Consumption Taxes and Corporate Income Taxes: Evidence from Place-Based VAT

Jules Ducept, Evangelos Koumanakos and Panayiotis Nicolaides
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Jules Ducept: EU Tax Observatory, Center for Economics at Paris-Saclay
Evangelos Koumanakos: Hellenic Open University
Panayiotis Nicolaides: EU Tax Observatory, Paris School of Economics

No 20, Working Papers from EU Tax Observatory

Abstract: Using a quasi-experimental setting, we document that corporations decrease declared profits and corporate income taxes in response to an increase in the VAT rate. In an attempt to raise tax revenue during the Greek economic crisis, a 16% VAT rate, which existed for historicopolitical reasons in Greek islands, was harmonised to the national 24% rate. We combine tax filings with Orbis and ICAP data that enable us to geolocate corporations and to construct comparable groups based on locations in or out of the preferential rate. Counteracting the reform’s intended effect, declared profits decreased by 28% and corporate income taxes by 34% on a permanent basis. Macroeconomic factors and a fall in reported revenue cannot fully explain this decrease. Pervasive tax evasion in the Greek islands, where corporations might have an opportunity to adjust profits, offers a plausible explanation of the magnitude of responses.

Keywords: Value-Added Tax; Corporate Income Tax; Greek Islands; Tax Evasion (search for similar items in EconPapers)
JEL-codes: H25 H26 H32 H61 L83 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2023-12
New Economics Papers: this item is included in nep-acc and nep-iue
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