The Shaky Case for a Business Cash-Flow Tax Over a Business Income Tax

National Tax Journal, 70:4, 901-936, 2017

36 Pages Posted: 7 Jan 2021

Date Written: December 2017


Traditional economic theory holds that a business cash-flow tax is superior to a business income tax because it is more efficient and progressive. But much of the literature espousing this view does not explicitly specify the full range of assumptions underlying these claims, let alone explore and empirically justify them. This paper summarizes 11 assumptions underlying the traditional view and considers how well supported they are empirically and as a matter of political economy. It concludes that when each assumption is examined closely, the case for a cash-flow tax over a business income tax becomes considerably shakier and may well collapse.

Keywords: tax reform, business income taxation, corporate income taxation, cash-flow tax, behavioral corporate finance, behavioral economics, accounting, tax incidence

JEL Classification: D21, D22, G02, G38, H20, H21, H25, H32, K22, K34, M41, M48

Suggested Citation

Batchelder, Lily L., The Shaky Case for a Business Cash-Flow Tax Over a Business Income Tax (December 2017). National Tax Journal, 70:4, 901-936, 2017, Available at SSRN:

Lily L. Batchelder (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-992-8156 (Phone)

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