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The effects of business taxation on economic and social welfare: new insights from tax return data

Despite attempting to reduce a very large budget deficit by cutting public expenditure and raising other taxes, the UK government intends to cut the main rate of corporation tax - levied on corporate profit - from 28% to 21% over the life of this Parliament. It is doing so as part of its aim to 'create the most competitive corporate tax regime in the G20' (Cabinet Office, 2010, p10). The government believes that the corporation tax has an important impact on economic activity. At the same time, there has been a public outcry over multinational companies that are alleged to have avoided paying UK corporation tax.

This research proposes to estimate the scale of the effects of taxes on business behaviour, including avoidance, and also the consequent costs to society of the distortions to behaviour induced by taxes. The majority of the work will focus on corporation tax, but we will also analyse personal taxes on the profits of unincorporated businesses, and VAT. A key feature of the research will be the use of confidential tax return data, recently made available by HMRC in a secure Datalab. The availability of these data provides an unprecedented opportunity for major breakthroughs in our understanding of the effects of taxes on key aspects of business behaviour.

In collaboration with HMRC, we have already matched data from the population of corporation tax returns over a 10 year period with data from published financial accounts for the same companies. We will also match the tax return data for unincorporated businesses, and VAT returns for all registered businesses. The information in the resulting matched dataset will be at the frontier of what is available anywhere in the world for empirical research on the effects of business taxation.

Research outputs

Find research on the Oxford University Centre for Business Taxation.

Duration

October 2013 - September 2016