Skip to main content Accessibility help
×
Home
The Role of the Corporate Tax

The Role of the Corporate Tax

Existing corporate taxes distort many aspects of firm behavior. To the extent that the corporate tax rate is lower than personal tax rates, taxes favor corporate activity, and favor retaining earnings rather than paying earnings out to employees and investors. Multinationals can even avoid these taxes by shifting income into tax havens. Given the ease with which multinationals can evade tax, the existing income tax structure faces major pressures, as reflected in average statutory corporate tax rates halving in recent decades. The Element speculates on alternative tax structures that will avoid these problems.

  • Export citation
  • Recommend to librarian
  • Buy the print element
  • Copyright

  • COPYRIGHT: © Roger Gordon and Sarada Sarada 2019

References

Hide all
Auerbach, Alan Devereux, Michael Auerbach, Alan , and Michael Devereux . 2018. “Cash-Flow Taxes in an International Setting,” American Economic Journal: Economic Policy 10, 69–94. Google Scholar
Arulampalam, Wiji Maffini, Giorgia Devereux, Michael P. Arulampalam, Wiji , Giorgia Maffini , and Michael P. Devereux . 2012. “The Direct Incidence of Corporate Income Tax on Wages,” European Economic Review 56, 1038–1054. CrossRef | Google Scholar
Bernheim, B. Douglas Bernheim, B. Douglas . 1991. “Tax Policy and the Dividend Puzzle,” Rand Journal of Economics 22, 455–476. CrossRef | Google Scholar
Gordon, Roger Allen, F. Aoki, M. Fitoussi, J. P Kiyotaki, N. Gordon, R. Stiglitz, J. E. Gordon, Roger . 2012. “How Should Income from Multinational be Taxed?”. In The Global Macro Economy and Finance, edited by F. Allen , M. Aoki , J. P. Fitoussi , N. Kiyotaki , R. Gordon , and J. E. Stiglitz (International Economic Association Series). London: Palgrave Macmillan, 298–312. Google Scholar
Gordon, Roger Wilson, John Gordon, Roger , and John Wilson . 1986. “An Examination of Multijurisdictional Corporate Income Taxes Under Formula Apportionment,” Econometrica 54, 1357–1376. CrossRef | Google Scholar
Graham, John Graham, John . 2003 “Taxes and Corporate Finance: A Review,” Review of Financial Studies 16, 1075–1129. CrossRef | Google Scholar
Jensen, Michael Meckling, William Jensen, Michael , and William Meckling . 1976. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics 3, 305–360. CrossRef | Google Scholar
Best, Michael Brockmeyer, Anne Kleven, Henrik Jacobsen Spinnewijn, Johannes Waseem, Mazhar Best, Michael , Anne Brockmeyer , Henrik Jacobsen Kleven , Johannes Spinnewijn , and Mazhar Waseem . 2015. “Production vs. Revenue Efficiency with Limited Tax Capacity: Theory and Evidence from Pakistan,” Journal of Political Economy 123, 1311–1355. CrossRef | Google Scholar
Gordon, Roger Bradford, David Gordon, Roger , and David Bradford . 1980. “Taxation and the Stock Market Valuation of Capital Gains and Dividends: Theory and Empirical Results,” Journal of Public Economics 14, 109–136. CrossRef | Google Scholar
Altshuler, Rosanne Auerbach, Alan Altshuler, Rosanne , and Alan Auerbach . 1990. “The Significance of Tax Law Asymmetries: An Empirical Investigation,” Quarterly Journal of Economics 105, 61–86. CrossRef | Google Scholar
Boadway, Robin Bruce, Neil Mintz, Jack Boadway, Robin , Neil Bruce , and Jack Mintz . 1984. “Taxation, Inflation, and the Effective Marginal Tax Rate on Capital in Canada,” Canadian Journal of Economics 17, 62–79. CrossRef | Google Scholar
Feldstein, Martin Slemrod, Joel Feldstein, Martin , and Joel Slemrod . 1980. “Personal Taxation, Portfolio Choice, and the Effect of the Corporate Income Tax,” Journal of Political Economy 88, 854–866. CrossRef | Google Scholar
Gordon, Roger Wei, Li Gordon, Roger , and Wei Li . 2009. “Tax Structures in Developing Countries: Many Puzzles and a Possible Explanation,” Journal of Public Economics 93, 855–866. CrossRef | Google Scholar
Keen, Michael Keen, Michael . 2001. “Preferential Regimes Can Make Tax Competition Less Harmful,” National Tax Journal 54, 757–762. CrossRef | Google Scholar
Devereux, Michael Liu, Li Loretz, Simon Devereux, Michael , Li Liu , and Simon Loretz . 2014. “The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records,” American Economic Journal: Economic Policy 6, 19–53. Google Scholar
Diamond, Peter Diamond, Peter . 1967. “The Role of the Stock Market in a General Equilibrium Model with Technological Uncertainty,” American Economic Review 57, 759–776. Google Scholar
Erickson, Merle Hanlon, Michelle Maydew, Edward 73 Erickson, Merle , Michelle Hanlon , and Edward Maydew . 2004. “How Much Will Firms Pay for Earnings That Do Not Exist? Evidence of Taxes Paid on Allegedly Fraudulent Earnings,” The Accounting Review 79, 387–408. CrossRef | Google Scholar
Feldstein, Martin Dicks-Mireaux, Louis Poterba, James Feldstein, Martin , Louis Dicks-Mireaux , and James Poterba . 1983. “The Effective Tax Rate and the Pretax Rate of Return,” Journal of Public Economics 21, 129–158. CrossRef | Google Scholar
Harberger, Arnold Harberger, Arnold . 1982. “The Incidence of Taxes on Income from Capital in an Open Economy: A Review of Current Thinking,” HIID Development Discussion Paper No. 139. Google Scholar
King, Mervyn Fullerton, Don King, Mervyn , and Don Fullerton . 1984. The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany, Chicago: University of Chicago Press. CrossRef | Google Scholar
Auerbach, Alan Hassett, Kevin Auerbach, Alan , and Kevin Hassett . 2006. “Dividend Taxes and Firm Valuation: New Evidence,” American Economic Review 96, 119–123. CrossRef | Google Scholar
Bradford, David Bradford, David . 1981. “The Incidence and Allocation Effects of a Tax on Corporate Distributions,” Journal of Public Economics 15, 1–22. CrossRef | Google Scholar
Feldstein, Martin Feldstein, Martin . 1995. “The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act,” Journal of Political Economy 103, 551–572. CrossRef | Google Scholar
Gordon, Roger Dietz, Martin Auerbach, Alan Shaviro, Daniel Gordon, Roger , and Martin Dietz . 2008. “Dividends and Taxes.” In Institutional Foundations of Public Finance: Economic and Legal Perspectives, edited by Alan Auerbach and Daniel Shaviro . Cambridge, MA: Harvard University Press, 204–224. Google Scholar
Gordon, Roger Kopczuk, Wojciech Gordon, Roger , and Wojciech Kopczuk . 2014. “The Choice of Personal Income Tax Base,” Journal of Public Economics 118, 97–110. CrossRef | Google Scholar
Gordon, Roger Hines, James Auerbach, Alan Feldstein, Martin Gordon, Roger , and James Hines , Jr. 2002. “International Taxation.” In Handbook of Public Economics, Vol. 4, edited by Alan Auerbach and Martin Feldstein . Amsterdam: North Holland, 1935–1995. Google Scholar
Gordon, Roger Jeffrey, MacKie-Mason Feldstein, Martin Hines, James Hubbard, R. Glenn Gordon, Roger , and Jeffrey MacKie-Mason . 1994. “Why is there Corporate Taxation in a Small Open Economy: The Role of Transfer Pricing and Income Shifting.” In The Effects of Taxation on Multinational Corporations, edited by Martin Feldstein , James Hines , Jr., and R. Glenn Hubbard . Chicago: University of Chicago Press, 67–94. Google Scholar
Grubert, Harry Grubert, Harry . 2003. “Intangible Income, Intercompany Transactions, Income Shifting, and the Choice of Location,” National Tax Journal 56, 221–242. CrossRef | Google Scholar
Diamond, Peter Mirrlees, James Diamond, Peter , and James Mirrlees . 1971. “Optimal Taxation and Public Production I: Production Efficiency,” American Economic Review 61, 8–27. Google Scholar
Kannianen, Vesa Jan, Södersten Kannianen, Vesa and Jan Södersten . 1995. “The Importance of Reporting Conventions for the Theory of Corporate Taxation,” Journal of Public Economics 7, 417–430. CrossRef | Google Scholar
Keen, Michael Wildasin, David Keen, Michael , and David Wildasin . 2004. “Pareto-Efficient International Taxation,” American Economic Review 94, 259–275. CrossRef | Google Scholar
Gordon, Roger Jun, Joosung Giovannini, Alberto Hubbard, R. Glenn Slemrod, Joel Gordon, Roger , and Joosung Jun . 1993. “Taxes and the Form of Ownership of Foreign Corporate Equity.” In Studies in International Taxation, edited by Alberto Giovannini , R. Glenn Hubbard , and Joel Slemrod . Chicago: University of Chicago Press, 13–46. Google Scholar
Hines, James R Glenn Hubbard, R. Razin, Assaf Slemrod, Joel Hines, James R ., Jr., and R. Glenn Hubbard . 1990. “Coming Home to America: Dividend Repatriations by U.S. Multinationals.” In Taxation in the Global Economy, edited by Assaf Razin and Joel Slemrod . Chicago: University of Chicago Press, 161–208. Google Scholar
Akcigit, Ufuk Baslandze, Salomé Stantcheva, Stefanie Akcigit, Ufuk , Salomé Baslandze , and Stefanie Stantcheva . 2016. “Taxation and the International Mobility of Inventors,” American Economic Review 106, 2930–2981. CrossRef | Google Scholar
Dharmapala, Dhammika Slemrod, Joel Wilson, John Dharmapala, Dhammika , Joel Slemrod , and John Wilson . 2011. “Tax Policy and the Missing Middle: Optimal Tax Remittance and Firm-Level Administrative Costs,” Journal of Public Economics 95, 1036–1047. CrossRef | Google Scholar
Akcigit, Ufuk Hanley, Douglas Stantcheva, Stefanie Akcigit, Ufuk , Douglas Hanley , and Stefanie Stantcheva . 2017. “Optimal Taxation and R&D Policies,” NBER Working Paper No. 22908. Google Scholar
Auerbach, Alan Auerbach, Alan . 1981. “Inflation and the Tax Treatment of Firm Behavior,” American Economic Review 71, 419–423. Google Scholar
Auerbach, Alan J Devereux, Michael Simpson, Helen Adams, Stuart Besley, Tim Blundell, Richard Bond, Stephen Chote, Robert Gammie, Malcolm Auerbach, Alan J ., Michael Devereux , and Helen Simpson . 2010. “Taxing Corporate Income”. In Dimensions of Tax Design: The Mirrlees Review, edited by Stuart Adams , Tim Besley , Richard Blundell , Stephen Bond , Robert Chote , Malcolm Gammie et al. London: Institute for Fiscal Studies, 837–904. Google Scholar
Cummins, Jason Hassett, Kevin Hubbard, R. Glenn Cummins, Jason , Kevin Hassett , and R. Glenn Hubbard . 1994. “A Reconsideration of Investment Behavior Using Tax Reforms as Natural Experiments,” Brookings Papers on Economic Activity 2, 1–59. Google Scholar
Domar, Evsey Musgrave, Richard Domar, Evsey , and Richard Musgrave . 1944. “Proportional Income Taxation and Risk-Taking,” Quarterly Journal of Economics 58, 388–422. CrossRef | Google Scholar
Gordon, Roger Sarada Gordon, Roger , and Sarada . 2018. “How Should Taxes be Designed to Encourage Entrepreneurship?,” Journal of Public Economics 166, 1–11. CrossRef | Google Scholar
Goolsbee, Austan Goolsbee, Austan . 1998. “Taxes, Organizational Form, and the Deadweight Loss of the Corporate Income Tax,” Journal of Public Economics 69, 143–152. CrossRef | Google Scholar
Goolsbee, Austan Goolsbee, Austan . 2000. “What Happens When You Tax the Rich? Evidence from Executive Compensation,” Journal of Political Economy 108, 352–378. CrossRef | Google Scholar
Adler, Michael Dumas, Bernard Adler, Michael , and Bernard Dumas . 1983. “International Portfolio Choice and Corporation Finance: A Synthesis,” Journal of Finance 38, 925–984. CrossRef | Google Scholar
Gorry, Aspen Hassett, Kevin Hubbard, Glenn Mathur, Aparna Gorry, Aspen , Kevin Hassett , Glenn Hubbard , and Aparna Mathur . 2017. “The Response of Deferred Executive Compensation to Changes in Tax Rates,” Journal of Public Economics 151, 28–40. CrossRef | Google Scholar
Harberger, Arnold Harberger, Arnold . 1962. “The Incidence of the Corporation Income Tax,” Journal of Political Economy 70, 215–240. CrossRef | Google Scholar
Jorgenson, Dale Auerbach, Alan Jorgenson, Dale , and Alan Auerbach . 1980. “Inflation-Proof Depreciation of Assets,” Harvard Business Review 58, 113–118. Google Scholar
King, Mervyn King, Mervyn . 1977. Public Policy and the Corporation. London: Chapman and Hall. Google Scholar
Bernheim, B. Douglas Wantz, Adam Bernheim, B. Douglas , and Adam Wantz . 1995. “A Tax-Based Test of the Dividend Signaling Hypothesis,” American Economic Review 85, 532–551. Google Scholar
Gordon, Roger Slemrod, Joel Slemrod, Joel Gordon, Roger , and Joel Slemrod . 2000. “Are ‘Real’ Responses to Taxes Simply Income Shifting Between Corporate and Personal Tax Bases?”. In Does Atlas Shrug? The Economic Consequences of Taxing the Rich, edited by Joel Slemrod . New York: Russell Sage Foundation, 240–280. Google Scholar
Grullon, Gustavo Michaely, Roni Grullon, Gustavo , and Roni Michaely . 2002. “Dividends, Share Repurchases, and the Substitution Hypothesis,” Journal of Finance 57, 1649–1684. CrossRef | Google Scholar
Hall, Robert Jorgenson, Dale Hall, Robert , and Dale Jorgenson . 1967. “Tax Policy and Investment Behavior,” American Economic Review 57, 391–414. Google Scholar
Chetty, Raj Saez, Emmanuel Chetty, Raj , and Emmanuel Saez . 2010. “Dividend and Corporate Taxation in an Agency Model of the Firm,” American Economic Journal: Economic Policy 2, 1–31. Google Scholar
Desai, Mihir Dharmapala, Dhammika Desai, Mihir , and Dhammika Dharmapala . 2009. “Taxes, Institutions and Foreign Diversification Opportunities,” Journal of Public Economics 93, 703–714. CrossRef | Google Scholar
Fazzari, Steven Hubbard, R. Glenn Petersen, Bruce Fazzari, Steven , R. Glenn Hubbard , and Bruce Petersen . 1988. “Financing Constraints and Corporate Investment,” Brookings Papers on Economic Activity 1, 141–194. CrossRef | Google Scholar
Kleven, Henrik Kreiner, Claus Saez, Emmanuel Kleven, Henrik , Claus Kreiner , and Emmanuel Saez . 2016. “Why Can Modern Governments Tax So Much? An Agency Model of Firms as Fiscal Intermediaries,” Economica 83, 219–246. CrossRef | Google Scholar
Auerbach, Alan Auerbach, Alan . 1979. “Wealth Maximization and the Cost of Capital,” Quarterly Journal of Economics 93, 433–446. CrossRef | Google Scholar
Chetty, Raj Chetty, Raj . 2009. “Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods,” Annual Review of Economics 1, 451–488. CrossRef | Google Scholar
Chetty, Raj Saez, Emmanuel Chetty, Raj , and Emmanuel Saez . 2006. “The Effects of the 2003 Dividend Tax Cut on Corporate Behavior: Interpreting the Evidence,” American Economic Review 96, 124–129. CrossRef | Google Scholar
Hail, Luzi Sikes, Stephanie Wang, Clare Hail, Luzi , Stephanie Sikes , and Clare Wang . 2017. “Cross-Country Evidence on the Relation between Capital Gains Taxes, Risk, and Expected Returns,” Journal of Public Economics 151, 56–73. CrossRef | Google Scholar
Black, Fischer 72 Black, Fischer . 1976. “The Dividend Puzzle,” Journal of Portfolio Management 2, 5–8. CrossRef | Google Scholar
Dharmapala, Dhammika Dharmapala, Dhammika . 2016. “The Economics of Corporate and Business Tax Reform,” Coase-Sandor Working Paper Series in Law and Economics, No. 757. Google Scholar
Gordon, Roger Lee, Young 74 Gordon, Roger , and Young Lee . 2007. “Interest Rates, Taxes and Corporate Financial Policies,” National Tax Journal 60, 65–84. CrossRef | Google Scholar
Hassett, Kevin Glenn Hubbard, R. Auerbach, Alan 75 Hassett, Kevin , and R. Glenn Hubbard . 1997. “Tax Policy and Investment.” In Fiscal Policy: Lessons from Economic Research, edited by Alan Auerbach . Cambridge, MA: MIT Press, 339–396. Google Scholar
Modigliani, Franco Miller, Merton Modigliani, Franco , and Merton Miller . 1958. “The Cost of Capital, Corporation Finance and the Theory of Investment,” American Economic Review 48, 261–297. Google Scholar
Miller, Merton Rock, Kevin Miller, Merton , and Kevin Rock . 1985. “Dividend Policy under Asymmetric Information,” Journal of Finance 40, 1031–1051. CrossRef | Google Scholar
MacKie-Mason, Jeffrey Gordon, Roger MacKie-Mason, Jeffrey , and Roger Gordon . 1997. “How Much Do Taxes Discourage Incorporation?,” Journal of Finance 52, 477–505. CrossRef | Google Scholar
Myers, Stewart Majluf, Nicholas 76 Myers, Stewart , and Nicholas Majluf . 1983. “Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have,” Journal of Financial Economics 13, 187–221. CrossRef | Google Scholar
Slemrod, Joel Slemrod, Joel . 2018. “Is This Tax Reform, or Just Confusion?,” Journal of Economic Perspectives 32, 73–96. CrossRef | Google Scholar
White, Michelle White, Michelle . 1983. “Bankruptcy Costs and the New Bankruptcy Code,” Journal of Finance 38, 477–488. CrossRef | Google Scholar
Gordon, Roger Sarada The Role of the Corporate Tax Roger Gordon and Sarada Google Scholar
Mathur, Aparna Hassett, Kevin Mathur, Aparna , and Kevin Hassett . 2006. “Taxes and Wages,” American Enterprise Institute Working Paper No. 138. Google Scholar
Johansson, Per-Olav Kriström, Bengt Cost–Benefit Analysis Per-Olav Johansson and Bengt Kriström Google Scholar
Tanninen, Hannu Tuomala, Matti Tuominen, Elina Inequality and Optimal Redistribution Hannu Tanninen , Matti Tuomala and Elina Tuominen CrossRef | Google Scholar
Tørsløv, Thomas Wier, Ludvig Zucman, Gabriel Tørsløv, Thomas , Ludvig Wier , and Gabriel Zucman . 2018. “The Missing Profits of Nations,” NBER Working Paper No. 24701. CrossRef | Google Scholar
Saez, Emmanuel Saez, Emmanuel . 2002. “The Desirability of Commodity Taxation under Non-Linear Income Taxation and Heterogeneous Tastes,” Journal of Public Economics 83, 217–30. CrossRef | Google Scholar
Lindert, Peter H. Real and Imagined Threats to the Welfare State Peter H. Lindert Google Scholar
Miller, Merton Modigliani, Franco Miller, Merton , and Franco Modigliani . 1963. “Corporate Income Taxes and the Cost of Capital: A Correction,” American Economic Review 53, 433–443. Google Scholar
Schneider, Friedrich Schneider, Friedrich . 2005. “Shadow Economies around the World: What Do We Really Know?,” European Journal of Political Economy 21, 598–642. CrossRef | Google Scholar
Mintz, Jack Mintz, Jack . 1996: “Corporation Tax: A Survey,” Fiscal Studies 16, 23–68. CrossRef | Google Scholar
Slemrod, Joel Slemrod, Joel . 2007. “Cheating Ourselves: The Economics of Tax Evasion,” Journal of Economic Perspectives 21, 25–48. CrossRef | Google Scholar

Metrics

Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between #date#. This data will be updated every 24 hours.

Usage data cannot currently be displayed