Effective Corporate Taxation, Tax Incidence and Tax Reforms: Evidence from OECD Countries

51 Pages Posted: 4 Nov 2014

See all articles by Salvador Barrios

Salvador Barrios

European Commission, JRC - IPTS

Gaëtan Nicodème

Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management; CEPR and CESifo The views expressed in the article are those of the author and should not be attributed to the European Commission.

Antonio Jesus Sanchez Fuentes

Universidad Complutense de Madrid (UCM); Universidad Complutense de Madrid (UCM) - Institute of International Studies (ICEI)

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Date Written: October 22, 2014

Abstract

The present study provides estimates of the Effective Marginal Tax Rates (EMTRs) for a sample of 17 OECD countries and 11 manufacturing sectors in a single framework encompassing capital, labour and energy taxes. Our cross-country/cross-sector approach allows us comparing the incentives provided by the tax systems and gauging the effects of tax changes taking explicitly into account the possible substitution between factors as well as their tax incidence. Our results suggest that the OECD tax systems provide different incentives for manufacturing activity across countries and that tax systems are relatively neutral with respect to the sectoral composition of manufacturing activities. The impact of potential tax increases on firms´ activity is found to be most attenuated when shifted towards consumers and/or employees rather than energy consumption and/or capital investors. These results are robust to alternative hypotheses regarding the tax incidence parameters, elasticity of substitution between factors and mark-up on final prices. In addition, policy strategies favouring tax increases on energy consumption and lowering taxes on labour can substantially reduce the EMTRs and thus yield substantial efficiency gains for firms. These reforms should in some instances be ambitious enough to produce desired effects on firms’ EMTRs, however.

Keywords: taxation, tax incidence, effective taxation

JEL Classification: H200, H220, H240, H250

Suggested Citation

Barrios, Salvador and Nicodeme, Gaetan and Sanchez Fuentes, Antonio Jesus, Effective Corporate Taxation, Tax Incidence and Tax Reforms: Evidence from OECD Countries (October 22, 2014). CESifo Working Paper Series No. 5017, Available at SSRN: https://ssrn.com/abstract=2518381

Salvador Barrios (Contact Author)

European Commission, JRC - IPTS ( email )

Edificio Expo
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Seville, 41092
Spain
34 954 48 82 08 (Phone)
34 954 48 82 08 (Fax)

Gaetan Nicodeme

Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management ( email )

50 Avenue Roosevelt
Brussels 1050
Belgium

CEPR and CESifo The views expressed in the article are those of the author and should not be attributed to the European Commission.

No Address Available

Antonio Jesus Sanchez Fuentes

Universidad Complutense de Madrid (UCM) ( email )

Madrid, 28040
Spain

Universidad Complutense de Madrid (UCM) - Institute of International Studies (ICEI) ( email )

Collado Villalba, Madrid, 28400
United States

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