Abstract: There are debating arguments whether raising tax rate does increase tax revenue. This study investigates the relationship between tax rate and tax revenue using the data for the 34 countries from OECD tax database between 1981 and 2015. And this study executes non-linear regression analysis in order to analyze the relationship. The result is that the national openness measured by the scale of the overseas trade weakens the positive (+) relationship between the corporate tax rate and the corporate tax revenue. This proves that the increase in corporate tax rate might not lead to the increase in the corporate tax revenue as the amount of the overseas trade gets larger. In the current world’s economic condition where the trade between multinational corporates and countries are active, the main conclusion is that the tax policy of raising the corporate tax rate to secure the corporate tax revenue can rather lead to the result of failing to secure the corporate tax revenue.
INTRODUCTION
Since beginning of the Park Geun-hye Administration in South Korea, there has been the direction of policy that aims to increase taxes for different tax items. Especially the corporate tax system abolished or reduced the scope of taxation support under the existing Special Tax Treatment Control Law. The opposition party, in particular, claims the increase in corporate tax rate. However, increase in corporate tax rate to secure the tax revenue can have an effect in the short term, but its effect on activation of economy should be analyzed from the middle and long term perspective.
The domestic corporate tax rate (maximum corporate tax rate) is currently 22%, a little bit short of the average of OECD countries, but the international trend and policy direction for the corporate tax system is focused on reduction of the corporate tax rate. The tax competition to attract the international capital is getting fierce and the focus across the world is on reduction of the corporate tax rate. Also, the keen competition between the OECD countries to cut the corporate tax makes Korea inevitably follow the suit to improve national competitiveness. Since the global financial crisis in 2008, 30 countries out of 34 OECD countries, which accounts for 88.2% have the policy of reducing (13 countries) or maintaining (17 countries) the maximum corporate tax rate and the average corporate tax rate of OECD saw a 0.6% decrease in 2012 with 23.3% from 23.9% in 2008.
For the businesses in Korea to grow internationally in this competition over the corporate tax cut, there needs to be a policy to secure the business competitiveness by creating the condition where the businesses can show aggressive performance inside and outside of Korea. In this regard, this study aims to examine the validity of the policy of the corporate tax increase by analyzing its effect on short-term increase in tax revenue and middle and long-term activation of economy.
Academically, there is an argument that the corporate tax rate definitely contributes to the corporate tax revenue, but its effect on the tax revenue can vary depending on the economic condition of the country and the usage of the corporate tax revenue as discussed by Allingham and Sandmo (1972), Clausing (2007) and Laffer (2004). Therefore, this study attempts to analyze the effect of the changes in the corporate tax rate on the corporate tax revenue according to the openness of the national economy and the usage of tax revenue. The analysis result of this study will provide implications for policy by showing that the increase in the corporate tax rate to secure the tax revenue does not necessarily contribute to the tax revenue and that other factors which affect long-term domestic economy need to be taken into consideration.
As the major researches on relationship between tax rate and tax revenue (Clausing, 2007) using Laffer curve, Clausing (2007) empirically analyzed the OECD countries from 1979 and 2002 to see how the maximum legal corporate tax rate, the tax system of each country and the changes in the proportion of businesses against GDP affect the corporate revenue. This research showed that the corporate tax revenue was maximized when the average corporate tax rate of OECD was 33% and that the proper point of tax rate decreased when the country had a small-sized economy and was more open to other countries. Brill and Hassett (2007) reconfirmed the parabolic form of the tax rate and tax revenue of the OECD countries, which was shown in Clausing (2007) earlier.
Empirically analyzed the OECD countries from 1979 and 2002 to see how the maximum legal corporate tax rate, the tax system of each country and the changes in the proportion of businesses against GDP affect the corporate revenue. This research showed that the corporate tax revenue was maximized when the average corporate tax rate of OECD was 33% and that the proper point of tax rate decreased when the country had a small-sized economy and was more open to other countries. Brill and Hassett (2007) reconfirmed the parabolic form of the tax rate and tax revenue of the OECD countries, which was shown in Clausing (2007) earlier.
Clausing (2007) used the variables and data but he extended the period of analysis by using the data between 1980 and 2005. The period was divided by 5 years and analyzed the changes of the Laffer curve for each 5 years. This research suggests that the relationship between the tax rate and tax revenue shows convex type. Also, the empirical analysis was conducted not only of the maximum legal tax rate but also of the tax items through national tax and local tax and the result shows that the proper point of the maximum legal corporate tax rate was higher when the national tax and local tax were the explanatory variables and the range of the tax rate drop got smaller with time. And the shape of the parabola in the Laffer curve became steeper with time and the difference between the proper point of tax rate in the Laffer curve and the average tax rate of the OECD countries got smaller. This was more evident when the mobility of capital increased, according to his analysis.
Devereux et al. (2004) attempted to analyze the reason for the increase in the corporate tax revenue even though the corporate tax rate was reduced in England. This research analyzed the effect caused by the revision of tax law, earnings rate of the corporate, expansion of the corporate size and the increase and decrease of the tax revenue through different macroeconomic variables. And the result shows that the effect of the changes in the revision of tax law such as expansion of the taxation brackets on the corporate tax revenue was negligible. Also, the corporate tax revenue against the corporate earnings estimated under the assumption that the revision of the tax law has not happened showed increase, which indicates that the effect of the increase in the corporate earnings on the tax revenue was bigger than that of the macroeconomic variables.
Altshuler and Grubert (2001) reported their research analysis that higher openness of the country and direct investment by foreigners make the resilience of the foreign capital over the tax dividend higher, which leads to the increase in the economic activities of the corporate and becomes the decisive factor of the increase in the corporate tax revenue.
In the domestic researches, Lee (2006) empirically verified that the corporate tax revenue and the resilience over the corporate tax rate depend on the openness of the economy by using data for different countries. Considering that the corporate activities are becoming more flexible inside and outside of the country with economic openness, the degree of the corporate revenue increase according to the increase in the corporate tax rate can be weakened due to the economic openness as discussed by Boylan and Frischmann (2006). Oh (2013) analyzed the effect of the openness on the corporate tax rate and corporate tax revenue and the result suggests implications that when the government performs a tax policy to secure the corporate tax revenue by raising the corporate tax rate, the tax rate increase can dramatically reduce the tax revenue in the bracket where it is over the proper tax rate.
And the literatures on the effect of corporate tax policy, as like Jorgenson (1963), Summers (1981) and Hayashi (1982) confirmed that the corporate tax rate affects the economic growth including the investment and employment of the businesses. Jorgenson (1963) first suggested the result of the empirical analysis along with the investment theory which shows that the corporate tax can affect the decision making for investment, followed by Hayashi (1982), Eisner and Strotz (1963), Lucas (1967) and Abel (1980). The common result of these researches indicates that the change (increase) in the corporate tax rate can have a positive effect on the tax revenue that contributes to the finance of the government in the short term, but has a negative effect on economic growth in the middle and long term.
Also, in the recent research on the effect of the changes in the corporate tax rate on the investment of businesses, Djankov et al. (2008) calculated the effective corporate tax rate by using the data of 85 countries in the world collected in collaboration with Pricewarer house Coopers, World Bank and Harvard University. The effective corporate tax rate is calculated not by using the theoretical model but by creating the standard imaginary corporate and calculating how much the corporate would have to pay for the tax in a certain country. Using this effective corporate tax rate and other data, they assumed the models that can explain various corporate behaviors including investment and listing and the analysis result shows that the corporate tax has a significant and stable effect on the selection of location for investment as discussed by Kim et al. (2005). Also, it suggested the empirical result that the investment rate against GDP drops by 2% when the corporate tax rate goes up by 10%.
In the domestic researches, Kim (2003) conducted the comparative static analysis of the effect of changes in the corporate tax system on investment by using neoclassical investment model and the result shows that increase in the deductible rate of investment tax, investment preparation fund and depreciation rate vitalizes investment by cutting the pre-tax return on required capital. However, the increase in the corporate tax rate caused the decrease in the pre-tax return on required capital and had a positive effect on the corporate investment, showing conflicting result of the common investment theory.
Lee and Kim (2004) analyzed how reduction of the corporate tax rate affects investment in different industries through panel analysis using data from Korea Investors Service. The result shows that the reduction of the nominal corporate tax rate did not greatly boost the investment of the businesses. However, to analyze the effect of corporate tax rate cut on the investment and employment of businesses, Kim (2004) simplified the cross-section data of the corporate level from Korea Investors Service and analyzed it through 2SLS method. The result of the research reports that the net investment resilience over the corporate tax burden using the average effective tax rate was -0.131 and that the tax burden of the businesses has a significant effect on investment. Also, in the result of analysis using Zimmerman tax rate, the net investment resilience was -0.066, which was smaller compared to the one that used the average effective tax rate but still had a significant effect on investment.
Cummins et al. (1994) empirically analyzed the effect of changes in the corporate tax rate on FDI by utilizing Compustate’s geographic file and the result shows different empirical evidence from the previous researches that the corporate’s decision making on the overseas direct investment has nothing to do with tax. They argue that the tax parameter of the overseas direct investment exactly corresponds with the directions proposed by the neo-classical model and that the businesses are making direct investment to the countries with relatively low tax rate as discussed by Alm et al. (1995).
MATERIALS AND METHODS
Hypothesis development
Effect of welfare expenditure size on the relationship between corporate tax rate and tax revenue: The government is increasing the size of the welfare expenditure annually and trying to find ways of tax revenue effects to cover the finances of the welfare expenditure. If the purpose of the corporate tax rate raise is to increase the corporate tax revenue for covering the shortage of the welfare expenditure finances, it is needed to analyze how the scale of the welfare expenditure affects the relationship between the corporate tax rate and tax revenue. If the corporate tax revenue is used for the reinvestment and the finances for building the social infrastructure, it can play a role of a virtuous circle in the management result of businesses as discussed by Jorgenson (1963). That is, reinvestment and foundation of social infrastructure work as a factor that enhances the profitability of the businesses, yielding the effect of a virtuous circle in increasing the corporate tax venue. However, if the corporate tax revenue is spent on the simple welfare section that does not have the effect of a virtuous circle, it can have a negative impact on the business management from the middle and long term perspective.
Effect of tax raise policy on the relationship between corporate tax rate and tax revenue: The OECD countries are conducting a policy of cutting the corporate tax rate in an aim to secure the international competitiveness and to have a competitive edge in terms of tax. This kind of competitive reduction policy for the corporate tax rate might reduce the corporate tax revenue but in the middle and long term, it provides attractions for the multinational corporates to invest in the domestic companies and secures the international competitiveness of the domestic companies as discussed by Clausing (2007). Especially among the OECD countries that increased or decreased the corporate tax rate, there are more countries which cut the corporate tax rate, 66.7% in 2014 and 87.5% in 2015, proving that the OECD countries are pursuing the corporate tax policy for tax competition and international competitiveness. Therefore, this study tries to analyze if the increase in the corporate tax rate has an effect on the growth of the corporate tax revenue. This is exactly the analysis of the effect of the corporate tax raise policy continuously claimed by some people in the government and political parties.
Data source: For the analysis, the study collected and utilized the data for the 34 countries from OECD Tax Database between 1981 and 2015. It consists of the factors such as the corporate tax rate, corporate tax revenue, the amount of export and import, the governmental expenditure on the welfare and economic environment factors such as employment rate and economic growth rate. The data for some countries were not found in the database and addressed as missing, which were later supplemented by the data from WDI in the World Bank.
The corporate tax revenue and the nominal corporate tax rate against GDP were below 3% until 1996, but they have shown growth up to 3.7%. Also, the nominal corporate tax rate showed its peak in 1983 with 48.19% and has been declining gradually since. Especially after 2004, it dropped drastically to around 20%. The competition for cutting the corporate tax rate between OECD countries has become fierce lately and it is noteworthy to see that the corporate tax revenue is rather increasing instead of decreasing. This phenomenon can be interpreted that the OECD countries cut the corporate tax rate in an aim to secure the competitiveness, which led to more investment by the foreign corporates, encouraging the investment by the domestic corporates and increasing the corporate tax revenue.
Research model: The research model in this study was designed as shown in Eq. 1 putting as its basic assumption the argument by Laffer (2004) that the corporate tax rate and the corporate tax revenue show non-linear model instead of linear model:
| (1) |
Also, to analyze the effect of the level of economic openness on the corporate tax rate and the corporate tax revenue, the study added interactive factors of the economic openness level to the corporate tax rate after controlling the socio-economic conditions, which was used by Clausing (2007), Altshuler and Grubert (2001) and Oh (2013):
| (2) |
Equation 3 is a research model to analyze how securing the welfare expenditure finances from the corporate tax revenue affects the relationship between the corporate tax rate and the corporate tax revenue. It defined the interactive factor of the welfare expenditure in the corporate tax rate:
| (3) |
Equation 4 is a research model to analyze the effect of OECD countries, which raised the corporate tax rate, on the relationship between the corporate tax rate and the corporate tax revenue. It is defined as the interactive factor with the corporate tax rate multiplied by the dummy variable of the corporate tax rate raise:
| (4) |
In the Eq. 1-4, the dependent variable (Corp_TaxRev/GDP) is the ration of the corporate tax revenue against GDP and the corporate tax rate variable (Corp_TaxRate) is defined as the highest nominal corporate tax rate, which is the national tax including local tax. Also, openness (OpenTrade/GDP) was measured as the amount of import and export against GDP.
The welfare expenditure (Welfare/GDP) is defined as the amount of the welfare expenditure against GDP (Welfare/GDP) and the dummy factor (Dummy) of the corporate tax raise was defined as "1", if the tax rate has been raised and defined as "0", when it has not been raised. Also, for the economic growth (Growth), GDP per capita is measured by subtracting log (GDP per capita) in the year of t-1 from log (GDP per capita) in the year of t. Also, unemployment rate was defined through the annual unemployment rate provided by OECD.
RESULTS
Descriptive statistics and correlation: In the Table 1, Corp_TaxRev/GDP is 2.914% on average, ranging from the lowest 0.27% to the highest 12.76%. Corp_TaxRate is 35% on average, ranging from the lowest 12.5% to the highest 61.7%. OpenTrade shows the average of 1.66 against GDP, ranging widely from 0.003-256 and Welfare has the average of 22.2%, ranging from 18.5-28.14%. Also, dummy variable has the average of 10.7%, showing the sampling distribution of the 101 OECD countries-years. The economic growth, which shows the socio-economic conditions, Unemply and GDP have the average of 2.63, 7.45 and 76.68%, respectively.
According to Table 2, although the relationship between the corporate tax rate and the corporate tax revenue is non-linear, it showed the positive (+) sign lately with statistical significance. On the other hand, in the whole data from 1981-2013, it shows the correlation coefficient of -0.11867 with statistical significance. The negative (-) relationship between the corporate tax rate and the corporate tax revenue suggests that the tax rate raise can cause reduction of the tax revenue situation as discussed by Korean National Assembly Budget Office (KNABO., 2015).
The result of analyzing the correlation between the square of corporate tax rate (Corp_TaxRate2) and the corporate tax revenue (Corp_TaxRev) to confirm the non-linear relationship suggested by Clausing (2007) and Laffer (2004) is as shown in Table 3. The result with statistical significance appeared in the early 1990s, in the early 2000s and in the recent whole sample, showing the same result as Table 2 above. However, even though it has to show the negative (-) correlation coefficient when having non-linear relationship, the result of this study showed the positive (+) sign. In the whole sample, on the contrary, shows the negative (-) correlation coefficient as expected. The result shows that the proper tax rate in the Laffer curve does not exist, generally showing similarity with the linear relationship. Therefore, non-linear regression model, which includes the corporate tax rate and the square of the corporate tax rate is regarded as the proper analysis method.
Non-linear regression results
Effect of welfare expenditure size on the relationship between corporate tax rate and tax revenue: Table 4 shows the result of analyzing the effect of the welfare expenditure (Welfaret/GDPt) on the corporate tax rate and the corporate tax revenue.
| Table 1: | Descriptive statistics of samples |
The analysis focused on the effect when the corporate tax revenue was used for the welfare expenditure finances for the year. All the corporate tax rates from the column 1-4 except for the column 2 show the positive (+) coefficient and the interactive variable between the corporate tax rate and the welfare expenditure shows the negative (-) sign.
The result indicates that when the corporate tax revenue is used for the welfare expenditure finances for the year, it aggravates the positive (+) relationship between the corporate tax rate and the corporate tax revenue. That is, when the corporate tax revenue is used for the facility investment to expand the social and economic foundation, the scope of the corporate tax source is widened and the corporate tax revenue can be increased. But when the corporate tax revenue is spent on the welfare expenditure, there is a possibility that the corporate tax revenue goes down from a long-term perspective.
The implication here is that when the corporate tax rate is increased to expand the corporate tax revenue for securing the welfare expenditure finances, it can increase the corporate tax revenue in the short term, but with the economic condition worsening in the long term, the corporate tax revenue can decline. Therefore, the policy to increase the corporate tax revenue through simple tax rate raise can lead to the opposite result that the policy intended depending on the usage of the corporate tax revenue. Especially in Korea, the corporate tax accounts for the biggest portion of the tax revenue and the international trade takes up a large portion in profit making of the corporates. However, with the trade finance shrinking and the protectionism in trade expanding after the global financial crisis, the profitability of the corporates is getting smaller. Against this backdrop, there is a growing concern that if the usage of the expanded financial expenditure is for the welfare finances rather than the expense for growth, the prospect of domestic economy in the long term will not be bright. Therefore, many domestic corporates are thinking about doing business in the countries with low tax rate and low cost. As for the economic growth rate and employment rate, which are rest of the economic condition variables, the employment rate showed a statistically significant result while the economic growth did not, similar to the previous research results.
Table 5 analyzed the effect of the welfare expenditure on the relationship between the corporate tax rate and the corporate tax revenue by measuring it as the welfare expenditure variable of the following year (Welfaret+1/GDPt+1), not the welfare expenditure of the year. It is to analyze how spending the corporate tax revenue of the year on the welfare expenditure finance for the following year affects the relationship between the corporate tax rate and the corporate tax revenue.
The corporate tax rate (Corp_TaxRate) showed the positive coefficient with statistical significance and the interactive variable (Corp_TaxRate×Welfare/GDP) between the corporate tax rate and the following welfare expenditure showed the negative (-) sign with statistical significance.
| Table 2: | Correlation of Corp_TaxRate and Corp_TaxRev |
| ***Indicate significance at the 10, 5 and 1% levels, respectively for a two-tailed test | |
| Table 3: | Correlation of Corp_TaxRate2 and Corp_TaxRev |
| *,**,***Indicate significance at the 10, 5 and 1% levels, respectively for a two-tailed test | |
| Table 4: | Regression results: The Effect of Welfare/GDP variable on the relationship between corporate tax revenue and tax rate (Corp_TaxRate) |
| ( ) indicates standard error, **,***Indicate significance at the 10, 5 and 1% levels, respectively for a two-tailed test | |
| Fig. 1: | Effect of welfare expenditure size on the relationship between tax revenue and tax rate |
| Table 5: | Regression results, effect of Welfare/GDP variable on the relationship between corporate tax revenue and tax rate (Corp_TaxRate) |
| ( ) indicates standard error, **,***Indicate significance at the 10, 5 and 1% levels, respectively for a two-tailed test | |
This means that when the corporate tax revenue is spent on the finances for the welfare expenditure, it weakens the relationship between the corporate tax rate and the corporate tax revenue. That is to say, if the policy of increasing the corporate tax rate is implemented to raise the corporate tax revenue for securing the welfare expenditure finances in the following year, it rather leads to the reduction of the corporate tax revenue due to the tax rate raise policy.
Therefore, the policy to secure the tax revenue for increasing the welfare expenditure finances might have a short term effect of tax revenue, but it can lead to the result of decreased corporate tax revenue by worsening the economic conditions of the country in the future.
Figure 1 shows the changes in the proper tax rate according to the welfare expenditure size. The proper tax rate of the whole sample is 50.199% whereas the sample with high welfare expenditure shows 55.527%. This means that using the corporate tax revenue for the welfare expenditure finances makes the growth rate of the corporate tax revenue slower compared to the increase speed of the corporate tax rate. It can be interpreted that raising the corporate tax rate does not necessarily lead to the increase in the corporate tax revenue. If the increase in the corporate tax revenue is spent on the welfare finances instead of on the investment in the social infrastructure that creates the good management environment for the businesses or on the investment in the effective distribution network, it can be ineffective in increasing the corporate tax revenue. Especially in the economic environment in Korea with high level of economic openness, raising the corporate tax rate to prepare the welfare expenditure can have bigger side effects.
Effect of tax raising policy on the relationship between corporate tax rate and tax revenue: Table 6 shows the analysis result of the relationship between the corporate tax rate and the corporate tax revenue caused by the corporate tax raising policy. The analysis tries to investigate if the corporate tax raising policy is effective in increasing the corporate tax revenue by examining the difference between the samples that raised the corporate tax and the ones that did not.
In the column 2, the corporate tax rate (Corp_TaxRate) was not statistically significant, while 1-4 shows that Corp_TaxRate2 was statistically significant. This means that the relationship between the corporate tax rate and the corporate tax revenue is non-linear just as in the Laffer Curve. In the result of the column 3 and 4, the interactive variable with the corporate tax raise dummy variable (Dummy) shows that the width of the parabola got smaller with statistical significance. This can be interpreted that the increase speed of the corporate tax revenue is faster than that of the corporate tax rate.
However, Fig. 2 shows that the proper tax rate of the whole sample is 45.832% while the proper tax rate of the sample with increased tax rate is 43.785%, showing the difference of 2.1%.
| Fig. 2: | Effect of corporate tax rate raising on the relationship between tax revenue and tax rate |
| Table 6: | Regression results: Effect of dummy variable on the relationship between corporate tax revenue and tax rate (Corp_TaxRate) |
| ( ) indicates standard error, *, **,*** indicate significance at the 10, 5 and 1% levels, respectively for a two-tailed test | |
This indicates the trend that the corporate tax revenue drops rapidly as the corporate tax rate increases after applying the proper tax rate because with the corporate tax rate increased, the increase speed of the corporate tax revenue gets faster, but the proper tax rate becomes lower. Especially in the economic environment in Korea with high level of economic openness, raising the corporate tax rate can increase the corporate tax revenue in the short term but it can bring the side effects of reducing it in the middle and long term. Also, raising the corporate tax rate in an aim to increase the corporate tax revenue for the welfare expenditure can have big side effects.
DISCUSSION
When the corporate tax revenue is used for the facility investment to expand the social and economic foundation, the scope of the corporate tax source is widened and the corporate tax revenue can be increased. However, when the corporate tax revenue is spent on the welfare expenditure, there is a possibility that the corporate tax revenue goes down from a long-term perspective. Therefore, it provides the political implication that government should consider where the tax revenue is used in order to enlarge tax revenue using raising tax rate as discussed by Clausing (2007) and Laffer (2004).
As mentioned by Laffer Curve, that the relationship between the corporate tax rate and the corporate tax revenue is non-linear by discussed by Laffer (2004). The corporate tax revenue drops rapidly as the corporate tax rate increases after applying the proper tax rate because with the corporate tax rate increased, the increase speed of the corporate tax revenue gets faster. Especially in the economic environment in Korea with high level of economic openness, raising the corporate tax rate can increase the corporate tax revenue in the short term but it can bring the side effects of reducing it in the middle and long term as discussed by Allingham and Sandmo (1972). So, it shows that raising tax rate, as means of increasing tax revenue, is always not effective as argued by Hyun (2013) and Pae and Shim (2011).
CONCLUSION
This study confirmed the result of non-linear regression analysis that the national openness measured by the scale of the overseas trade weakens the positive (+) relationship between the corporate tax rate and the corporate tax revenue. This proves that the increase in corporate tax rate might not lead to the increase in the corporate tax revenue as the amount of the overseas trade gets larger. In the current world’s economic condition where the trade between multinational corporates and countries are active, the tax policy of raising the corporate tax rate to secure the corporate tax revenue can rather lead to the result of failing to secure the corporate tax revenue.
This is the analysis result that the welfare expenditure size against GDP weakens the relationship between the corporate tax rate and the corporate tax revenue. If the tax revenue is spent on securing the social and economic infrastructure or on investment, it can have the long term effect of tax revenue as well as the short term. However, if the usage is for the welfare expenditure finances, it can bring the result of reducing the tax revenue from the long term perspective, even though it might bring the effect of increased tax revenue in the short term. Eventually, securing the tax revenue through revisions of the different tax items is likely to have less side effects or secondary problems than raising the corporate tax rate as a way of securing tax revenue to prepare the welfare expenditure finances. Therefore, the policy of securing the tax revenue through increase in the corporate tax rate claimed by politicians lacks its validity as it can bring big problems to the domestic economy.
The study examined the empirical result that the policy of raising the corporate tax rate can speed up the increase in the corporate tax revenue compared to the increase speed of the corporate tax, but it lowers the level of the proper tax rate. That is, the resilience of the corporate tax rate against the corporate tax revenue gets higher but the proper tax rate gets lower. This means that raising the corporate tax rate can increase the corporate tax revenue in the short term, but at some point, it can cause a phenomenon in which the corporate tax revenue drops rapidly. Especially, considering both the economic condition of country with high openness and the analysis result of the policy to raise the corporate tax rate for the welfare expenditure finances, the policy has big side effects such as weakened national competitiveness of the businesses rather than the effect of increased corporate tax revenue. Therefore, the policy of raising the corporate tax rate lacks its validity.
ACKNOWLEDGMENT
The authors would like to thank our anonymous reviewers who have provided helpful comments on the refinement of this study.