Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86418
Authors: 
de Mooij, Ruud A.
Nicodeme, Gaetan
Year of Publication: 
2007
Series/Report no.: 
Tinbergen Institute Discussion Paper 07-030/3
Abstract: 
In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. Thispaper explores to what extent income shifting from the personal to the corporate tax base canexplain these diverging developments. We exploit a panel of European data on firm births andlegal form of business to analyze income shifting via increased entrepreneurship andincorporation. The results suggest that lower corporate taxes exert an ambiguous effect onentrepreneurship. The effect on incorporation is significant and large. It implies that therevenue effects of lower corporate tax rates – possibly induced by tax competition -- partlyshow up in lower personal tax revenues rather than lower corporate tax revenues. Simulationssuggest that between 10% and 17% of corporate tax revenue can be attributed to incomeshifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some0.2%-points since the early 1990s.
Subjects: 
Corporate tax
Personal tax
Entrepreneurship
Incorporation
Income shifting
JEL: 
H25
L26
Document Type: 
Working Paper

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