Corporate Tax Policy, Entrepreneurship and Incorporation in the EU

CESifo Working Paper Series No. 1883

Tinbergen Institute Discussion Paper No. 07-030/3

56 Pages Posted: 12 Jan 2007

See all articles by Ruud A. De Mooij

Ruud A. De Mooij

International Monetary Fund (IMF); CESifo (Center for Economic Studies and Ifo Institute); Oxford University Centre for Business Taxation

Gaëtan Nicodème

Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management; CEPR and CESifo The views expressed in the article are those of the author and should not be attributed to the European Commission.

Date Written: December 2006

Abstract

In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on firm births and legal form of business to analyze income shifting via increased entrepreneurship and incorporation. The results suggest that lower corporate taxes exert an ambiguous effect on entrepreneurship. The effect on incorporation is significant and large. It implies that the revenue effects of lower corporate tax rates - possibly induced by tax competition - partly show up in lower personal tax revenues rather than lower corporate tax revenues. Simulations suggest that between 10% and 17% of corporate tax revenue can be attributed to income shifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some 0.2%-points since the early 1990s.

Keywords: corporate tax, personal tax, entrepreneurship, incorporation, income shifting

JEL Classification: H25, M13

Suggested Citation

De Mooij, Ruud A. and Nicodeme, Gaetan, Corporate Tax Policy, Entrepreneurship and Incorporation in the EU (December 2006). CESifo Working Paper Series No. 1883, Tinbergen Institute Discussion Paper No. 07-030/3, Available at SSRN: https://ssrn.com/abstract=956276 or http://dx.doi.org/10.2139/ssrn.956276

Ruud A. De Mooij

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Oxford University Centre for Business Taxation ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

HOME PAGE: http://people.few.eur.nl/demooij/

Gaetan Nicodeme (Contact Author)

Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management ( email )

50 Avenue Roosevelt
Brussels 1050
Belgium

CEPR and CESifo The views expressed in the article are those of the author and should not be attributed to the European Commission.

No Address Available

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