Title The economic consequences of corporate tax rates reductions in the EU: Evidence using a computable general equilibrium model
Authors Teresa Alvarez-Martinez, Maria, Barrios, Salvador, d'Andria, Diego, Gesualdo, Maria, Pontikakis, Dimitrios, Pycroft, Jonathan
External publication No
Means World Econ.
Scope Article
Nature Científica
JCR Quartile 3
SJR Quartile 1
JCR Impact 0.96000
Area International
Web https://www.scopus.com/inward/record.uri?eid=2-s2.0-85052401303&doi=10.1111%2ftwec.12703&partnerID=40&md5=e02de6965d049904ccae65f24827b8a2
Publication date 01/03/2019
ISI 000460313400007
Scopus Id 2-s2.0-85052401303
DOI 10.1111/twec.12703
Abstract In a globalised world, governments are eager to attract foreign investors by lowering corporate tax rates. Recent trends point towards a revival of a race to the bottom in corporate income tax (CIT) rates in developed economies. EU countries have been active in this respect. A generalised fall in CIT rate could prove detrimental to tax revenues and trigger increase in other taxes to meet fiscal policy objectives. However, it could also spur investment and growth and prove to be a good fiscal policy strategy if, as a result, the corporate tax base increases. The final economic and fiscal impact of a reduction in CIT rates is therefore unclear. Using a CGE model, we find that uncoordinated tax reforms significantly impact national economies and third-country effects can be significant when large countries implement CIT rate cuts. Small countries are better off unilaterally reducing their CIT rate at the expense of other EU countries. We find that negative spillovers are mitigated when the country reducing its CIT rate restores its budget balance by cutting either public expenditures or social transfers. A larger degree of non-EU capital mobility also tends to reduce the negative spillover effects of unilateral CIT rate reductions.
Keywords computable general equilibrium models; corporate taxation; European Union
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