The Tax Elasticity of Financial Statement Income: Implications for Current Reform Proposals
23 Pages Posted: 22 Sep 2020
Date Written: 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: H250, M410
Suggested Citation: Suggested Citation