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dsupres · May 20, 2015, 11:43 AM

Currently, goverrnment collects 1.2 Billion in Corporate Tax revenues.

If the economy grows by 5% what is the impact on corporate taxes?

smoothy · May 20, 2015, 11:49 AM

This is homework. What do you think the answer is? And why? We will tell you if you are wrong, but we won't hand you the answers.

dsupres · May 20, 2015, 11:59 AM

This is homework. What do you think the answer is? And why? We will tell you if you are wrong, but we won't hand you the answers
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Ok- I think if the economy grows by 5% and corporate taxes represent 8% of total government revenue

Total economy = 1.2Bn (corporate taxes) x .96% = 1.152 Tn
Economy grows 5%= 1.152 Tn x .005=
then take 8% of the total economic growth to calculate the net impact on taxes.

Am I on the right track?

ma0641 · May 20, 2015, 06:35 PM

What is the .96? First you need the corporate tax rate. This is the 8% you are using? If 8% =1.2B then you can get total revenue but the .96 throws me.

paraclete · May 20, 2015, 06:41 PM

The answer is indeterminate because growth doesn't necessarily mean growth in profits. In a perfect model the value of corporate taxes would grow, but you have to consider what investment is needed to take advantage of growth and how investment allowances, and depreciation might impact taxes. When a market grows more players will move into the market to take advantage of it and it may mean price competition.