How Do Corporate Tax Bases Changes When Corporate Tax Rates Change? With Implications for the Tax Rate Elasticity of Corporate Revenues

44 Pages Posted: 4 Feb 2015 Last revised: 30 Aug 2015

Laura Kawano

University of Michigan at Ann Arbor

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: August 29, 2015

Abstract

We construct a new database of extensive margin changes to multiple aspects of corporate tax bases for OECD countries between 1980 and 2004. We use our data to systematically document the tendency of countries to implement policies that both lower the corporate tax rate and broaden the corporate tax base. This correlation informs our interpretation of previous estimates of the relationship between corporate tax rates and corporate tax revenues, which typically do not include comprehensive measures of the corporate tax base definition. We then re-examine the relationship between corporate tax rates and corporate tax revenues. We find that accounting for unobserved heterogeneity attenuates the relationship between corporate tax rates and corporate tax revenues, and increases the implied revenue-maximizing tax rate. Controlling for our new tax base measures does not substantively impact the magnitude of this relationship.

Keywords: Corporate taxation, Corporate tax revenues

JEL Classification: H25

Suggested Citation

Kawano, Laura and Slemrod, Joel B., How Do Corporate Tax Bases Changes When Corporate Tax Rates Change? With Implications for the Tax Rate Elasticity of Corporate Revenues (August 29, 2015). Available at SSRN: https://ssrn.com/abstract=2559858 or http://dx.doi.org/10.2139/ssrn.2559858

Laura Kawano (Contact Author)

University of Michigan at Ann Arbor ( email )

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Room R5396
Ann Arbor, MI 48109-1234
United States
734-936-3914 (Phone)
734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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