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 the system’s distortions but decreased simplicity. Using 2016–2023 corporate tax return data and a difference-in-differences design, we analyse how firms adjusted to rich tax changes. Our descriptive analysis suggests that the reform reduced revenue and cost manipulation, previously evident in bunching around revenue thresholds and profit margin discontinuities. Furthermore, our causal findings reveal two key patterns. First, firms responded asymmetrically, reacting more strongly to tax cuts than increases, suggesting reported profits are downward sticky due to audit risks and evasion costs. Second, firms’ intensive margin responses were driven by marginal rather than average tax rates, contrasting with previous evidence showing that individuals misinterpret and over-simplify tax schedules. These findings align with profit-maximisation theory and suggest that well-communicated tax reforms can enhance efficiency without increasing compliance errors, even at the cost of reduced simplicity.

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 that defers corporate taxes until profits are distributed to shareholders--has emerged as a prominent alternative to traditional CITs. This paper provides a comprehensive analysis of the DPT, examining its theoretical underpinnings and empirical effects across five countries that have adopted the system. We show the theoretical difference between the DPT, the S-based cash-flow tax and CIT, which implies that the impact of the DPT on investment and financial structure is ambiguous. Our empirical findings indicate that the introduction of DPTs significantly reduces tax revenue, with profit tax revenue declining by approximately 1 percent of GDP, on average. Additionally, DPTs lead to higher profit retentions and modest reductions in debt-to-asset ratios, while investment effects are statistically insignificant.