Abstract
We assess the quantitative impact of two reforms to corporation tax, which would eliminate the differential treatment of debt and equity: the allowance for corporate equity (ACE) and the comprehensive business income tax (CBIT). We explore the impact of these reforms on various decision margins, using an applied general equilibrium model for the EU calibrated with recent empirical estimates of elasticities. The results suggest that, if governments adjust statutory corporate tax rates to balance their budget, profit shifting and discrete location render CBIT more attractive for most individual European countries. European coordination makes a joint ACE more, and a joint CBIT less efficient. A combination of ACE and CBIT is always welfare improving.
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This research was carried out when Ruud de Mooij was visiting the Oxford University Centre for Business Taxation. We are grateful to Albert van der Horst and Leon Bettendorf for research assistance and helpful comments. Comments by Marcel Gerard, Michel Aujean, Steve Bond, Mick Heen, Martin Zagler, Jenny Ligthart, and two anonymous referees are gratefully acknowledged. This research was funded partly by the European Commission and partly by the ESRC under Grant Res 060-25-0033.
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de Mooij, R.A., Devereux, M.P. An applied analysis of ACE and CBIT reforms in the EU. Int Tax Public Finance 18, 93–120 (2011). https://doi.org/10.1007/s10797-010-9138-8
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DOI: https://doi.org/10.1007/s10797-010-9138-8