The Resource Corporate tax reform : from income to cash flow taxes

Corporate tax reform : from income to cash flow taxes

Label
Corporate tax reform : from income to cash flow taxes
Title
Corporate tax reform : from income to cash flow taxes
Creator
Subject
Language
  • eng
  • eng
Summary
This paper uses a multi-region, forward-looking, dynamic stochastic general equilibrium (DSGE) model to estimate the macroeconomic impact of a tax reform that replaces a corporate income tax (CIT) with a destination-based cash-flow tax (DBCFT). Two key channels are at play. The first channel is the shift from an income tax to a cash-flow tax. This channel induces the corporate sector to invest more, boosting long-run potential output, GDP and consumption, but crowding out consumption in the short run as households save to build up the capital stock. The second channel is the shift from a taxable base that comprises domestic and foreign revenues, to one where only domestic revenues enter. This leads to an appreciation of the currency to offset the competitiveness boost afforded by the tax and maintain domestic investment-saving equilibrium. The paper demonstrates that spillover effects from the tax reform are positive in the long run as other countries' exports benefit from additional investment in the country undertaking the reform and other countries' domestic demand benefits from improved terms of trade. The paper also shows that there are substantial benefits when all countries undertake the reform. Finally, the paper demonstrates that in the presence of financial frictions, corporate debt declines under the tax reform as firms are no longer able to deduct interest expenses from their profits. In this case, the tax shifting results in an increase in the corporate risk premia, a near-term decline in output, and a smaller long-run increase in GDP
http://library.link/vocab/creatorName
  • Carton, B
  • Fernandez-Corugedo, E
  • Hunt, B
Geographic coverage
International
Index
no index present
Language note
English
Literary form
non fiction
Series statement
IMF working paper
Series volume
WP/19/13
http://library.link/vocab/subjectName
  • corporate income tax
  • tax reform
  • tax shift
  • destination principle
  • cash flow tax
Label
Corporate tax reform : from income to cash flow taxes
Link
https://library.ibfd.org/custom/web/SD_PDF/scans/documents/INT/Corporate_tax_reform-from_income_to_cash_flow_taxes.pdf
Publication
Extent
34 p.
Issn
1018-5941
Note
20190719

Library Locations

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      Rietlandpark 301, Amsterdam, 1019 DW, NL
      52.3736660 4.9336932
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