A study of corporate tax returns from 16 countries estimates that small rate increases would lift receipts in each, even after firms adjust their reported income, as Britain prepares for its Oct. 28 budget.
The working paper, The Elasticity of Corporate Taxable Income Across Countries, by Claudio A. Agostini and co-authors, measures how taxable income responds when the share firms keep after tax changes. Its estimates for the 16 countries range from 0.075 in Ecuador to 1.907 in Canada, with an average of 0.79.
The authors also produced predictions for 208 countries. Their five-predictor specification yielded 0.99 for the United Kingdom, but that result is modeled rather than drawn from UK tax returns in the study.
Joachim Klement, writing Oct. 20, treated the UK figure as a fiscal multiplier and argued that raising its corporate tax rate would bring in little additional revenue. He also suggested a rate cut in Canada might increase tax receipts. The paper’s figures describe responses in taxable income, not changes in economic output per dollar of tax paid.
The paper’s Canada revenue calculation points in the opposite direction for a small change: It estimates that a 1% relative increase in the corporate tax rate would raise receipts by 0.61%. For a rise of one percentage point in the rate, the researchers estimated a 3.58% revenue increase.
The researchers linked differences among countries to tax policy, firm characteristics and national conditions. Across the 16 countries examined through tax returns, the study put the average economic efficiency burden at 32 cents for each additional $1 of corporate tax revenue. It does not identify who ultimately bears that cost or calculate the effect of a tax increase on GDP growth.
HM Treasury has scheduled the budget for Oct. 28. The Office for Budget Responsibility plans to release updated economic and fiscal forecasts alongside it.
