The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records

Devereux, Michael; Liu, Li; Loretz, Simon

doi:10.1257/pol.6.2.19

“…Our model is similar to the elasticity of taxable corporate income model by Devereux et al (2014), and the Piketty et al…”

Section: Taxable Income and Income-shiftingmentioning

confidence: 74%

“…For both z W and z D , we assume no changes in the tax rate of the other tax base. Following Piketty et al (2014) and Devereux et al (2014), the 2 Income-shifting from wages to dividends produces more total net income for the owner if τ W > τ D . Naturally, the opposite direction for income-shifting holds if τ W < τ D .…”

Section: Taxable Income and Income-shiftingmentioning

confidence: 99%

“…Earned income is taxed on a progressive tax rate schedule (0-56% in 2007), whereas the capital income tax rate is flat (28% in 2007). 7 A typical feature of the Nordic dual income tax system is that the top marginal tax rate on earned income is much higher than the flat tax rate on capital income. The lower flat tax rate on capital income was justified on various grounds, for example broadening the tax base and decreasing the scope for tax arbitrage, and increased global capital mobility.…”

Section: The Finnish Income Tax System and Recent Tax Reformsmentioning

confidence: 99%

“…For example, Gordon and Slemrod (2000) show evidence of active income-shifting between corporate and personal tax bases in the US. Devereux et al (2014) show that income-shifting between corporate and personal tax bases is also active in the UK. In addition, Sivadasan and Slemrod (2008) find significant income-shifting responses for partners in partnership firms in India, and Romanov (2006) finds income-shifting between personal and corporate tax bases among high-income self-employed professionals in Israel.…”

Section: Introductionmentioning

confidence: 98%

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The Elasticity of Taxable Income and Income-Shifting: What is 'Real' and What is Not?

Harju

¹

,

Matikka

²

2014

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Previous literature shows that income taxation significantly affects the behavior of highincome earners and business owners. However, it is still unclear how much of the response is due to changes in effort and other real economic activity, and how much is caused by tax avoidance and tax evasion. This distinction is important because it affects the welfare implications and policy recommendations. In this paper we distinguish between real responses and tax-motivated income-shifting between tax bases. We show how the explicit inclusion of income-shifting affects the welfare analysis of income taxation. In our empirical example we find that income-shifting accounts for over two thirds of the overall elasticity of taxable dividend income among Finnish business owners. The large income-shifting response significantly decreases the marginal excess burden compared to the standard model in which the overall elasticity defines the welfare loss. However, in addition to income-shifting, we find that dividend taxation significantly affects the real behavior of owners. Terms of use: Documents inJEL-Code: H240, H250, H320.

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“…In terms of the bunching methods, our paper is most closely related to the analysis of progressive corporate income taxation by Devereux, Liu, and Loretz (2014), who show how bunching across the corporate income tax schedule kinks identies the elasticity of the corporate income tax base, and to Liu and Lockwood (2015), who demonstrate that bunching around a VAT notch can be used to identify the elasticity of the value added. Both of these elasticities represent sucient statistics under suitable conditions.…”

Section: Introductionmentioning

confidence: 99%

How Do Small Firms Respond to Tax Schedule Discontinuities? Evidence from South African Tax Registers

Boonzaaier

¹

,

Harju

²

,

Matikka

³

et al. 2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This study has been prepared within the UNU-WIDER project on 'Firm-and Industry-level Analysis in South Africa', which is part of a larger research project on 'Regional Growth and Development in Southern Africa'. Terms of use: Documents in Copyright © UNU-WIDER 2016Information and requests: publications@wider.unu.edu ISSN 1798-7237 ISBN 978-92-9256-079-9 Typescript prepared by the Authors.The United Nations University World Institute for Development Economics Research provides economic analysis and policy advice with the aim of promoting sustainable and equitable development. The Institute began operations in 1985 in Helsinki, Finland, as the first research and training centre of the United Nations University. Today it is a unique blend of think tank, research institute, and UN agency-providing a range of services from policy advice to governments as well as freely available original research.UNU-WIDER acknowledges specific programme contribution from the National Treasury of South Africa to its project 'Regional Growth and Development in Southern Africa' and core financial support to its work programme from the governments of Denmark, Finland, Sweden, and the United Kingdom. Katajanokanlaituri 6 B, 00160 Helsinki, FinlandThe views expressed in this paper are those of the author(s), and do not necessarily reflect the views of the Institute or the United Nations University, nor the programme/project donors. Abstract:In this paper we study the effects of various tax schedule discontinuities on the behavior of small firms using high-quality and population-wide tax register data from South Africa. We use the bunching method to analyse how these discontinuities affect the firm-size distribution. We first examine how the value-added tax threshold affects the sales distribution of firms. We also study the effects of two separate corporate income tax rate kinks. We find sizable bunching at each of these thresholds. The elasticity estimates for the corporate tax kink points are large, ranging from 0.7 to 1.6, whereas the elasticity of the value added is below 0.1. We find some suggestive evidence that part of the response is driven by tax evasion.

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The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records

Cited by 89 publications

References 41 publications

The Elasticity of Taxable Income and Income-Shifting: What is 'Real' and What is Not?

The Elasticity of Taxable Income and Income-Shifting: What is 'Real' and What is Not?

How Do Small Firms Respond to Tax Schedule Discontinuities? Evidence from South African Tax Registers

Constructing an Alternative Tax Model against the Background of a Changing (Tax) Sovereignty Paradigm within the EU

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