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Corporate tax policy and incorporation in the EU

Author

Listed:
  • Ruud de Mooij

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Gaetan Nicodeme

    (European Commission)

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.

Suggested Citation

  • Ruud de Mooij & Gaetan Nicodeme, 2007. "Corporate tax policy and incorporation in the EU," Taxation Papers 11, Directorate General Taxation and Customs Union, European Commission, revised Nov 2007.
    • Handle: RePEc:tax:taxpap:0011
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    European Union; Corporate tax; Personal tax; Incorporation; Income shifting;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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