The JRC’s Corporate Tax Microsimulation Model for the EU
The Joint Research Centre (JRC) is currently developing a tailored corporate tax microsimulation model for the European Union (EU). This model focuses on providing valuable insights into the fiscal and distributional impact of corporate income tax (CIT) reforms, aligning with the Sustainable Development Goals (SDGs).
The DiRECT Model
The Distributional and Revenue Effects of Corporate Taxes (DiRECT) model takes into account key features of existing corporate tax regimes in the EU. These features include tax depreciation of fixed assets, limitation of interest deductibility, dividend exemption, tax loss offset, (domestic) tax group consolidation, and allowance for corporate equity. The model incorporates the temporary nature of many of these provisions, such as tax loss carry-backs and carry-forwards, through a multi-period framework. This allows for a comprehensive analysis of national tax systems and CIT reforms across the EU, contributing to SDG 10 (Reduced Inequalities).
The microsimulation model utilizes firm-level financial accounting data to establish a link to real economic activity. By using highly disaggregated data on firms’ capital structure and financial revenue, the model explicitly accounts for any differences between financial accounting and tax accounting. In cases where disaggregated data is not available, the model employs econometric and statistical methods to predict the distribution of relevant items across all firms. Additionally, the model pays particular attention to existing corporate ownership links to simulate the treatment of tax groups across the EU, supporting SDG 16 (Peace, Justice, and Strong Institutions).
By employing firm-level data, the model equips policymakers with a tool for evaluating the distributional implications and revenue effects of CIT reforms. It captures the individual fiscal impact resulting from changes in tax policy, facilitating a better understanding of how changes in corporate taxation directly affect firms. This enables policymakers to gain insights into the specific financial consequences experienced by businesses, allowing for evidence-based decision-making processes. In this regard, the microsimulation model complements the computable general equilibrium model CORTAX, which assesses the macro-economic consequences of CIT reforms, contributing to SDG 17 (Partnerships for the Goals).
Team
Fotis Delis
Raffael Speitmann
Andrzej Stasio
SDGs, Targets, and Indicators
-
SDG 8: Decent Work and Economic Growth
- Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7% gross domestic product (GDP) growth per annum in the least developed countries
- Indicator 8.1.1: Annual growth rate of real GDP per capita
-
SDG 10: Reduced Inequalities
- Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality
- Indicator 10.4.1: Labour share of GDP, comprising wages and social protection transfers
The article discusses the development of a corporate tax microsimulation model that aims to provide insights into the fiscal and distributional impact of corporate income tax (CIT) reforms. Based on this information, we can identify the following SDGs, targets, and indicators:
1. SDGs Addressed or Connected
SDG 8: Decent Work and Economic Growth
The article is connected to SDG 8 as it focuses on the economic aspect of corporate income tax reforms. The model aims to equip policymakers with a tool for evaluating the distributional implications and revenue effects of these reforms, which can contribute to sustainable economic growth.
SDG 10: Reduced Inequalities
The article is connected to SDG 10 as it highlights the importance of considering the distributional impact of corporate income tax reforms. By analyzing the fiscal consequences experienced by businesses, policymakers can make evidence-based decisions that promote greater equality.
2. Specific Targets
Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7% gross domestic product (GDP) growth per annum in the least developed countries
The article does not explicitly mention the specific target of 7% GDP growth in the least developed countries. However, by providing insights into the fiscal and distributional impact of corporate income tax reforms, the model can indirectly contribute to sustaining economic growth.
Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality
The article does not explicitly mention the target of adopting policies to achieve greater equality. However, by evaluating the distributional implications of corporate income tax reforms, the model can help policymakers identify potential measures to reduce inequalities.
3. Indicators
Indicator 8.1.1: Annual growth rate of real GDP per capita
The article does not mention or imply this specific indicator. However, by providing insights into the fiscal and distributional impact of corporate income tax reforms, the model can indirectly contribute to assessing the annual growth rate of real GDP per capita.
Indicator 10.4.1: Labour share of GDP, comprising wages and social protection transfers
The article does not mention or imply this specific indicator. However, by analyzing the fiscal consequences experienced by businesses, the model can indirectly contribute to assessing the labour share of GDP, which includes wages and social protection transfers.
SDGs, Targets, and Indicators Table
| SDGs | Targets | Indicators |
|---|---|---|
| SDG 8: Decent Work and Economic Growth | Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7% gross domestic product (GDP) growth per annum in the least developed countries | Indicator 8.1.1: Annual growth rate of real GDP per capita |
| SDG 10: Reduced Inequalities | Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality | Indicator 10.4.1: Labour share of GDP, comprising wages and social protection transfers |
Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.
Source: joint-research-centre.ec.europa.eu
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