American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records
American Economic Journal: Economic Policy
vol. 6,
no. 2, May 2014
(pp. 19–53)
Abstract
We estimate the elasticity of corporate taxable income with respect to the statutory corporation tax rate using the population of UK corporation tax returns. We analyze bunching in the distribution of taxable income at kinks in the marginal rate schedule. We decompose this elasticity into an elasticity of total income with respect to the corporation tax rate, and an elasticity of the share of income taken as profit with respect to the difference between the personal and corporate tax rates. This implies a marginal deadweight cost at the £10,000 kink of around 29 percent of tax revenue.Citation
Devereux, Michael P., Li Liu, and Simon Loretz. 2014. "The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records." American Economic Journal: Economic Policy, 6 (2): 19–53. DOI: 10.1257/pol.6.2.19Additional Materials
JEL Classification
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- L25 Firm Performance: Size, Diversification, and Scope
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