Title: The Economic Consequences of Corporate Tax Rates Reductions in the EU: Evidence using a Computable General Equilibrium Model
Citation: WORLD ECONOMY vol. 42 no. 3 p. 818–845
Publication Year: 2019
JRC N°: JRC112518
ISSN: 0378-5920 (online)
URI: https://onlinelibrary.wiley.com/doi/epdf/10.1111/twec.12703
DOI: 10.1111/twec.12703
Type: Articles in periodicals and books
Abstract: In a globalised world governments are eager to attract foreign investors by lowering corporate tax rates. Recent trends points toward a revival of a race to the bottom in corporate income tax (CIT) rates in developed economies. EU countries have been active in this respect. A generalised fall in CIT rate could prove detrimental to tax revenues and trigger increase of other taxes in order to meet fiscal policy objectives. However, it could also spur investment and growth and prove to be a good fiscal policy strategy if, as a result, the corporate tax base increases. The final economic and fiscal impact of a reduction in CIT rates is therefore unclear. Using a CGE model we find that uncoordinated tax reforms significantly impact national economies and third-country effects can be significant when large countries implement CIT rate cuts. Small countries are better-off unilaterally reducing their CIT rate at the expense of other EU countries. We find that negative spillovers are mitigated when the country reducing its CIT rate restores its budget balance by cutting either public expenditures or social transfers. A larger degree of non-EU capital mobility also tends to reduce the negative spillover effects of unilateral CIT rate reductions.
JRC Directorate:Growth and Innovation

Files in This Item:
There are no files associated with this item.

Items in repository are protected by copyright, with all rights reserved, unless otherwise indicated.