Corporate Tax Policy and Incorporation in the EU

Ruud de Mooij and Gaëtan Nicodème

No 716, Working Papers from Oxford University Centre for Business Taxation

Abstract: In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on legal form of business to analyze income shifting via incorporation. The results suggest that the effect is significant and large. It implies that the revenue effects of lower corporate tax rates – possibly induced by tax competition -- will partly show up in lower personal tax revenues rather than lower corporate tax revenues. Simulations suggest that between 12% and 21% of corporate tax revenue can be attributed to income shifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some 0.25%-points since the early 1990s.

Keywords: Corporate tax; Personal tax; Incorporation; Income shifting (search for similar items in EconPapers)
JEL-codes: H25 L26 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-eec, nep-pbe and nep-pub
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Corporate tax policy and incorporation in the EU (2008)
Working Paper: Corporate tax policy and incorporation in the EU (2008)
Working Paper: Corporate tax policy and incorporation in the EU (2007)
Working Paper: Corporate tax policy and incorporation in the EU (2007)
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