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The Effect of Inflation and Interest Rates on Forward-Looking Effective Tax Rates

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  • Centre for European Economic Research (ZEW)

Abstract

The study delivers qualitative assessments of the sensitivity mechanisms at work as well as quantitative results. Tax systems are related with interest and inflation rates through various mechanisms which sometimes act in qualitatively different directions. Such a mechanism is, for example, that usually nominal returns are taxed rather than real returns. The Devereux/Griffith model incorporates these mechanisms of real world tax systems and allows for precise quantification.The broad range of figures produced in this study helps to illustrate and indicate the levels of effective tax burdens in different countries for a series of relevant situations. For comparing tax systems in the member states, common assumptions on interest and inflation rates are essential. Although there are no “universally true values” for effective tax levels in the member states, the analysis shows that the base case gives a good indication of the member states’ effective tax levels and member states’ relative position in a cross-country comparison.

Suggested Citation

  • Centre for European Economic Research (ZEW), 2016. "The Effect of Inflation and Interest Rates on Forward-Looking Effective Tax Rates," Taxation Papers 63, Directorate General Taxation and Customs Union, European Commission.
    • Handle: RePEc:tax:taxpap:0063
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    File URL: https://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/taxation/gen_info/economic_analysis/tax_papers/taxation_paper_63.pdf
    File Function: final version, 2016
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    Citations

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    Cited by:

    1. Spengel, Christoph & Fischer, Leonie & Stutzenberger, Kathrin, 2020. "Breaking borders? The European Court of Justice and internal market," ZEW Discussion Papers 20-059, ZEW - Leibniz Centre for European Economic Research.
    2. Spengel, Christoph & Heinemann, Friedrich & Olbert, Marcel & Pfeiffer, Olena & Schwab, Thomas & Stutzenberger, Kathrin, 2018. "Analysis of US corporate tax reform proposals and their effects for Europe and Germany. Final report: Update 2018," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 181905.
    3. Pfeiffer, Olena & Spengel, Christoph, 2017. "Tax incentives for research and development and their use in tax planning," ZEW Discussion Papers 17-046, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    Keywords

    corporate taxation; effective tax rates; inflation; interest rates; tax burden;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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