Why is corporate tax revenue stable while tax rates fall? Evidence from firm-level data


While corporate tax rates in OECD countries declined over the last decades, revenues from corporate taxation relative to gross domestic product (GDP) remained remarkably stable. This paper uses a comprehensive firm-level data set to analyze this rate-revenue puzzle in corporate taxation. Focusing on the period 1995–2016, we show that the reduction in corporate tax rates was counterbalanced by a pronounced increase in corporate profits. We decompose the rise in profits into changes in earnings before interest and depreciation, depreciation, and financial profits. On average, these factors contributed almost equally to the tax-base expansion, albeit differently across sectors, countries, and firm sizes.


Clemens Fuest, Felix Hugger, Susanne Wildgruber