International Tax and Public Finance

, Volume 15, Issue 4, pp 478–498 | Cite as

Corporate tax policy and incorporation in the EU

  • Ruud A. de Mooij
  • Gaëtan NicodèmeEmail author


In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on legal form of business to analyze income shifting via incorporation. The results suggest that the effect is significant and large. It implies that the revenue effects of lower corporate tax rates—possibly induced by tax competition—will partly show up in lower personal tax revenues rather than lower corporate tax revenues. Simulations suggest that between 12% and 21% of corporate tax revenue can be attributed to income shifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some 0.25% points since the early 1990s.


Corporate tax Personal tax Incorporation Income shifting 

JEL Classification

H25 L26 


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Copyright information

© European Communities 2008

Authors and Affiliations

  1. 1.CPB Netherlands Bureau for Economic Policy Analysis, CESifo and Tinbergen InstituteErasmus University RotterdamRotterdamThe Netherlands
  2. 2.European Commission, CEB (Solvay Business School), ECARES (ULB) and CESifoBrusselsBelgium

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