Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/zbw/arqudp/57.html
   My bibliography  Save this paper

Effective profit taxation and the elasticity of the corporate income tax base: Evidence from German corporate tax return data

Author

Listed:
  • Dwenger, Nadja
  • Steiner, Viktor
Abstract
We estimate the elasticity of corporate taxable income with respect to the effective corporate tax rate on the basis of a pseudo-panel constructed from corporate tax return micro data for the period 1998-2001, a period which saw the introduction of a major corporate tax reform in Germany. Endogeneity of the effective tax rate is controlled for by an instrumental variable approach. Our instrument for the observed effective corporate tax rate is the counterfactual effective tax rate a corporation would face in a particular period had there be no endogenous change of corporate profits. This counterfactual is obtained from a detailed microsimulation model of the corporate sector based on tax return micro data. We find a statistically significant and relatively large point estimate of the average tax base elasticity, which implies that a reduction of the statutory corporate tax rate would reduce corporate tax receipts less tha n proportionally due to income shifting activities. We also find some statistically weak evidence for the hypothesis that the tax base elasticity is higher for corporations that may benefit from various forms of tax shields.

Suggested Citation

  • Dwenger, Nadja & Steiner, Viktor, 2008. "Effective profit taxation and the elasticity of the corporate income tax base: Evidence from German corporate tax return data," arqus Discussion Papers in Quantitative Tax Research 57, arqus - Arbeitskreis Quantitative Steuerlehre.
    • Handle: RePEc:zbw:arqudp:57
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/30838/1/607983663.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Joeri Gorter & Ruud de Mooij, 2001. "Capital income taxation in Europe; trends and trade-offs," CPB Special Publication 30, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Alan J. Auerbach, 2007. "Why Have Corporate Tax Revenues Declined? Another Look," CESifo Economic Studies, CESifo Group, vol. 53(2), pages 153-171, June.
    3. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
    4. King, Mervyn A. & Fullerton, Don, 2010. "The Taxation of Income from Capital," National Bureau of Economic Research Books, University of Chicago Press, number 9780226436319.
    5. Kevin A. Hassett & Alex Brill, 2007. "Revenue-Maximizing Corporate Income Taxes," AEI Economics Working Papers 49742, American Enterprise Institute.
    6. Michael P. Devereux, 2003. "Measuring Taxes on Income from Capital," CESifo Working Paper Series 962, CESifo.
    7. Aleksandra Riedl & Silvia Rocha-Akis, 2007. "Testing the tax competition theory: How elastic are national tax bases in western Europe?," Department of Economics Working Papers wuwp112, Vienna University of Economics and Business, Department of Economics.
    8. Stefan Bach & Nadja Dwenger, 2007. "Unternehmensbesteuerung: trotz hoher Steuersätze mäßiges Aufkommen," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 74(5), pages 57-65.
    9. Cnossen, Sijbren (ed.), 2000. "Taxing Capital Income in the European Union: Issues and Options for Reform," OUP Catalogue, Oxford University Press, number 9780198297833.
    10. Bartelsman, Eric J. & Beetsma, Roel M. W. J., 2003. "Why pay more? Corporate tax avoidance through transfer pricing in OECD countries," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2225-2252, September.
    11. Auerbach,Alan J. & Hines, Jr.,James R. & Slemrod,Joel (ed.), 2007. "Taxing Corporate Income in the 21st Century," Cambridge Books, Cambridge University Press, number 9780521870221, October.
    12. Hines, James R. Jr., 1999. "Lessons From Behavioral Responses to International Taxation," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 305-322, June.
    13. Cooper, Michael & Knittel, Matthew, 2006. "Partial Loss Refundability: How Are Corporate Tax Losses Used?," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(3), pages 651-663, September.
    14. Nicodeme, Gaetan, 2001. "Computing effective corporate tax rates: comparisons and results," MPRA Paper 3808, University Library of Munich, Germany.
    15. European Commission, 2000. "Structures of the taxation systems in the European Union : 2000 edition," Taxation trends 2000, Directorate General Taxation and Customs Union, European Commission.
    16. Roger H. Gordon & Joel Slemrod, 1998. "Are "Real" Responses to Taxes Simply Income Shifting Between Corporate and Personal Tax Bases?," NBER Working Papers 6576, National Bureau of Economic Research, Inc.
    17. Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
    18. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
    19. Kopczuk, Wojciech, 2005. "Tax bases, tax rates and the elasticity of reported income," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2093-2119, December.
    20. Frank Blasch & Alfons J. Weichenrieder & Alfons Weichenrieder, 2006. "When Taxation Changes the Course of the Year – Fiscal Year Adjustments and the German Tax Reform 2000/2001," CESifo Working Paper Series 1861, CESifo.
    21. Frank Fossen & Stefan Bach, 2008. "Reforming the German Local Business Tax - Lessons from an International Comparison and a Microsimulation Analysis," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(2), pages 245-272, June.
    22. Schreiber, Ulrich & Overesch, Michael & Büttner, Thiess & Wamser, Georg, 2006. "The Impact of Thin-Capitalization Rules on Multinationals? Financing and Investment Decisions," ZEW Discussion Papers 06-068, ZEW - Leibniz Centre for European Economic Research.
    23. Stefan Bach & Hermann Buslei & Nadja Dwenger & Frank Fossen, 2008. "Dokumentation des Mikrosimulationsmodells BizTax zur Unternehmensbesteuerung in Deutschland," Data Documentation 29, DIW Berlin, German Institute for Economic Research.
    24. Alfons Weichenrieder, 2009. "Profit shifting in the EU: evidence from Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(3), pages 281-297, June.
    25. Huizinga, Harry & Laeven, Luc, 2008. "International profit shifting within multinationals: A multi-country perspective," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1164-1182, June.
    26. repec:aei:rpaper:25839 is not listed on IDEAS
    27. Leslie G. Godfrey, 1999. "Instrument Relevance in Multivariate Linear Models," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 550-552, August.
    28. Nicodeme, Gaetan, 2002. "Sector and size effects on effective corporate taxation," MPRA Paper 15781, University Library of Munich, Germany.
    29. John Shea, 1997. "Instrument Relevance in Multivariate Linear Models: A Simple Measure," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 348-352, May.
    30. Joeri Gorter & Ruud de Mooij, 2001. "Capital income taxation in Europe; trends and trade-offs," CPB Special Publication 30.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    31. Mintz, Jack & Smart, Michael, 2004. "Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada," Journal of Public Economics, Elsevier, vol. 88(6), pages 1149-1168, June.
    32. Roger Gordon & Laura Kalambokidis & Joel Slemrod, 2003. "A New Summary Measure of the Effective Tax Rate on Investment," NBER Working Papers 9535, National Bureau of Economic Research, Inc.
    33. Michael P Devereux, 2007. "Developments in the Taxation of Corporate Profit in the OECD since 1965: Rates, Bases and Revenues," Working Papers 0704, Oxford University Centre for Business Taxation.
    34. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
    35. John Creedy & Norman Gemmell, 2007. "Modelling Behavioural Responses to Profit Taxation: The Case of the UK Corporation Tax," Department of Economics - Working Papers Series 998, The University of Melbourne.
    36. Clemens Fuest & Alfons J. Weichenrieder & Alfons Weichenrieder, 2002. "Tax Competition and Profit Shifting: On the Relationship between Personal and Corporate Tax Rates," CESifo Working Paper Series 781, CESifo.
    37. Kimberly Clausing, 2007. "Corporate tax revenues in OECD countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(2), pages 115-133, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liu, Li & Altshuler, Rosanne, 2013. "Measuring the Burden of the Corporate Income Tax Under Imperfect Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 215-237, March.
    2. Lenka Janickova, 2013. "Effective Tax Rates in the Moravian-Silesian Region," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 83-92, March.
    3. Aleksandra Riedl & Silvia Rocha‐Akis, 2012. "How elastic are national corporate income tax bases in OECD countries? The role of domestic and foreign tax rates," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(2), pages 632-671, May.
    4. Becker, Johannes & Fuest, Clemens & Riedel, Nadine, 2012. "Corporate tax effects on the quality and quantity of FDI," European Economic Review, Elsevier, vol. 56(8), pages 1495-1511.
    5. Sipos, Norbert & Lukovszki, Lívia & Rideg, András, 2020. "A társasági adókulcs 2017. évi változása Magyarországon. Vállalati adatokon végzett vizsgálat az effektív adóráta alapján [Analysis of the reflection of corporate tax-rate change in 2017 on the eff," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 762-786.
    6. Boryana Madzharova, 2012. "Intertemporal Income Shifting in Expectation of Lower Corporate Tax Rates: The Tax Reforms in Central and Eastern Europe," CERGE-EI Working Papers wp462, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    7. Nadja Dwenger & Viktor Steiner, 2014. "Financial leverage and corporate taxation: evidence from German corporate tax return data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 1-28, February.
    8. Lina Cui, 2013. "A Markov Chain Analysis on the Impact of German Tax Loss Offset Restrictions," Economic Papers, The Economic Society of Australia, vol. 32(1), pages 122-134, March.
    9. Ruud A. de Mooij & Ikuo Saito, 2014. "Japan’s Corporate Income Tax: Facts, Issues and Reform Options," IMF Working Papers 2014/138, International Monetary Fund.
    10. Copenhagen Economics, 2011. "Elasticities of Financial Instruments, Profits and Remuneration," Taxation Papers 30, Directorate General Taxation and Customs Union, European Commission.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dwenger, Nadja & Steiner, Viktor, 2012. "Profit Taxation and the Elasticity of the Corporate Income Tax Base: Evidence From German Corporate Tax Return Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(1), pages 118-150, March.
    2. Nadja Dwenger & Pia Rattenhuber & Viktor Steiner, 2019. "Sharing the Burden? Empirical Evidence on Corporate Tax Incidence," German Economic Review, Verein für Socialpolitik, vol. 20(4), pages 107-140, November.
    3. Nadja Dwenger & Viktor Steiner, 2014. "Financial leverage and corporate taxation: evidence from German corporate tax return data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 1-28, February.
    4. George R. Zodrow, 2019. "Capital Mobility and Capital Tax Competition," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 18, pages 543-570, World Scientific Publishing Co. Pte. Ltd..
    5. John Creedy & Norman Gemmell, 2010. "Behavioural responses to corporate profit taxation," Hacienda Pública Española / Review of Public Economics, IEF, vol. 193(2), pages 109-130, June.
    6. Nathan M. Jensen & Adam H. Rosenzweig, 2015. "Can a Single Country Increase the Taxes of Multinational Corporations? Evidence from the Impact of the 1993 Corporate Tax Rate Increase on Fortune 500 Companies," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 12(4), pages 757-780, December.
    7. Aleksandra Riedl & Silvia Rocha-Akis, 2007. "Testing the tax competition theory: How elastic are national tax bases in western Europe?," Department of Economics Working Papers wuwp112, Vienna University of Economics and Business, Department of Economics.
    8. Gaëtan Nicodème, 2006. "Corporate tax competition and coordination in the European Union: What do we know? Where do we stand?," European Economy - Economic Papers 2008 - 2015 250, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    9. Cnossen, S., 2002. "Tax policy in the European Union : a review of issues and options," Research Memorandum 023, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    10. Copenhagen Economics, 2011. "Elasticities of Financial Instruments, Profits and Remuneration," Taxation Papers 30, Directorate General Taxation and Customs Union, European Commission.
    11. An, Zhiyong & Tan, Congyan, 2014. "Taxation and income shifting: Empirical evidence from a quasi-experiment in China," Economic Systems, Elsevier, vol. 38(4), pages 588-596.
    12. John W. Diamond & George R. Zodrow & Thomas S. Neubig & Robert J. Carroll, 2014. "The Dynamic Economic Effects of a US Corporate Income Tax Rate Reduction," Working Papers 1405, Oxford University Centre for Business Taxation.
    13. Krautheim, Sebastian & Schmidt-Eisenlohr, Tim, 2011. "Heterogeneous firms, 'profit shifting' FDI and international tax competition," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 122-133, February.
    14. Vincent Bouvatier & Gunther Capelle-Blancard & Anne-Laure Delatte, 2017. "Banks Defy Gravity in Tax Havens," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03101505, HAL.
    15. Huizinga, Harry & Laeven, Luc, 2008. "International profit shifting within multinationals: A multi-country perspective," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1164-1182, June.
    16. Simon Loretz, 2008. "Corporate taxation in the OECD in a wider context," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(4), pages 639-660, winter.
    17. Johannesen, Niels, 2010. "Imperfect tax competition for profits, asymmetric equilibrium and beneficial tax havens," Journal of International Economics, Elsevier, vol. 81(2), pages 253-264, July.
    18. Bev Dahlby & Ergete Ferede, 2012. "The effects of tax rate changes on tax bases and the marginal cost of public funds for Canadian provincial governments," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(6), pages 844-883, December.
    19. Sijbren Cnossen, 2002. "Tax Policy in the European Union: A Review of Issues and Options," CESifo Working Paper Series 758, CESifo.
    20. Clemens Fuest & Felix Hugger & Susanne Wildgruber, 2022. "Why Is Corporate Tax Revenue Stable While Tax Rates Fall? Evidence from Firm-Level Data," National Tax Journal, University of Chicago Press, vol. 75(3), pages 481-515.

    More about this item

    Keywords

    corporate income taxation; tax base elasticity; micro simulation;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:arqudp:57. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: http://www.arqus.info/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.