Abstract
This paper analyses the effectiveness of the corporate income tax as an automatic stabilizer. It employs a unique firm-level data set of German manufacturers combining financial statements with firm-specific information about credit market restrictions. The results show that approximately 20 per cent of all firms report both positive taxable income and capital market restrictions. Taking account of the income tax rates and the size differences of the firms, we find that demand stabilization through the corporate income tax amounts to about 8 per cent of an initial shock to gross revenues. This stabilization effect varies over the business cycle and tends to increase during cyclical downturns.
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The authors wish to thank two anonymous referees for comments on an earlier draft. Clemens Fuest acknowledges financial support by the ESCR (Grant No. RES-060-25-0033).
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Buettner, T., Fuest, C. The role of the corporate income tax as an automatic stabilizer. Int Tax Public Finance 17, 686–698 (2010). https://doi.org/10.1007/s10797-010-9155-7
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DOI: https://doi.org/10.1007/s10797-010-9155-7