Modeling the possible impact of exit capital tax on Ukrainian economy


  • M. V. Stadnyk Ph.D. student of the Department of Tax Policy National University of State Fiscal Service of Ukraine; Senior Economic Analyst, Financial and Economic Analysis Office in the Verkhovna Rada of Ukraine http://orcid.org/0000-0001-9537-271X
Keywords: Ukrainian economy, corporate income tax, exit capital tax, reform, discrete equilibrium model

Abstract

The main directions of enhance the performance and the level of profitability of Ukrainian enterprises is the improvement of corporate income taxation. However, the globalization of the economy in the area of free movement of capital from high to low taxable jurisdictions has led to the erosion of the tax base for corporate income tax on a global scale. The emergence of such international problem highlights the need for study of alternative approaches to the corporate taxation and assessment of their economic impact on the economic environment.

The purpose of this article is to study alternative approaches to corporate income tax reform in the projection of international experience and using of econometric and mathematical modeling.

The scientific novelty of the article is to analyze the integrated approach to the study of the impact of the cash flow corporate income tax (if it be implemented) on the Ukrainian economy through the construction of a discrete equilibrium model based on the combination of economic and mathematical functions related to the activities of business entities and households. The Funke’s and Strulik’s discrete (dynamic) equilibrium model was taken as the basis. This model represents a simple exogenous growth model with an inelastic supply of labor.

As a result of the construction of the model, it was concluded, that the abolition the traditional corporate income tax reduces the possibility of influencing on the change in the structure of investments because all rests of the income are not taxed equally. This is a negative factor for the Ukrainian economy, whose structural adjustment is focused on the production with high added value.

At the same time, there is a probability that the emergence of unconventional differences in the taxation of capital and labor income will lead to complications of tax administration. Also, such a difference in taxation may create incentives for changing the organizational-legal form of ownership from private to corporate (share hold) form, which will lead to shift from labor income to capital.

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14. Auerbach, A. J., Devereux, M. P. Simpson, H. (2008). Taxing corporate income. Centre for Business Taxation Working Paper, 07/05, 837–913.
15. Devereux, M. P., Sorensen, P. B (2006). The Corporate Income Tax: international trends and options for fundamental reform. European Commission. Directorate-General for Economic and Financial Affairs.
16. Rita de la Feria, R., Devereux, M. P. (2014). Designing and implementing a destination-based corporate tax. Oxford University Centre for Business Taxation.
17. Meade, J. E. (1978). The structure and reform of direct taxation. London: Allen and Unwin.
18. Experiences with cash-flow taxation and prospects Final report. (2015). Working Paper, 55. Luxembourg: Office for Official Publications of the European Communities.
19. Mirrlees, J., Adam, S., Besley,,T., Blundell,,R., Bond,,S., Chote,,R., Gammie,,M., Johnson,,P., Myles,,G., Poterba,,J. (2011). Tax by Design: The Mirrlees Review. Oxford: Oxford University Press.
20. Funke, M., Strulik, H. (2006). Taxation, growth and welfare: dynamic effects of Estonia’s 2000 income tax act. Finnish Economic Papers, 19, 1, 25–38.
21. Hazak, A. (2006). Profit Versus Distributed Profit Based Corporate Taxation, Thin Capitalization Rules and Companies’ Capital Structure. Estonian Economic Association: articles from the annual conference.
22. Hazak, A. (2007). Dividend Decision under Distributed Profit Taxation: Investor’s Perspective. International Research Journal of Finance and Economics, 9, 201–219.
23. Azacis, H., Gillman, M. (2010). Flat tax reform: The Baltics 2000–2007. Journal of Macro- economics, 32, 692–708.
24. Masso, J., Meriküll, J., Vahter, P. (2011). Gross profit taxation versus distributed profit taxation and firm performance: effects of Estonia’s corporate income tax reform. University of Tartu, Faculty of Economics and Business Administration Working Papers, 81.
25. Strulik, H. (2003). Capital tax reform, corporate finance, and economic growth and welfare. Journal of Economic Dynamics & Control, 28 (3), 595–615.
26. Sinn, H. W. (1987). Capital Income Taxation and Resource Allocation. Amsterdam: Elsevier Science Ltd.
27. Sørensen, P. B. (2005). Dual Income Taxation: Why and How? FinanzArchiv: Public Finance Analysis, 61(4), 559–586.

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Published
2019-04-25
How to Cite
Stadnyk, M. (2019). Modeling the possible impact of exit capital tax on Ukrainian economy. Scientific Papers of the Legislation Institute of the Verkhovna Rada of Ukraine, (2), 123-134. https://doi.org/10.32886/instzak.2019.02.13