Corporate taxation is once again at the centre of international policy debates. Governments across the world are reconsidering corporate tax rates in the wake of the OECD’s global minimum tax agreement, fiscal pressures following the pandemic, and increasing concerns about tax avoidance and profit shifting. These discussions often hinge on a crucial economic parameter: how strongly firms respond to tax incentives.

If firms substantially reduce taxable income when taxes rise — by adjusting investment, shifting profits across jurisdictions, or changing reporting strategies — then higher corporate tax rates may raise little revenue and generate significant efficiency costs. If firms respond less strongly, tax increases may raise revenue with relatively limited economic distortions.

Economists summarise this behavioural response using the elasticity of taxable income. Early research emphasised the importance of this parameter for evaluating tax policy (Feldstein 1995, Saez et al. 2012). Yet most existing estimates focus on individual taxpayers, while evidence for corporations remains relatively sparse and limited to a single country (for example, Devereux et al. 2014, Bachas and Soto 2021, Lediga et al. 2019). As Vaitilingam (2021) summarises in a VoxEU survey of leading economists, the debate about how corporate taxes affect firm behaviour remains far from settled, even among specialists. This matters because corporate taxation operates in a highly international environment. Differences in tax systems, economic structure, and firm behaviour mean that identical tax policies can produce very different outcomes across countries.

New evidence from administrative tax data

In new research, we provide the first globally comparable estimates of corporate taxable income elasticities using administrative tax-return data from 16 countries spanning advanced and emerging economies (Agostini et al. 2026). Our findings show substantial cross-country heterogeneity in firms’ responses to taxation, with important implications for national and international tax policy.

Estimating corporate tax responsiveness is challenging. First, methodology matters, as studies using different approaches in the same country can yield different estimates. To address that, we exploit a feature universal to all corporate tax systems: firms face a sharp discontinuity in their tax rate at zero taxable income because losses are not immediately refundable. The tax rate jumps when income crosses from negative to positive. This creates an incentive for firms to bunch at exactly zero. By measuring the excess concentration of firms at zero relative to what we would expect in the absence of this change in incentives and comparing it with the number of firms just below zero, we can estimate how responsive firms are to the tax change they face.

Using the same method across countries allows us to isolate genuine differences in behaviour rather than differences arising from methodological approaches.

Corporate tax responsiveness varies widely across countries

Across the 16 countries in our sample, estimated elasticities range from 0.075 to 1.9, with an average of roughly 0.79 (Figure 1). In practical terms, this implies that a 10% increase in the net-of-tax rate raises reported taxable income by around 8% on average. Although this range is narrower than earlier estimates suggested, it still reveals substantial cross‑country heterogeneity.

Figure 1 Elasticities of corporate taxable income across countries

These differences have direct implications for tax policy. For example, a one‑percentage‑point increase in the corporate tax rate generates different revenue responses across countries because the mechanical revenue effect interacts with behavioural adjustments in the tax base. Countries with more elastic tax bases experience larger reductions in taxable income following a tax increase. For two countries with the same statutory corporate tax rate, a 1% rate increase raises revenue by 0.74% in Norway but only 0.56% in Greece – a gap driven by Greece’s substantially more elastic corporate tax base.

The efficiency costs of corporate taxation also vary dramatically across countries (Hendren and Sprung-Keyser 2020). On average, each additional dollar of corporate tax revenue costs about 32 cents in efficiency terms – the deadweight loss associated with firms’ behavioural responses to taxation. But this average conceals enormous heterogeneity: the efficiency cost reaches 79 cents per dollar of revenue raised in Greece and nine cents in Austria.

Why do elasticities differ across countries?

To understand this variation, we use machine learning methods and 95 observable characteristics of countries and their firms. Three factors appear particularly important:

1. Tax system design: Countries with more complex tax systems — including provisions such as loss carry-forwards, tax holidays, or minimum taxes — may provide firms with greater opportunities to adjust taxable income in response to tax incentives.
2. Firm characteristics: Firms with larger operations and activities spanning multiple countries often have greater ability to shift profits or reorganise investment in response to taxation.
3. Figure 1 Elasticities of corporate taxable income across countries: Countries with stronger economic fundamentals, such as higher income levels, tend to exhibit higher elasticities, potentially reflecting greater international mobility of capital.

Implications for global corporate tax reform

These findings have important implications for ongoing policy debates.

First, they highlight the limitations of relying on a single ‘universal’ elasticity estimate. Behavioural responses differ significantly across institutional and economic environments, suggesting that policymakers should rely on country‑specific evidence when evaluating tax reforms.

Second, cross‑country heterogeneity implies that coordinated international tax policies may generate uneven effects. As Bilicka et al. (2025) argue on VoxEU, the OECD’s global minimum tax initiative fundamentally changes the incentives for profit shifting by multinational enterprises, but the associated revenue and efficiency effects depend critically on how responsive firms are in each participating country. Our estimates, which cover a much wider set of countries than previously available, allow these questions to be addressed with greater empirical grounding.

Third, because these elasticities depend not only on tax rates but also on tax system design, governments have additional policy levers beyond headline rates. Features such as loss offset rules, minimum taxes, and enforcement regimes can materially shape firms’ responses to taxation. This suggests that tax policy coordination and reform should consider the broader institutional environment, not just statutory rates.

Finally, understanding these behavioural responses is essential for evaluating the efficiency costs of taxation. In countries where firms respond strongly to tax changes, raising corporate tax rates may generate larger distortions to investment and production decisions. In countries where responses are weaker, similar tax increases may raise revenue with relatively modest economic costs.

Understanding these differences is therefore essential for designing tax systems that balance revenue needs with economic efficiency.

Open data for open policy

Beyond the specific findings, this study demonstrates that the challenge of cross-country comparability in tax research can be addressed through methodological harmonisation and administrative data collaboration. The Global Tax Research Initiative behind this work offers a model for how researchers and governments can produce the evidence base that international tax policy negotiations increasingly require. All estimates, revenue and efficiency implications, and the standardised code needed to replicate or extend the analysis are freely available at www.globaltaxresearchinitiative.org.

These resources are designed to support more informed decision-making about corporate tax policy, both domestically and in multilateral settings.

References

Agostini, C A, Z Asatryan, L Bach, G Bernier, M Bertanha, K Bilicka, A Brockmeyer, J Bukovina, G Falcone, P Garriga, Y He, P Janský, E Koumanakos, T Lichard, T Martins, J Palguta, E Patel, J Pereira dos Santos, L Perrault, T Schwab, N Seegert, O Škultéty, K Strohmaier, M Todtenhaupt, G Vuletin and B Žúdel (2026), “The Elasticity of Corporate Taxable Income Across Countries”, NBER Working Paper 34945.

Bachas, P and M Soto (2021), “Corporate Taxation under Weak Enforcement”, American Economic Journal: Economic Policy 13(4): 36–71.

Bilicka, K, M Devereux and İ Güçeri (2025), “Reforming international taxation: Balancing profit shifting and investment responses”, VoxEU.org, 30 November.

Devereux, M, L Liu and S Loretz (2014), “The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records”, American Economic Journal: Economic Policy 6(2): 19–53.

Feldstein, M (1995), “The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act”, Journal of Political Economy 103(3): 551–572.

Hendren, N and B Sprung-Keyser (2020), “A Unified Welfare Analysis of Government Policies”, Quarterly Journal of Economics 135(3): 1209–1318.

Lediga, C, N Riedel and K Strohmaier (2019), “The Elasticity of Corporate Taxable Income: Evidence from South Africa”, Economics Letters 175: 43–46.

Saez, E, J Slemrod and S Giertz (2012), “The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review”, Journal of Economic Literature 50(1): 3–50.

Vaitilingam, R (2021), “Corporate taxes: Views of leading economists on profit-shifting, tax base and a global minimum rate”, VoxEU.org, 6 July.