Comparison of a lower corporate income tax rate for small and large businesses

Abstract

The comparative effects of a lower corporate income tax rate on effective tax rates and investment decisions of small an d large businesses are assessed, and some of the implications for the economy are explored. A lower corporate tax rate results in a larger reduction in the effective tax burden facing large businesses. This combined with the higher funds supply elasticity generates a larger investment response by large businesses, and flow on to GDP and labour incomes. Despite this, however, a larger share of the benefits of a lower corporate tax rate accrue to non-resident shareholders of large businesses.