This article appears in the following Oxford Review of Economic Policy issue: BUSINESS TAXATION IN A GLOBALIZED WORLD [View the issue table of contents]
Corporate tax elasticities: a reader's guide to empirical findings
* Erasmus University Rotterdam, CPB, CESifo, Tinbergen Institute, and Oxford University Centre for Business Taxation, e-mail: demooij{at}few.eur.nl
** Ministry of Economic Affairs, the Netherlands, e-mail: s.ederveen{at}minez.nl
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Abstract |
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Corporate taxes exert a variety of effects on business behaviour. A wealth of empirical evidence assesses the magnitude of these behavioural margins of taxation. This article offers an up-to-date review and aims to provide common ground by computing for each distortion the semi-elasticity of the corporate tax base. We pay particular attention to international investment where it is not a priori clear whether marginal investment decisions or discrete locations are more important. Using an extension of the meta analysis of De Mooij and Ederveen (2003), we explore the extent to which existing studies reveal differences in effect size between the intensive and extensive margins of international investment.
Key Words: corporate tax • meta analysis • investment • location • Laffer curve
1 The studies are Buettner (2002), Desai et al. (2004), Bénassy-Quéré et al. (2003), Stöwhase (2003, 2005), and Buettner and Ruf (2004). They are discussed in more detail in De Mooij and Ederveen (2006).
2 Most of these outliers are reported in older studies using time series of panel data. Including the extremes considerably increases the coefficient for exemption systems, as the large negative outliers refer to those countries. The significance of some tax measures becomes weaker but they do not change signs. For an analysis of the influence of outliers, see De Mooij and Ederveen (2003).
3 In De Mooij and Ederveen (2003), we have reported the systematic impact of other sources of variation. For instance, we analyse the difference between unpublished and published studies, variation in the specification of the estimated equation (linear, logarithmic, quadratic), variation in estimation techniques (OLS, IV, other), and the type of data (panel, cross section, time series). Regarding the latter, note that studies using panel or time-series data largely coincide with FD.
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