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

Michael Devereux · Li Liu · Simon Loretz

150 citations0/0 files storedAmerican Economic Journal Economic Policy

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Corporate Taxation and Avoidance Economic and Fiscal Studies Taxation and Compliance Studies

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. (JEL G32, H24, H25, L25)

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References

2019American Economic Review 1967Tax Policy and Investment Behavior 2012The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review 2006On the Nature of Capital Adjustment Costs 2002The elasticity of taxable income: evidence and implications 2010Do Taxpayers Bunch at Kink Points?2004A Multinational Perspective on Capital Structure Choice and Internal Capital Markets 1999Tax Avoidance and the Deadweight Loss of the Income Tax

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