A reduction of the tax burden on corporate income in order to stimulate drivers of economic development has become the important issue of tax reform in many countries in recent decades. Tax competition forces national governments to take well-balanced solution on increasing outward and domestic investments as well as ensuring the fiscal capacity of the budget to cope with urgent socio-economic problems under enhancing fiscal risks. The purpose of the article is to assess the impact of tax reforms, addressing reducing the corporate income tax burden, on the fiscal space and investment processes in the EU countries and Ukraine, to establish directions of improvement of the tax system in Ukraine and other transition economies in order to spur the expansion of fiscal space. The research subject covers tax policy settings that shape fiscal space development. Research methodology. In accordance with the purpose of the article, the research methods are set as follows: abstract-logical; systemic analysis; analysis and synthesis; graphical method. Findings. By summing up theoretical ideas on the issue of feasibility of cutting corporate income tax, we have arrived at the conclusion that this measure has a significant impact on the improvement of tax competitiveness of the national economy. The gain from its application is confirmed by the best practices of many European countries.
The results of the tax reform in Ukraine have proved that a traditional approach to the choice of tax issues – in contrast with developed economies – do not comply with theoretical provisions on increasing the competitiveness of the national economy and fostering investments. This is conditional on the specific tax effects in Ukraine due to the restriction of the key economic freedoms (investment, financial, property rights protection and judicial effectiveness) needed for successful entrepreneurship, as well as of a high rate of corruption, which increases the costs of business activity. Such effects include, in particular, a drop of tax revenues in the short and long term while reducing the level of corporate income taxation; a high level of tax evasion, capital outflow instead of expanding investment in the national economy.
It is argued that the emphasis while carrying out tax reforms and expanding fiscal space in transition economies considering the specific effects of changing corporate income tax provisions, should be made on ensuring the long-term sustainability of public finances through measures of budget adjustments aimed at avoidance shifting the existing fiscal problems on future generations; harmonization of national tax legislation with the EU regulations and prevention of tax evasion; increasing the financial capacity of enterprises by introducing targeted innovation tax incentives, which will gain higher competitiveness of the country in the world markets and as a result facilitate the growth of the country’s future revenue receipts.
How to Cite
tax reform, tax burden, investment rate, fiscal space, corruption, shadow economy, targeted innovation tax incentives
Blankart, Ch. B. (2000). Derzhavni finansy v umovakh demokratii. Vstup do finansovoi nauky [Public finances in a democracy. Introduction to Financial Science]. Kyiv: Lybid.
Braid, R. M. (1993). Spatial competition between jurisdictions which tax perfectly competitive retail (or production) centers. Journal of Urban Economics, vol. 34(1), рр. 75–95.
Braid, R. M. (2005). Tax competition, tax exporting and higher-government choice of tax instruments for local governments. Journal of Public Economics, vol. 85, рр. 1789–1821. doi: https://doi.org/10.1016/j.jpubeco.2004.04.004
Brys, B., Matthews, S., & Owens, J. (2011). Tax Reform Trends in OECD Countries. Taxation Working Papers, vol. 1. doi: https://doi.org/10.1787/5kg3h0xxmz8t-en
Bunn, D., & Asen, E. (2019). International tax Competitiveness Index 2019. Tax Foundation, р. 63. Retrieved from: https://files.taxfoundation.org/20190930115625/2019-International-Tax-Competitiveness-Index.pdf
Chapman, J., & Zahradnik, R. (2015). Reducing Budget Risks. Report «Economic Development Tax Incentives, States’ Fiscal Health». Retrieved from: https://www.pewtrusts.org/en/research-and-analysis/reports/2015/12/reducing-budget-risks
Coughlan, V. (2015). Europe’s Push For Tax Transparency Picks Up The Pace. Law360, New York. Retrieved from: https://www.cov.com/~/media/files/corporate/publications/2015/12/europe_push_for_tax_transparency_picks_up_the_pace.pdf
Dehejia, V. H., & Genshel, Ph. (1998). Tax Competition in the European Union. MPIfG Discussion Paper, № 98/3. Retrieved from: https://www.europarl.europa.eu/workingpapers/econ/pdf/105_en.pdf
Deutsche Nachhaltigkeitsstrategie. Neuauflage 2016,. Retrieved from: https://www.bundesregierung.de/resource/blob/975292/730844/3d30c6c2875a9a08d364620ab7916af6/deutsche-nachhaltigkeitsstrategie-neuauflage-2016-download-bpa-data.pdf?download=1
Eichler, M., & Emmenegger, M. (2018). Low taxes and spending discipline: Swiss public finances healthy. Retrieved from: http://www.baktaxation.com/media/BakDownloadStucktur/Medienmitteilungen/2018/2018_12_27_Low_taxes_and_spending_discipline_Swiss_public_finances_healthy.pdf
Employer social security tax rates. (2019). Retrieved from: https://home.kpmg/xx/en/home/services/tax/tax-tools-and-resources/tax-rates-online/social-security-employer-tax-rates-table.html (accessed May 28, 2020).
European Commission (2016). Commission proposes major corporate tax reform for the EU. Retrieved from: https://ec.europa.eu/commission/presscorner/detail/en/IP_16_3471 (accessed May 28, 2020).
Fitch Ratings. Ukraine. (2019). Retrieved from: https://www.fitchratings.com/search?&query=ukraine&dateValue=lastYear(accessed May 28, 2020).
Fuest, C. (2019). Steuerreform statt zusätzliche Staatsausgaben. IFO Standpunkte, vol. 203. Retrieved from: https://www.ifo.de/Standpunkt/ifo-Standpunkt-203-Steuerreform-statt-zusaetzliche-Staatsausgaben
Gordon, R. H., & Bovenberg, A. L. (1994). Why is capital so immobile internationally? Possible explanations and implications for capital income taxation. NBER Working Paper, vol. 4796, р. 33. Retrieved from: https://www.nber.org
Index of Economic Freedom. 2020. Retrieved from: https://www.heritage.org/index/explore?view=by-region-country-year (accessed May 28, 2020).
Intergenerational Report 2002-03. Commonwealth of Australia. The Treasury, Parkes ACT. Budget Paper, vol. 5. Retrieved from: www.treasury.gov.au
Johansson Å., Heady C., Arnold J., Brys B., & Vartia L. (2008). Taxation and Economic Growth. OECD. Economics department. Working Paper, vol. 620. doi: https://doi.org/10.1787/18151973
Kazutoshi, M., Hikaru, O., & Toshiki, T. (2018). Tax Competition and Fiscal Sustainability. Retrieved from: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2018/2018cf1103.pdf
Kopits, G. (2014). Coping with fiscal risk. Analysis and practice. OECD Journal on Budgeting, vol. 14, no. 3, рр. 47–71. doi: https://doi.org/10.1787/16812336
Lederman, D., & Lesniak, J.T. (2018). Open and Nimble Finding Stable Growth in Small Economies International Bank for Reconstruction and Development. The World Bank. doi: https://doi.org/10.1596/978-1-4648-1042-8
Lunina, I. O., & Bilousova, O. S. (2018). Instrumentarij prohnozuvannia biudzhetnykh naslidkiv podatkovoho stymuliuvannia innovatsijnoi diial’nosti [Tools for forecasting the budgetary consequences of tax incentives for innovation]. Statistics of Ukraine, no. 2, рр. 51–61. doi: https://doi.org/10.31767/su.2(81)2018.02.07
Naukova ta innovatsijna diial’nist’ Ukrainy. 2019 [Scientific and innovative activity of Ukraine. 2019]. State Statistics Service of Ukraine. Statistical Collection.
Nyna Yuzhanyna o ESV: Vremeny u nas net [Nina Yuzhanina on ERUs: We don’t have time]. April 5, 2016. Retrieved from: https://dengi.ua/magazine/nedvizhimost/1795699-nina-juzhanina-o-esv-vremeni-u-nas-net
Obstezhennia innovatsijnoi diial’nosti v ekonomitsi Ukrainy za period 2014-2016 rokiv (za mizhnarodnoiu metodolohiieiu) (2017) [Survey of innovation activity in the economy of Ukraine for the period 2014- 2016 (according to the international methodology)]. State Statistics Service of Ukraine. Retrieved from: http://www.ukrstat.gov.ua
Overesch, M., & Rincke, J. (2011). What Drives Corporate Tax Rates Down? A Reassessment of Globalization, Tax Competition, and Dynamic Adjustment to Shocks. The Scandinavian Journal of Economics, vol. 113, issue 3, pp. 579–602.
Porter, M., Sachs, J., & McArthur, J. (2002). Executive summary: Competitiveness and stages of economic development. The global competitiveness report 2001–2002. New York: Oxford University Press. Retrieved from: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.476.4940&rep=rep1&type=pdf
Porter, M. E. (2007). Konkurentsyia [Competition]. Moscow: Williams. Retrieved from: http://www.williamspublishing.com
Remeur, C. (2015). Tax policy in the EU. Taxation. In depth analysis. European Parliamentary Research Service. Members’ Research Service. PE549.001. doi: https://doi.org/10.2778/541941
Rozen, H. (1992). Public finance. [3rd ed.]. USA: IRWIN Inc.
Schneider, F., & Boockmann, B. (2020). Die Größe der Schattenwirtschaft – Methodik und Berechnungen für das Jahr 2020. Linz und Tübingen.
Smith, A. (1935). Yssledovanye o pryrode y prychynakh bohatstva narodov [A study on the nature and causes of the wealth of peoples]. Moscow.
Stiglitz, J. (2015). Tax avoidance fuels global inequality. Retrieved from: http://edition.cnn.com/2015/10/09/opinions/stiglitz-tax-avoidance-globalization/
Tanzi, V. (2007). Fiscal Policy in the Future: Challenges and Opportunities. “Fiscal Policy Challenges in Europe”, Berlin, March 22–23, 2007. Retrieved from: https://pdfs.semanticscholar.org/f240/e74022a1e03969a9a2799797b4603e5e0f66.pdf
Tanzi, V. (2014). Taxation and Equitable Economic Development. A Historical Note, November 2014.
Tanzi, V., & Schuknecht, L. (2000). Public spending in the 20th Century: a global perspective. Cambridge University Press.
The World Bank (2018). GDP per capita. World Bank national accounts data, & OECD National Accounts data files. Retrieved from: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=UA (accessed May 28, 2020).
World Investment Report 2013: Global ii Value Chains: Investment and Trade for Development [coordin. by James Zhan]. Geneva: UNCTAD, United Nations Publication, 236 p. Retrieved from: https://unctad.org/en/PublicationsLibrary/wir2013_en.pdf (accessed May 28, 2020).
Zahalni tendentsii tinovoi ekonomiky v Ukraini u 2018 rotsi. Ministerstvo ekonomichnoho rozvytku Ukrainy [General trends of the shadow economy in Ukraine in 2018]. Ministry for Development of Economy, Trade and Agriculture of Ukraine. Retrieved from: https://www.me.gov.ua/Documents/List?lang=uk-UA&id=e384c5a7-6533-4ab6-b56f-50e5243eb15a&tag=TendentsiiTinovoiEkonomiki (accessed May 28, 2020).