Why is Corporate Tax Revenue Stable While Tax Rates Fall? Evidence from Firm-Level Data

43 Pages Posted: 9 Oct 2020

See all articles by Clemens Fuest

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich; Ludwig-Maximilians-University, Munich; Center for Economic Studies (CES)

Felix Hugger

Ludwig Maximilian University of Munich (LMU)

Susanne Wildgruber

affiliation not provided to SSRN

Date Written: 2020

Abstract

While corporate tax rates in OECD countries declined over the last decades, revenues from corporate taxation relative to GDP remained remarkably stable. This paper uses a comprehensive firm-level dataset to provide an explanation for this rate-revenue puzzle in corporate taxation. Focusing on the period 1995-2016, we show that the reduction in corporate tax rates was counterbalanced by a pronounced increase in corporate profits before taxes. We decompose the rise in profits into changes in EBITDA, depreciation, and financial profits. On average, these three factors contributed almost equally to the tax base expansion, albeit differently across sectors, countries, and firm sizes.

Keywords: corporate income taxation, corporate tax revenues, corporate profitability

JEL Classification: H250

Suggested Citation

Fuest, Clemens and Hugger, Felix and Wildgruber, Susanne, Why is Corporate Tax Revenue Stable While Tax Rates Fall? Evidence from Firm-Level Data (2020). CESifo Working Paper No. 8605, Available at SSRN: https://ssrn.com/abstract=3707945

Clemens Fuest (Contact Author)

ifo Institute – Leibniz Institute for Economic Research at the University of Munich

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Ludwig-Maximilians-University, Munich ( email )

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Center for Economic Studies (CES) ( email )

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Felix Hugger

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Susanne Wildgruber

affiliation not provided to SSRN

No Address Available

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