2007-06-18 papers

on Public Finance

Issue of 2007‒06‒18
two papers chosen by

Corporate tax policy and incorporation in the EU. By Ruud A. de Mooij; Gaëtan Nicodème
A Note on Corporate Taxation, Limited Liability, and Asymmetric Information By Miglo, A.

Corporate tax policy and incorporation in the EU.

By:	Ruud A. de Mooij (CPB Netherlands Bureau for Economic Policy Analysis, Erasmus University Rotterdam, CESifo and Tinbergen Institute.); Gaëtan Nicodème (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and European Commission.)
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 legal form of business to analyze income shifting via incorporation. The results suggest that the effect is significant and large. It implies that the revenue effects of lower corporate tax rates – possibly induced by tax competition -- will 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; Incorporation; Income shifting.
JEL:	H25 L26
Date:	2007–06
URL:	http://d.repec.org/n?u=RePEc:sol:wpaper:07-016&r=pub

A Note on Corporate Taxation, Limited Liability, and Asymmetric Information

By:	Miglo, A.
Abstract:	Becker and Fuest (forthcoming) provides a new explanation for the important and puzzling link between limited liability and corporate taxation. The authors argue that a corporate tax on all entrepreneurs with limited liability is optimal when entrepreneurs can offset potential losses and when asymmetric information exists regarding projects' qualities. This note considers a model with slightly modified production technology. It confirms that entrepreneurs' abilities to offset losses and the existence of asymmetric information may affect government policy. However, it also shows that the optimal taxation policy differs from that in Becker and Fuest (forthcoming).
Date:	2007
URL:	http://d.repec.org/n?u=RePEc:gue:guelph:2007-4&r=pub

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