Reduction of corporate tax rate from 22 percent to 17 percent increases wages for blue collar workers by 3300 DKK

Type:English
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Indholdsfortegnelse

Indholdsfortegnelse

International competition in lowering corporate taxes is currently becoming more intense. Sweden will be lowering its corporate tax from 22 percent to 20.6 percent. The United States has undertaken a significant reduction of its corporate tax, from 35 percent to 21 percent. Hungary lowered its corporate tax by 10 percentage points down to 9 percent in 2017, while France and Belgium will be lowering their corporate taxes by about 9 percentage points in coming years. The United Kingdom lowered its corporate tax to 19 percent in 2017, and has additionally announced plans to reduce it to 17 percent in 2020. If the centre-right coalition government reduces the Danish corporate tax rate from 22 percent down to 17 percent (corresponding to the UK's plans for 2020), then a typical wage earner will earn an additional 3,300 DKK before taxes, according to calculations by the Ministry of Finance and CEPOS.

The increase in wages is due to the fact that lower corporate tax rates make it more attractive for businesses to invest in new technologies and machines. The better the machines employees have to work with, the more they can produce per working hour (i.e., increased productivity). This leads to higher real wages for wage earners. In Denmark, income transfers follow wage developments in the private sector by law. Thus, higher wages will also have an effect on income transfers. Unemployment benefit recipients will receive an additional 2,000 DKK annually before taxes, while an individual receiving a public old-age pension will receive an additional 1,600 DKK annually.

Reducing the corporate tax by 5 percentage points would also increase the GDP by 14 billion DKK (0.6 percent of GDP), primarily through increased productivity. The employment effect would be about 1,500 persons, according to the Ministry of Finance. Revenue losses after accounting for behavioural effects would be 6 billion DKK (0.3 percent of GDP). This revenue loss can be financed by the public sector's fiscal space of 27 billion DKK through 2025 (to be spent on either lower taxes or increased public spending).

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