The Impact of Reducing the Corporate Income Tax Rate on the State Aid Practices of EU Member States (2000 to 2015)

Abstract

The paper analyses the trends of State aid and corporate income taxation in Member States of the European Union after 2000. The issue is rather topical because the competition in State aid and detrimental international competition in taxation may both lead to a disintegration of the internal market. Out of all the tax types, corporate income tax is the greatest burden on undertakings, so the rate of this tax and how its base is defined are competitiveness factors of Member States. The control of State aids is a Community competence, so the risk of competition in aid is lower for this policy. The research started out from the hypothesis that the decreasing trend of corporate income tax rates will result in a decrease in State aids. The assumption is based on the fact that the subjects of both these policies are undertakings, so a reduction of taxes collected by the State will lead to a decrease in aid amounts. Correlation analysis was used to answer the questions whether it is possible to detect a parallel movement between tax burdens and State aid amounts, and what factors influenced this movement. In departure from the general understanding, our results indicate that while nominal corporate income tax rates and GDP-proportionate State aids both decreased continuously, the actual tax burden increased in some cases, and on the other hand, the high redistribution rate of Nordic Member States appeared also in State aids.