12.5% rate effect positive - ESRI study

Monday 22 August 2011 14.40
ESRI research - Corporation tax benefits 'offset' by higher taxes elsewhere
ESRI research - Corporation tax benefits 'offset' by higher taxes elsewhere

Research published by the Economic and Social Research Institute has found that the reduction in corporation tax in to its current 12.5% had a significant long-run impact on the business and financial services sector in Ireland.

A paper by Thomas Conefrey and John Fitzgerald looked at the economic impact of the cut in tax on company profits, which fell to 12.5% in 2003.

They found that, by 2005, exports, output, employment and tax revenue from the sector were significantly higher than they would have been without the tax change.

But the paper also found that some of the positive effects were offset by a requirement for higher taxes elsewhere, particularly on labour. The authors said the rise in taxes on labour caused wage rates to increase.

'Nonetheless the change in the corporate tax regime is estimated to have had a positive effect on overall output and employment in the economy,' the paper found.

The authors also said the cut in the corporation tax rate led to the movement to Ireland of 'a substantial amount' of profits by multinational firms.