Conference Agenda

Under the current corporate taxation system, the corporate tax payment is zero if the taxable income is equal to or less than zero. This may induce a firm to reduce its taxable income to equal to or less than zero. Considering the tax loss carry-forward deduction, the marginal tax rate increases discontinuously when the taxable income is greater than the tax loss carried forward from the previous year. This paper estimates the elasticity of corporate taxable income and examines the tax avoidance behavior of small and medium-sized enterprises (SMEs) in Japan using a bunching estimation approach. We find clear bunching at the threshold where the marginal tax rate jumps from zero. Such bunching is not observed at the next threshold of the marginal tax rate. This finding is consistent with the hypothesis that managers regard tax payments as a loss and engage in loss-aversion behavior.

Do firms respond similarly to corporate tax incentives across countries? We provide globally comparable estimates of the corporate elasticity of taxable income using administrative tax return data from sixteen countries and a unified empirical framework.

Exploiting bunching at a common kink, zero taxable income, we estimate elasticities ranging from 0.08 to 1.9, with an average of 0.92. To explain this heterogeneity, we link elasticities to tax policy, firm characteristics, and country fundamentals. These differences imply that identical corporate tax reforms can generate sharply different revenue effects across countries, leading to substantial heterogeneity in the efficiency costs of corporate taxation.

We study how income shifting and foreign corporate tax rate changes affect real activity within multinational enterprises. Combining Austrian corporate income tax returns with ownership data, we construct entity-level measures of income-shifting intensity and exploit variation from foreign corporate tax rate changes to disentangle investment responses to income shifting. Our findings indicate that firms with higher income-shifting intensity invest more in fixed assets but show lower productivity and greater overinvestment, distorting capital allocation efficiency. In contrast, a decrease in foreign tax rates reduces domestic fixed-asset investment, suggesting a reallocation toward lower-tax locations. We conclude that income shifting and tax rate changes have distinct effects on investment.

We estimate heterogeneous responses to top-bracket tax reforms using a triple-difference design that exploits variation in tax rate changes and the thresholds at which they apply. This strategy identifies behavioral responses even in the presence of unobservable shocks to the income distri-bution. Higher-income taxpayers respond more to top-rate changes, but our results indicate that this reflects the salience of the reforms—the larger mechanical change in average tax rates at higher incomes—rather than heterogeneity in substitution elasticities. We discuss implications for the revenue and distributional effects of top-bracket tax reforms.