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Why has the UK corporation tax raised so much revenue?

Author

Listed:
  • Michael Devereux

    (Institute for Fiscal Studies and University of Oxford)

  • Rachel Griffith

    (Institute for Fiscal Studies)

  • Alexander Klemm

    (Institute for Fiscal Studies)

Abstract
We analyse a puzzle in the UK corporation tax: by both historic and international standards, corporation tax revenues have been high while the statutory rate has been reduced. We consider explanations based on changes in the tax law and in economic factors. Changes in the tax law, such as base-broadening measures through reductions in capital allowances, can explain only part of the puzzle. Among the economic explanations, an increase in the size of the corporate sector, mainly caused by expansion of the service sector and improvements in profitability of the financial sector, seems the most likely. To the extent that higher profits, particularly financial sector profits, may have led to high revenues, there are doubts as to whether revenues will continue to be so strong.

Suggested Citation

  • Michael Devereux & Rachel Griffith & Alexander Klemm, 2004. "Why has the UK corporation tax raised so much revenue?," Fiscal Studies, Institute for Fiscal Studies, vol. 25(4), pages 367-388, December.
    • Handle: RePEc:ifs:fistud:v:25:y:2004:i:4:p:367-388
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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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