The Relevance of Depreciation Allowances as a Fiscal Policy Instrument: A Hybrid Approach to CCCTB?

35 Pages Posted: 25 Sep 2018

See all articles by Kunka Petkova

Kunka Petkova

Vienna University of Economics and Business

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 7, 2018

Abstract

A major goal of the EU Commission in the area of direct taxation is the introduction of a common consolidated corporate tax base (CCCTB) in Europe. While hardly discussed in the literature, such a system would limit national discretion over tax depreciation. In a sample of up to 47 countries, we find that the probability of a tax reform that improves the depreciation allowances increases, if the macroeconomic situation is weak. This suggests that changes in depreciation allowances are used as a fiscal instrument for stabilization. A common consolidated tax base deprives national governments from implementing investment incentives via accelerated depreciation. This paper discusses the possible implementation of a hybrid system that combines features of formula apportionment and separate accounting. Such a hybrid system may substantially mitigate transfer pricing problems and other tax planning issues, whilst preserving national discretion over depreciation allowances.

Keywords: CCCTB, corporate taxation, investment incentives, macro fiscal policy

JEL Classification: H2

Suggested Citation

Petkova, Kunka and Weichenrieder, Alfons J., The Relevance of Depreciation Allowances as a Fiscal Policy Instrument: A Hybrid Approach to CCCTB? (September 7, 2018). WU International Taxation Research Paper Series No. 2018-07. Available at SSRN: https://ssrn.com/abstract=3249512 or http://dx.doi.org/10.2139/ssrn.3249512

Kunka Petkova

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Alfons J. Weichenrieder (Contact Author)

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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