Storm in the Cloud

A Study on the Macroeconomic Impact of the UK’s Digital Service Tax

The nature of the digital economy puts pressure on traditional tax practices, as it is frequently characterised by high returns from intangibles. One method to address this issue is the introduction of a digital services tax. In this paper, we assess the macroeconomic impact of the digital services tax introduced in the UK in 2020 to measure the quantitative effects of this policy. We employ the CORTAX model, which is a macroeconomic model elaborated for the Member States of the European Union, the UK, the US, and Japan. The model strongly focuses on corporate taxation and multinational firms. To be able to represent the digital sector, a major extension of the model has been introduced to expand the model from one sector to two, allowing the digital sector to be modelled separately from the rest of the productive economy. The results suggest a negative impact on GDP from the introduction of the tax but a gain in welfare and consumption for the UK and small positive spillovers for close trading partners.

ALVAREZ MARTINEZ Maria Teresa;  GESUALDO Maria;  PYCROFT Jonathan; 

2024-08-29

ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD

JRC130576

0953-5314 (online),   

https://doi.org/10.1080/09535314.2024.2374767,    https://publications.jrc.ec.europa.eu/repository/handle/JRC130576,   

10.1080/09535314.2024.2374767 (online),