THE TAX ELASTICITY OF FINANCIAL STATEMENT INCOME: IMPLICATIONS FOR CURRENT REFORM PROPOSALS

Current reform proposals in international and corporate tax (most notably the Organisation for Economic Co-operation and Developments Global Anti-Base Erosion proposal) envisage taxing financial statement income. This paper develops a conceptual framework- based on the literature on the elasticity of taxable income (ETI) - for the welfare analysis of such proposals and discusses the available evidence on the tax elasticity of financial statement income. The central conclusion is that the most relevant evidence suggests a large responsiveness of financial statement income to taxes (and, hence, albeit with significant limitations and caveats. arguably a large deadweight loss). The paper also highlights the need for more evidence on this question.