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American Economic Journal: Economic Policy: Vol. 6 No. 2 (May 2014)

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The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records

Article 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.6.2.19

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.

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Authors

Devereux, Michael P. (Centre for Business Taxation, U Oxford)
Liu, Li (Centre for Business Taxation, U Oxford)
Loretz, Simon (U Bayreuth)

JEL Classifications

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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