Corporate tax moves investment, profits and activity abroad

⚠ Disputed

Confidence: Low

Off by default

Shape: Delayed

When corporate tax is raised, firms invest less in Finland, shift profits to lower-tax countries and some move activity abroad over a few years, so part of the extra revenue disappears. With a cut, part of the loss comes back.

Disputed assumption – may not work this way in reality

Economists disagree whether this effect works, and how strongly.

The behavioural effects of corporate tax are among the most disputed questions in economics. The claim that a cut pays for a large part of itself is supported by some studies, but many estimates find the effect small, especially in a small open economy where tax competition decides.

Of every 100 euros that a change to “Corporate tax rate (18% from 2027)” saves or brings in, 30 € is lost as revenue on the line “Corporate income tax”, starting after 0 yrs and building up to its full size over 3 yrs. (The other way round if the change adds spending or cuts taxes.)

E(t) = s × T(t) × min(1, max(0, (n − delay + 1) / build-up))

Estimate; to be refined from VATT and Ministry of Finance research.

How the effect builds up over time

Share of the change's own effect on the balance, year by year while the change continues: −15% means 15% of a saving comes back as cost (or 15% of extra revenue is lost). With the default values.

You can switch the effect on or off and adjust its assumptions in the simulator under Cause-and-effect chains.