How Large is the Corporate Tax Base Erosion and Profit Shifting? A General Equilibrium Approach

56 Pages Posted: 29 Jan 2018

See all articles by Maria Alvarez-Martinez

Maria Alvarez-Martinez

European Union - European Commission

Salvador Barrios

European Commission, JRC - IPTS

Diego d'Andria

Joint Research Center of the European Commission

Maria Gesualdo

Joint Research Centre - European Commission

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.

Jonathan Pycroft

European Union - European Commission

Multiple version iconThere are 2 versions of this paper

Date Written: January 2018

Abstract

This paper estimates the size and macroeconomic effects of base erosion and profit shifting (BEPS) using a computable general equilibrium model designed for corporate taxation and multinationals. Our central estimate of the impact of BEPS on corporate tax losses for the EU amounts to ?36 billion annually or 7.7% of total corporate tax revenues. The USA and Japan also appear to loose tax revenues respectively of ?101 and ?24 billion per year or 10.7% of corporate tax revenues in both cases. These estimates are consistent with gaps in bilateral multinationals' activities reported by creditor and debtor countries using official statistics for the EU. Our results suggest that by increasing the cost of capital, eliminating profit shifting would slightly reduce investment and GDP. It would however raise corporate tax revenues thanks to enhanced domestic production. This in turn could reduce other taxes and increase welfare.

Keywords: BEPS, CGE model, Corporate taxation, Profit shifting, Tax avoidance

JEL Classification: C68, E62, H25, H26, H87

Suggested Citation

Alvarez-Martinez, Maria and Barrios, Salvador and d'Andria, Diego and Gesualdo, Maria and Nicodeme, Gaetan and Pycroft, Jonathan, How Large is the Corporate Tax Base Erosion and Profit Shifting? A General Equilibrium Approach (January 2018). CEPR Discussion Paper No. DP12637, Available at SSRN: https://ssrn.com/abstract=3112261

Maria Alvarez-Martinez (Contact Author)

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Salvador Barrios

European Commission, JRC - IPTS ( email )

Edificio Expo
C/ Inca Garcilaso s/n
Seville, 41092
Spain
34 954 48 82 08 (Phone)
34 954 48 82 08 (Fax)

Diego D'Andria

Joint Research Center of the European Commission ( email )

Via E. Fermi 2749
1049
Belgium

Maria Gesualdo

Joint Research Centre - European Commission ( email )

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

Jonathan Pycroft

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

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