Starting from the observation point that the effect on tax revenues of taxes in general, and corporation tax in particular, is not well understood, the European Economic and Social Committee (EESC) commissioned and published, on Monday 8 July, a study on the impact of corporation tax on economic growth.
“Corporate taxes could be the most harmful form of taxation to economic growth”, the EESC wrote in a statement.
The study, written by three economists, Pieter Baert, Frederik Lange and James Watson, points out that a high corporate tax rate can hinder business activity by making certain investment projects unprofitable. A lower corporate tax rate would on the other hand increase investments undertaken by both domestic and foreign investors. When investments increase, employment increase and more taxes will also be collected on incomes and consumption, it explains.
The study also concludes that, contrary to public perception, there has been no reduction in corporate tax revenues in relation to GDP in the last 40 years. Reviewing tax changes undertaken in the EU between 1981 and 2014, it demonstrates that countries that have reduced their corporate tax rates in recent years have seen increases in investment in the following years.
“Many unsubstantiated figures have been used over the course of the debate”, says Krister Andersson, Vice-President of the EESC Employers' Group. In the foreword to the study, he explains that it was precisely because of this lack of well-founded information that the employers' group requested that the study be carried out.
The report is therefore intended to be a “useful and reliable tool in the discussion on taxation”, which is especially important at a time when public perception of the taxation of companies is distorted and exploited by populists, he explained.
The study, which was presented at a multi-stakeholder seminar on Friday 5 July, can be viewed at: https://bit.ly/2XAcv7l (Original version in French by Marion Fontana)