effect of Inflation and Interest Rates on Forward-Looking Effective Tax Rates

Centre for European Economic Research (zew)

No 63, Taxation Papers from Directorate General Taxation and Customs Union, European Commission

Abstract: The study delivers qualitative assessments of the sensitivity mechanisms at work as well as quantitative results. Tax systems are related with interest and inflation rates through various mechanisms which sometimes act in qualitatively different directions. Such a mechanism is, for example, that usually nominal returns are taxed rather than real returns. The Devereux/Griffith model incorporates these mechanisms of real world tax systems and allows for precise quantification.The broad range of figures produced in this study helps to illustrate and indicate the levels of effective tax burdens in different countries for a series of relevant situations. For comparing tax systems in the member states, common assumptions on interest and inflation rates are essential. Although there are no “universally true values” for effective tax levels in the member states, the analysis shows that the base case gives a good indication of the member states’ effective tax levels and member states’ relative position in a cross-country comparison.

Keywords: corporate taxation; effective tax rates; inflation; interest rates; tax burden (search for similar items in EconPapers)
JEL-codes: E43 H21 H26 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2016-08
New Economics Papers: this item is included in nep-cse, nep-mac and nep-pbe
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Citations: View citations in EconPapers (3)

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