The Tax Elasticity of Financial Statement Income: Implications for Current Reform Proposals
21 Pages Posted: 29 Jul 2020 Last revised: 2 Sep 2020
Date Written: June 30, 2020
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: Suggested Citation