Effective Tax Rate in the Context of the Economic Determinants

Alena Andrejovska

Montenegrin Journal of Economics, 2019, vol. 15, issue 2, 31-40

Abstract: Corporate taxation is an important tool for an efficient tax system. That is an important source of revenue for the country's budget, also a factor influencing business decisions regarding capital mobility. In decision-making for foreign investors, it is important not only a macro view but also a micro view, that monitors the companies from a managerial field. The aim of this article is to quantify the effect of selected economic determinants of corporate taxation, which significantly affect the effective tax rate and indirectly affect the decision of companies about the location of businesses in the European Union. The linear regression was monitored by enterprises in the EU member states for the period 2008-2016. Two hypotheses were confirmed in the article. The results of the analysis point out the microeconomic indicators are all important determinants for effective corporate tax rate. The leverage effect, the capital intensity and the profitability of the company have a negative impact, and the nominal rate and R & D spending have a positive effect on the effective rate. In the macroeconomic model, the nominal rate and the gross domestic product are statistically significant. An increase of 1% in gross domestic product will result in an increase in the effective rate of 0.4869% and an increase of 1% in unemployment will result in an increase in the effective rate by 6.421%. On the other hand, the tax revenues of corporations have the negative impact. An increase of 1% cause a decline in the effective rate of 13.75%.

Date: 2019
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