The Tax Elasticity of Financial Statement Income: Implications for Current Reform Proposals

21 Pages Posted: 29 Jul 2020 Last revised: 2 Sep 2020

See all articles by Dhammika Dharmapala

Dhammika Dharmapala

UC Berkeley School of Law; CESifo (Center for Economic Studies and Ifo Institute); European Corporate Governance Institute (ECGI)

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Date Written: June 30, 2020

Abstract

Current reform proposals in international and corporate tax (most notably the OECD’s GloBE proposal) envisage taxing financial statement income. This paper develops a conceptual framework – based on the literature on the elasticity of taxable income – for the welfare analysis of such proposals, and discusses the available evidence on the tax elasticity of financial statement income. The central conclusion is that the most relevant evidence suggests a large responsiveness of financial statement income to taxes (and hence, albeit with significant limitations and caveats, arguably a large deadweight loss). The paper also highlights the need for more evidence on this question.

Keywords: International taxation; Multinational firms; Financial statement income; Book-tax conformity

JEL Classification: H25, M41

Suggested Citation

Dharmapala, Dhammika, The Tax Elasticity of Financial Statement Income: Implications for Current Reform Proposals (June 30, 2020). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No.912, Available at SSRN: https://ssrn.com/abstract=3642049 or http://dx.doi.org/10.2139/ssrn.3642049

Dhammika Dharmapala (Contact Author)

UC Berkeley School of Law ( email )

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European Corporate Governance Institute (ECGI) ( email )

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