Impact Assessment

Reforming Business Taxes. What is the effect on private sector development, by Miriam Bruhn, The World Bank, 2011

    This note reviews exisiting cross-country and country-level evidence on the effects of corporate tax reforms on private sector development.

    Summary of results
    Both within- and cross-country studies suggest that lowering corporate tax rates can increase investment, reduce tax evasion by formal firms, promote the creation of formal firms, and ultimately raise sales and GDP. These benefits, however, need to be balanced against other objectives of the overall tax regime. Less is known about the effects of reducing compliance costs, largely because of a lack of comparable information. The few completed papers on this topic provide suggestive evidence that simplifying taxes can increase formal firm creation and firms’ sales. But more work, particularly at the within-country level, is needed in this area to allow firm conclusions.