The Role of the Corporate Income Tax as an Automatic Stabilizer

Thiess Büttner and Clemens Fuest

No 2798, CESifo Working Paper Series from CESifo

Abstract: This paper analyses the effectiveness of the corporate income tax as an automatic stabilizer. It employs a unique firm-level dataset of German manufacturers combining financial statements with firm-specific information about credit market restrictions. The results show that approximately 20 per cent of all firms report both positive taxable income and capital market restrictions. Taking account of the income tax rates and the size differences of the firms, we find that demand stabilization through the corporate income tax amounts to about 8 per cent of an initial shock to gross revenues. This stabilization effect varies over the business cycle and tends to increase during cyclical downturns.

Keywords: corporate income tax; stabilization; capital market restrictions; loss offset; firm-level data (search for similar items in EconPapers)
JEL-codes: E63 H25 H32 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Journal Article: The role of the corporate income tax as an automatic stabilizer (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2798

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