Forecasting Corporation Tax Revenues in France

Abstract

At one time it would probably have been exaggerating to talk about a tax simulation model for forecasting the French corporation tax, since—until recently—revenue from this tax was forecast through a linear extrapolation from the previous year using macroeconomic forecasts for company income as a base. Inasmuch as the correlation coefficients for the various magnitudes were estimated correctly, this method could be considered satisfactory as long as the structure of corporation tax remained stable. However since 1986 the corporation tax system has been extensively reformed, with a gradual reduction of the rate (from 50 to 33.3 per cent), the introduction of split rates for distributed and retained profits (between 1989 and 1991), and changes in the treatment of capital gains and the scheme of quarterly part payments.

This chapter is based on a a study carried out by the ‘company taxation’ unit of the Direction de la Prévision of the French Ministry of Finance which—at that time—consisted of Benoît Bretel, Jean-Noël Caubet-Hilloutou, Laurent di Carlo, and the author. The author takes the entire responsibility for any errors and the opinions expressed in this chapter, which in no way commit the Ministry of Finance.