Corporate tax revenues in OECD countries

Int Tax Public Finan (2007) 14:115133 DOI 10.1007/s10797-006-7983-2

Abstract This paper studies variation among OECD countries in the size of corporate income tax revenues relative to GDP over the time period 19792002. A decomposition explains such variation as a function of the statutory tax rate, the breadth of the tax base, corporate protability, and the share of the corporate sector in GDP. Empirical results indicate a parabolic relationship between tax rates and revenues, implying a revenue-maximizing corporate income tax rate of 33% for the whole sample. This revenue-maximizing rate is found to decrease as economies are smaller and more integrated with the world economy.

Keywords Corporate income taxation . Corporate income tax revenues . World tax competition . Multinational corporations

JEL Classication H25 . H87

1 Introduction

While all OECD countries tax corporate income, they vary a great deal in their approach to taxing corporations. For example, some OECD countries tax their resident corporations on their worldwide income while others exempt foreign income from taxation. Over the previous quarter century, many OECD countries have lowered their corporate income tax rates substantially, yet at any point during this time period, there is a large degree of variability in corporate income tax rates. OECD countries also vary a great deal in the revenues that they receive from the corporate income tax. While the average OECD country has experienced a substantial increase in the share of corporate tax revenues in GDP, there are several prominent counter-examples, including the

Kimberly A. Clausing ([envelopeback])

Associate Professor of Economics, Wellesley College, 106 Central St., Wellesley, MA 02481 e-mail: [email protected]

Springer

Corporate tax revenues in OECD countries

Kimberly A. Clausing

C Springer Science + Business Media, LLC 2007

116 K. A. Clausing

United States, where corporate tax revenues have decreased substantially as a share of GDP over the previous half-century.

Putting aside the desirability of corporate income taxation more generally, the purpose of this paper is to improve understanding of the experiences of OECD countries taxing corporations. In particular, what factors explain the variation in the revenues collected across OECD countries during the previous quarter century? The initial step in this investigation builds a framework for considering factors that are likely to explain this variation; these include the statutory income tax rate,...