The Tax-Rate Elasticity of Local Business Profits

Frank Fossen and Viktor Steiner

No 1424, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Local business profits respond to local business tax (LBT) rates that vary across municipalities. We estimate that a one percent increase in the LBT rate decreases the LBT base by 0.45 percent, based on the universe of German LBT return files, which include corporations and unincorporated businesses. However, the fiscal equalization scheme largely compensates municipalities for the loss in the LBT base when they increase the LBT rate. Our estimates suggest that using taxrevenue data instead of tax return data, as commonly done in the literature, results in a significant bias of the elasticity away from zero.

Keywords: Local business tax; corporate tax; tax responsiveness; tax-rate elasticity (search for similar items in EconPapers)
JEL-codes: H25 H71 (search for similar items in EconPapers)
Pages: 28 p.
Date: 2014
New Economics Papers: this item is included in nep-acc, nep-pbe, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: The Tax-rate Elasticity of Local Business Profits (2018)
Working Paper: The tax-rate elasticity of local business profits (2014)
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