Conference Agenda

As tax competition and profit shifting have put pressure on corporate income tax rates across the world, the role of other capital taxes becomes more important. This paper studies the choice between income taxation at the corporate and shareholder level. I develop a tractable sufficient-statistics framework to determine optimal corporate and shareholder income taxes. The main result is that when the incidence of the corporate income tax on workers is higher than that of shareholder income taxes, lower tax rates on corporate relative to shareholder income are typically optimal. In a policy application, I derive optimal reform directions for corporate and shareholder income taxes for a large economy, the United States, and a small open economy, Norway.

This paper examines firms’ behavioural responses to Costa Rica’s 2019 corporate tax reform, which reduced distortions in the tax system but decreased its simplicity. Using 2016–2023 corporate tax return data and a difference-in-differences design, we analyse how firms adjusted to the reform’s rich variation in marginal and average tax rates. Our descriptive analysis suggests the reform reduced revenue and cost manipulation, previously evident in bunching around revenue thresholds and profit margin discontinuities. Our causal findings reveal two main patterns. First, firms responded asymmetrically, reacting more strongly to tax cuts than to tax increases. This likely reflects the removal of growth barriers for small firms, or the downward stickiness of reported profits driven by evasion costs. Second, firms responded to marginal but not average tax rates, contrasting with evidence that individuals simplify tax schedules. These findings suggest that well-communicated reforms can improve efficiency without increasing compliance errors.

Special Economic Zones (SEZs) have become an increasingly popular policy tool for promoting economic development and countries provide preferential tax incentives to attract firms into SEZs. Using unique South African administrative data—firm-level corporate tax returns merged with worker-level income tax returns—we propose an alternative method for identifying SEZ firms beyond self-reported data, based on tax payments and employee location. Additionally, we will examine how the establishment of SEZs changes the behaviour of firms within SEZs. We contribute to the literature by identifying firms that exploit preferential tax incentives of SEZs firms to avoid tax payments, despite not being entitled to such benefits, while also enhancing our understanding of the impact of SEZs in a developing country context.

The Distributed Profit Tax (DPT)—a system under which corporate taxes are deferred until profits are distributed to shareholders—has emerged as a prominent alternative to the traditional corporate income tax (CIT). This paper provides a comprehensive analysis of the DPT, evaluating its theoretical foundations and empirical effects in five countries. We delineate the theoretical distinctions between the DPT, the S-based cash-flow tax, and the CIT, noting that the DPT’s implications for investment and financial structure are theoretically ambiguous. Our empirical analysis indicates that the adoption of DPTs is associated with a significant decline in profit tax revenue—approximately 1 percent of GDP, on average—alongside increased profit retentions and modest reductions in debt-to-asset ratios. In contrast, the effects on investment are statistically insignificant.