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The corporate income tax-revenue paradox_ Evidence in the EU

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									The corporate income tax rate-revenue
     paradox: Evidence in the EU

           JOANNA PIOTROWSKA
                   &
           WERNER VANBORREN




              PRESENTED BY:
        GEORGES VIVIEN HOUNGBONON
              Outlines


 Preliminaries




 Outcomes of the study
   Corporate income tax-revenue paradox?

 Corporate tax competition within EU.


 Corporate tax rate decreases from 1994 to 2005 :
 From 33% to 27%.

 But corporate income tax revenues relative to GDP
 has been relatively stable around 3%.

 Purpose of the article: explain why? (Graph 1)
      Some reasons given in the litterature

 First thoughts: data limitations, lack of specific
 analyses.

 The specificities of the corporate tax system;
  Auerbach (2006); Creedy and Gemmell (2007).

 Corporatization and income shifting; Clausing
  (2006); Sørensen (2006).

 Corporate profitability and capital income;
  Auerbach and Poterba (1987); Douglas (1990); Swiston and
  al. (2007).
                   Methodology

 Data from Eurostat on 16 selected EU countries from
  1994 to 2005
 Decomposition of the ratio : corporate income tax
  revenues over GDP (R/GDP).
 Let R = Corporate income tax revenues;
  C = corporate income and P = Business income
 According to Sørensen’s formula:


 R/GDP = (R/C)*(C/P)*(P/GDP)
The outcomes of the study at the regional scale

 R/C = corporate tax level has increased and also
 decreased.

 C/P = corporatization has increased by 8,2%.


 P/GDP = part of business income in GDP has been
 relatively stable. (Graph 2)

      Corporatization    is the most driven factor of
       the stability of corporate income tax revenues
       relative to the GDP in the EU.
  The outcomes of the study at country scale

 The three indicators vary differently according to
  countries.
 However C/P (share of total business income
  accruing to the corporate sector) seems to have
  increased in many countries (table on next slide)
 Except from Slovakia and Finland respectively where
  R/GDP has decrease and increased steadily, this
  ratio has remained stable throughout the period of
  study.
       • Corporatization is again found to be the
         driving factor of R/GDP within EU coutries.
Country               R/C             C/P          P/GDP
   Belgium                   +                 +           -
   Czech R.                  -                 +           +
   Danemark                  +                 +           0
   Estonia                   -                 +           +
   Spain                     +                 -           -
   France                    +                 +           0
    Italy                    -                 +           -
   Lithuania                 -                 +           -
   Netherland                -                 +           +
   Austria                   +                 +           +
   Poland                    -                 +           +
   Portugal                  +                 -           -
        Slovakia             -                 -           -
            Finland          0                 +           +
   Sweden                    +                 +           -
   UK                        -                 +           0
  + : increase      - : decrease   0: stable
  Source: Autors’ computations
                   Conclusion



 Corporatization which is the share of total business

 income accruing to the corporate sector is the most
 driving factor of the corporate income tax revenue
 relative to the GDP evolution both at regional and
 country level.
Thanks for your attention

								
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