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

23 Pages Posted: 22 Sep 2020

Multiple version iconThere are 2 versions of this paper

Date Written: 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: H250, M410

Suggested Citation

Dharmapala, Dhammika, The Tax Elasticity of Financial Statement Income: Implications for Current Reform Proposals (2020). CESifo Working Paper No. 8534, Available at SSRN: https://ssrn.com/abstract=3692922

Dhammika Dharmapala (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

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