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ISSN 1725-7557 European Commission — Taxation and customs union Taxation papers The corporate income tax rate-revenue paradox: Evidence in the EU WORKING PAPER NO 12  2007 ph810985_Cover.indd 1 28/10/08 8:51:30The corporate income tax rate-revenue paradox: Evidence in the EU Joanna Piotrowska (Ministry of Finance, Poland) and Werner Vanborren (European Commission) February 2008 Abstract: In Europe, the decline in the corporate tax rates has not been reflected in the tax-to-GDP ratios. This paper explores to what extent the observed trend can be explained by changes in the effective tax burden on corporate income, in the share of total income accruing to the corporate sector and in total business income relative to GDP. We present an overview of the findings from previous literature, apply the methodology developed by Sørensen to decompose the most complete data available on the European level and make use of information collected from parallel studies on the effective tax burden and corporatization. The results suggest that corporatization is the driving factor for the trend observed in corporate tax revenues. Key words: corporate taxation, tax revenues, incorporation, corporatization. JEL classifications : H25 Contact author: werner.vanborrenec.europa.eu. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They should not be attributed to the European Commission or the Polish Ministry of Finance. The authors thank Christopher Heady, Stefanie Knoth, Gaëtan Nicodème, Emanuela Tassa, Christian Valenduc and Florian Wöhlbier for useful comments and Jean-Pierre De Laet for his support of the project. © European Co m muni ties, 2008 1 1 Introduction Between 1982 and 2004, the fall of corporate statutory rates observed in the majority of OECD countries did not give rise to a decrease of corporate income tax 1 revenues relative to GDP . A similar trend can be observed in the European Union 2 where, according to European Commission's data for 1995-2005, the decrease in statutory rates has not been replicated in the changes of revenues from corporate income tax. Notably, in the EU-25, the average top statutory tax rate on corporate income dropped from 35.3% in 1995 to 25.3% in 2006. At the same time, the role of corporate income tax revenue grew considerably, the share of taxes on corporate income to GDP rising from 2.7% in 1995 to 3.3% in 2006. From the policy makers' perspective, it is important to understand the drivers behind the corporate income tax revenues and how they can influence the choice of the corporate tax rate, the definition of the corporate tax base, and the tax treatment of the parts of corporate income. It is generally acknowledged that while the list of factors that could potentially explain the corporate income rate-revenue paradox is long, the relative importance of all these factors is not known yet and should be further studied. In particular, data limitations and lack of specific analyses of the developments in the EU were pointed out as being partially the cause of the confusion. This paper attempts to fill the information gap by providing an overview of the findings in economic literature as well as a more detailed picture of the recent 1 Sørensen, P.B. (2006), "Can capital income taxes survive? And should they?", CESifo Economic Studies, 53.2: 172-228. 2 European Co m m issi on (2006), "Taxation trends in the European Union". 2 developments in corporate taxation based on the data collected by the European Commission in the framework of the annual 'Taxation Trends in the European Union' publication. We base our analysis on the formula of decomposition of tax revenues to GDP proposed by Sørensen (2006). A new and innovative feature is the use of information on the decomposition of business income. The paper starts with an overview of the findings in previous literature. Then the methodology used for the analysis is set out (section 3). Finally, the developments at the EU level (section 4) and the country level (section 5) are described. 2 Previous literature There exists a substantial body of literature on trends in corporate income tax revenues worldwide and a growing number of studies try to put forward explanations for the rate-revenue paradox in corporate taxation. While some of the literature focuses on providing an overview of the trends (Bond et al. (2000); Griffith and Klemm (2004)), a number of studies consider specific sources of variation of corporate tax revenues. 2.1. Systemic characteristics of the corporate tax system A first factor considered in the literature relates to traits of the corporate tax system. Auerbach (2006b) points out a relatively stable ratio of US federal tax revenues from non-financial corporations to GDP. This probably masks a declining ratio of corporate profits of these corporations relative to GDP and an increasing average tax rate on these profits. He claims that the average corporate tax rate rose steadily between 1996 and 2003 in large part because of the importance of tax losses, reflecting the asymmetric treatment of gains and losses under the corporate income tax and caused by 3 a growing dispersion in profit outcomes among firms (i.e. many firms have losses even when the overall rate of profit is not low). Creedy and Gemmell (2007) consider to what extent the observed volatility in the buoyancy of the corporate tax revenues in the UK in 1992-2004 could be determined by the fiscal drag properties of the tax system. Fiscal drag characterises progressive income taxes where, as the average income rises, the fixed or income-related allowances, and rising marginal tax rates result in a growing share of total income paid in income tax. In the analysed case, fiscal drag is describing the pattern of growth of corporate tax revenues relative to profits in an unchanged tax regime. Creedy and Gemmel show that deductions play an important role in determining the rate of growth of corporate tax revenues relative to profits. Moreover, in the case of small companies, tax rates and thresholds applied to net profits are shown to have an important impact on these companies' revenue elasticity of tax. They point out that since both corporate tax buoyancy and corporate tax revenue elasticity are volatile, the volatility of tax revenues could be inherent to the tax system itself. They also suggest that while in the long term, covering one or more full economic cycles, corporate income tax revenues and profits can be expected to grow at a roughly similar rate, provided that no discretionary changes take place, the short term corporation tax revenues trend can vary significantly depending on the economic situation. They conclude that in consequence, forecasting corporate tax revenues is especially difficult in severe economic downturns, when corporate losses are pronounced and temporary increases and decreases in the revenue elasticity can occur. 4 2.2. Corporatization and income shifting An increase in the economic weight of the corporate sector is put forward by some studies as a second explanatory factor. Clausing (2006) conducts a systematic study of the role of several factors explaining the variation of the size of corporate income tax revenues relative to GDP among OECD countries in 1979-2002. The analysed factors include statutory tax rate, tax base, corporate profitability, the share of corporate sector in GDP, incentives to shift between the individual and corporate income tax bases, and international factors. Importantly, the analysis covers both countries that experienced an increase as well as those that witnessed a decline of the tax-to-GDP ratio. Clausing finds that the tax-to-GDP ratio is greater in countries with greater share of corporate sector in the economy and in countries with higher corporate profit rate, the latter effect being stronger. She also finds small but statistically significant effect of shifting income from the one earned under corporate form to the one earned under non-corporate form when the highest personal income tax rate is lower than the corporate income tax rate. Sørensen (2006) argues that the rate-revenue paradox may be explained by increasing corporatization on one hand, itself caused by subsequent decline of certain sectors in which non-corporate organizational form dominates, and income shifting between personal and corporate income, and base broadening on the other hand. De Mooij and Nicodème (2007) argue that the simultaneous decline in corporate tax rates and rising tax-to-GDP ratios in Europe may to a large extent be explained by growing corporatization and income shifting from personal to corporate income tax. According 5 to their findings, since the early 1990s income shifting could have raised the share of corporate tax revenue in GDP by some 0.25 percentage points. 2.3. Corporate profitability and capital income A third driver for the corporate income tax rate-revenue paradox referred to in the literature is the corporate profit level. Auerbach and Poterba (1987) and Douglas (1990) analyse the impact of tax and profit rates on the decline of the corporate inc ome tax revenues in the U.S. (1959-1985) and Canada (1960-1985), respectively. The two studies indicate that the decline of the corporate income tax revenues is mainly due to the declining corporate profitability, without further addressing the reasons for the latter. Analysing the opposite trend, i.e. the increase of UK corporate tax revenues in 1980-2004 despite the reductions in corporate statutory tax rates, Devereux et al. (2004) point out that even during the recession in the early nineties and despite further falls of corporate tax revenue, the latter remained at higher levels than in the early eighties, when the statutory tax rates were considerably higher. Devereux et al. suggest that the main underlying causes for the increase of UK corporate tax revenues, are the widening 3 of the corporate income tax base , structural changes in the UK economy resulting in greater participation of the financial sector, and the increasing profitability of the latter 4 around the year 2000 . However, they suggest that the primary reason for the strength of corporate tax revenues could be the rise of corporate profits in GDP. 3 The role of base-broadening tax reforms as an explanation for rising revenues in a sample of 16 OECD countries in 1982-2001 is als o a nal ysed b y De vereux et al. (2002). 4 Direct evidence on profitability of the non-financial sector provided by Devereux et al. does not confirm that profitabilit y c ould have an impact on the increasing corpor ate tax revenues. 6 Swiston et al. (2007) consider the role of personal and corporate income tax, capital gains and income distribution as factors explaining the vast majority of variations of tax revenue. They find that the 2004-2006 increase of the tax-to-GDP-ratio in the US is mainly due to growth of corporate profits and capital gains. These two determinants of tax revenue each contribute to a 40 percent increase in the tax-to-GDP- ratio. Swiston et al.'s analysis of time series adjusted for tax policy changes suggests that corporate income tax is the most volatile revenue component. They conclude that because of capital income volatility over the analysed business cycle, the observed surge in tax revenue buoyancy is a temporary phenomenon. 3 Methodology To further consider trends in the corporate income tax revenues, we use the approach proposed by Sørensen (2006). The approach is based on a formula that decomposes the ratio of corporate income tax revenues to GDP and allows to analyse whether the trends in corporate income taxation are caused by a change in the effective tax burden on corporate income, a change in the share of total income accruing to the corporate sector or a change in total business income relative to GDP. According to the formula: R/GDP = R/C C/P P/GDP Where R is the total corporate tax revenue; C is the total corporate income; P is the total business income; R/C is the tax revenue relative to corporate income; C/P is the ratio of corporate income to business income; and P/GDP is the business income share of total GDP. 7 The values for both corporate income tax revenues and GDP are extracted from Eurostat databases. The values for C and P are directly extracted from the data on the 5 implicit tax rates on corporate income and on capital and business income respectively. The denominator of the implicit tax rate on corporate income is used as a proxy measure of corporate income (C). From the denominator of the implicit tax rate on capital and business income, the data relative to income of corporations and active income of households is subtracted and used as a proxy measure of business income (P). The main advantage of applying the implicit tax rate denominators is threefold: First, the formula allows using the same data to compare changes in all three indicators that may influence the rate-revenue paradox, i.e. the rate of incorporation, the share of total business income in GDP, and the tax revenue relative to corporate income. Second, using the implicit tax rate denominators allows decomposing corporate and business income. This in turn allows for the analysis of changes in the components of these two types of income, a methodology that has not been applied in previous studies. Third, the methodology used for the construction of implicit tax rates has been agreed with the Member States and implemented in a consistent way. One of the main advantages of the backward-looking implicit tax rate indicator is its comparability arising from the 6 consistency and harmonised computation of ESA95 national accounts data. The use of our approach has several methodological limitations. The implicit tax rate indicator measures the average effective tax burden on an approximation of the 5 As calculated in European Com m issi on (2006), "Taxation trends in the European Union". 6 A comprehensive overview of ITR methodology has been presented in European Commission (2006); A comprehensive overview of ITR and other tax indicators is given in: OECD (2000) and European Co m m iss i on (2004). Infor mati o n on the data used in the analys is can be found Annex I. 8 potentially taxable base in the economy. This potential tax base is comparable across countries but does not measure the actual tax base defined in tax legislation. Consequently, the divergence between the denominator and the legislative tax base may cause additional variations. The Sørensen formula, and in particular the C/P ratio, does not allow to find out how much of the increasing role of the corporate sector is due to a change in structure and size and how much is related to a change in relative corporate profitability. That could be achieved by further decomposition of the C/P ratio. Finally, even after taking away passive income, i.e. not taking into account the entire denominator of ITR of capital and business income, P still does not allow for a full split of the income between individuals and corporations. In particular, unavailability of data that splits income for households and income of self-employed is the main drawback of working with data at the current level of data aggregation. Several earlier studies had been based on a methodological approach similar to the one used in our analysis (Weichenrieder (2005), Sørensen (2006), De Mooij and Nicodème (2007) and used different data sources. For instance, Sørensen used OECD National Accounts data and De Mooij and Nicodème (2007) based their findings on 7 data extracted from the Ameco database . The data used in our study are taken from Eurostat and are based on the harmonised computation of ESA95 national accounts. The analysis also draws on the preliminary results obtained from the 'Study on effective tax 7 Sørensen applied the decomposition formula to 7 countries. Additionally, he analysed the net change of the corporate tax revenues relative t o GDP in 1982 and in 2004 in 14 countries. 9 8 9 rates in an enlarged European Union' and the 'Questionnaire on corporatization' . Recent changes in the ESA95 methodology (and mainly the inclusion of Financial intermediate services indirectly measured (FISIM) in the GDP) have resulted in important revisions of the relevant time series. However, some countries have not yet finished correcting the data. In comparison to previous studies, our analysis covers a 10 shorter time span (1995-2004) but a larger group of countries (16 EU Member 11 States) . 4 Developments at the EU level At the EU level, corporate tax revenues remained relatively stable around the level of 3% relative to GDP over the period 1995-2004. On average, the effective tax 12 burden on corporate income in the EU has been gradually reduced from 32% in 1998 to 26% in 2004 and the corporate tax burdens across the EU seem to converge since the beginning of the century. The evolution is explained by a reduction in the statutory rates, which is only partly compensated by a broadening of the corporate tax base. The evolution of the corporate tax revenues relative to corporate income contrasts with the overall trend observed in national tax laws in the respective EU countries. The ratio of 8 European Commission (2005), "A study to compute and analyse effective levels of company taxation within an enlarged European Union using a model approach based on the Devereux-Griffith methodology". 9 European Co m m issi on (2007), "Questionnaire on corporatization". 10 As set out in Annex I, data limitations apply for Czech Republic, Estonia, Portugal, Slovakia and Sweden. 11 Belgium - BE, the Czech Republic - CZ, Denmark -DK, Estonia - EE, Spain - ES, France - FR, Italy - IT, Lithuania - LT, the Netherlands - NL, Austria - AT, Poland - PL, Portugal - PT, Slovakia - SK, Finland- FI, Sweden - SE and the United Kingd o m - U K. 12 Infor mati on on the co m putati o n of the effective tax burden is presented in annex II. 10 corporate tax revenues to corporate income increased continuously from 21% to 24% between 1995 and 2001, in spite of a slight drop of the effective tax burden over the same period. After 2001 a similar trend to effective tax burden becomes noticeable, with roughly a similar 5 percentage point drop, to a level of 19% in 2004. Tax burden in the EU 40% 35% 30% 25% 20% 15% 10% 5% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Corporate tax revenues/GDP Corporate tax revenues/Corporate income Effective tax burden Corporate tax rate Source: European Commission Corporate income relative to total business income increased steadily from 1995 to 2004. Overall, the rate of incorporation was 9 percentage points higher in 2004 than in 1995. The ratio of business income to GDP remained fairly stable over the period 1995-2004, in spite of a slight reduction between 1999 and 2002. Following a minor 13 drop in the late 1990s, the rate of incorporation showed a slightly rising trend since 13 The rate of incorporation is defined by 2 indicators: (1) the number of corporations relative to the total number of enterprises and (2) the turnover of corporati ons relative t o the turn o ver of all enterprises. 11 14 2000. The corporate profit share followed the same trend. The ratio of self-employed to total employed remained unchanged over the period 1995-2004. Trends in corporate income in the EU 70% 60% 50% 40% 30% 20% 10% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Corporate income/Business income Business income/GDP Corporations/Enterprises Turnover corporations/Enterprises Self-employed/Total employment Corporate profit share Source: European Commission Total business income relative to GDP remained relatively stable between 1995 and 2004, with a slight drop in 1999. After 1999, total business income relative to GDP rose steadily from 26% to 28%, the latter being the initial level between 1995 and 1998. The decomposition of the business income sheds light on the developments that took place at the EU level. While the corporate income held an increased share in business 15 income, the growth rate of other components was lower than that of GDP . Thus, the increase in business income relative to GDP is mainly due to an increase of corporate 14 The profit share of corporations is calculated as the ratio of gross operating surplus to gross value added of corporation s. 15 The developments in net operating surplus and net mixed income of households have to be interpreted with caution as some Member States have not yet provided complete information on the separation between these items. 12 income, which was stronger than GDP. However, these figures hide important fluctuations at the country level, which are further analysed in the next section. Table (1): Business income (P) and its components in 1995 and 2003 in selected EU 1 countries 1995 2003 1995-2003 SHARE SHARE 2 CHANGE COMPONENTS OF P (ESA 95) in P in P (%) (%) (%) 48,7 52,7 8,2 C Corporate inco me 12,9 11,7 -9,3 3 b2n (S.14-S.15) Net oper ating surplus of hous eholds, s e l f-employed and non - profit institutions 3 b3n (S.14-S.15) Net mixed in com e of se lf-employed 36,7 33,7 -8,2 1 BE, C Z, DK, EE, ES, FR, IT, LT, NL, AT, PL, PT, SK, FI, SE, U K.. 2 Measured as shar e of the dif fer enc e of last y e ar and first y ea r in the va lue for the first y ear. 3 Non -corpo rate business inco me = b2n (S.14-S.15) + b3n (S.14-S.15). 5 Developments at the country level To shed light on the drivers behind the trend in corporate tax revenues relative to GDP at the country level, we look at the developments in each of the components of the Sørensen formula: the tax system (R/C), corporatization (C/P) and business income (P/GDP) for each country. Subsequently, we look at the overall picture in each of the countries to establish whether the change in corporate tax revenues relative to GDP can 16 be attributed to one of these factors. Out of the sixteen countries contained in the data set, eleven countries experienced increasing corporate tax revenues relative to GDP (Austria, Belgium, the Czech Republic, Denmark, Finland, France, Italy, Poland, Portugal, Sweden and the UK). The remainder of the countries experienced decreasing corporate tax revenues relative to GDP (Estonia, Lithuania, the Netherlands, Spain and Slovakia). 16 More details on the trends at the countr y le vel described in this section can be found in annex III. 13 5.1. Corporate tax level (R/C) The influence of the corporate tax system is evaluated by comparing the evolution of the ratio of corporate tax revenues to corporate income with the trend in the effective tax burden. The comparison provides an indication as whether there was a change in the tax rate or in the tax base over time. Looking at these components, seven countries showed increasing corporate tax revenues relative to corporate income (Austria, Belgium, Denmark, France, Portugal, Spain and Sweden). Eight countries reported a decrease in corporate tax revenues relative to corporate income (the Czech Republic, Estonia, Italy, Lithuania, the Netherlands, Poland, Slovakia and the UK). Finland reported stable corporate tax revenues relative to corporate income. For two countries the increase in corporate tax revenues relative to corporate income coincides with an increase in the effective corporate tax burden (Austria and France). In Spain, the increase in corporate tax revenues relative to corporate income coincides with an unchanged effective corporate tax burden. In Finland, constant corporate tax revenues relative to corporate income are accompanied by an increase in the effective tax burden. All eight countries reporting decreasing tax revenues relative to corporate income reported a fall in the effective tax rate (the Czech Republic, Estonia, Italy, Lithuania, the Netherlands, Poland, Slovakia and the UK). For Austria, Poland and the UK, the evolution of the ratio of corporate tax revenues to corporate income is proportional with the trend observed for the effective tax burden. To some extent, this also applies to Finland: before the turn of the century corporate tax revenues relative to corporate income developed in line with the increase 14 in the effective tax burden and remained fairly stable in the later years as did the effective tax burden. Also Belgium, Denmark, Spain and Sweden experience an increase in corporate tax revenues to corporate income, although the effective tax burden decreased, except for Spain where it remained stable. France and Portugal are confronted with an increasing trend, although important reductions of the effective tax burden can be observed at the turn of the century. For Denmark, Sweden and Spain, the rise in the effective tax burden is significant, while in the case of Austria, Belgium and Finland the impact is rather small. The Czech Republic, Estonia, Lithuania, Poland, Slovakia, Italy and the UK experience important reductions in the level of corporate taxation. Also the Netherlands are confronted with an important reduction in the ratio corporate tax revenues to corporate income, although the effective tax burden did not change over the period observed. For most countries, the direction of the changes in the effective tax burden corresponds to the direction of the changes in corporate tax revenues relative to corporate income. The same applies to the comparison of corporate tax revenues relative to corporate income with corporate tax revenues relative to GDP. However, for one third of the countries this reasoning does not apply. In addition, for the countries where this reasoning does apply, the size of the changes in corporate tax revenues relative to corporate income cannot explain the relatively moderate effect on the corporate tax revenues relative to GDP ratios. 15 Table (2): Corporate taxation in selected EU countries (1995-2004). Country BE CZ DK EE ES FR IT LT R/C + 0 + - + + - - 1 ETR - - - - 0 + - - Country NL AT PL PT SK FI SE UK R/C - + - + - 0 + - ETR 0 + - - - + + - "+ " : inc reas e "0 " : const ant "-": decr eas e 1 ETR : effe ctive t ax burden. 5.2. Corporatization (C/P) The evolution of the ratio of corporate income to total business income is compared with other trends observed in corporatization, measured by corporate profit shares, the ratio of self-employed to total employment as well as the share of business activity performed under corporate form (incorporation), both in terms of number of 17 corporations and their turnover . The comparison provides some information on changes in the size of the corporate sector and corporate profitability over time. Thirteen countries showed increasing corporate income relative to total business income (Austria, Belgium, the Czech Republic, Denmark, Estonia, Finland, France, 18 Italy, Lithuania, the Netherlands, Poland, Sweden and the UK). For eight of these countries the increase in corporate income to total business income coincides with an increase in either the rate of incorporation (Austria, the Czech Republic, Denmark, Finland, France, and the Netherlands) or corporate profit share (Belgium and Poland). 17 The information on the rate of incorporation is taken from European Commission (2007), "Questionnaire on corporatization". Further details can be found in annex IV. 18 Note missin g data on the rate of incorporati on for Bel giu m, Sp ain, Poland, Portugal and the UK. 16 For three countries (Italy, Lithuania and Sweden) there is no clear trend in the rate of 19 incorporation and for one country (Estonia), the rate of incorporation decreased. Three countries reported a decrease in corporate income relative to total business income (Portugal, Slovakia and Spain). Two of these countries experience also a decrease in the rate of incorporation (Portugal, Spain), while one country reported an increase in the rate of incorporation (Slovakia). The increase in corporate income relative to total business income was strong in Belgium, the Czech Republic, Denmark, Estonia, Finland, Italy, Lithuania, the Netherlands, Poland, Sweden and the UK. The decrease in corporate income relative to total business income was strong Slovakia. For Austria and Denmark, the evolution of the ratio corporate income to total business income is proportional with the development of the share of the corporate sector in terms of numbers and turnover. To a lesser extent, this also applies to Finland and Poland. For the Czech Republic, Denmark, France, Lithuania and Poland the rise in the share of the corporate sector is significant, while in the case of Austria, Belgium, Finland, Italy, the Netherlands, Slovakia and Sweden, this trend is rather weak. For Belgium, Denmark, Finland, France, Italy, Lithuania, Poland, Portugal, Slovakia and the UK the increasing corporatization is accompanied by a reduction in the ratio self-employed to total employment and for Belgium, Denmark, France, Lithuania and Slovakia by an increase in the corporate profit share. Lithuania experiences a significant increase in corporate profit share despite a reduction in the corporate share in terms of the number of corporations. 19 For Italy, the rate of incorporation increased in terms of number of corporations and decreased in terms of turn o ver of corporati ons, wh ile for Li thuania and Sweden, it is the opp osi te. 17 Estonia reports a modest reduction in the rate of incorporation and in the ratio of self- employment to total employed as well as a constant profit share, in spite of a significant reduction in the corporate share in terms of the number of corporations. The Czech 20 Republic and Portugal are confronted with a modest decline in corporate profit share . Spain reported a declining ratio of self-employment to total employed as well as a constant profit share, in spite of a modest reduction of corporate income relative to total business income. The results for Sweden indicate that corporate income relative to total business income and the ratio of self-employed to total employed increased, while the level of corporatization remained stable. TABLE (3): Corporatization in selected EU countries (1995-2004). Country BE CZ DK EE ES FR IT LT C/P + + + + - + + + Corp orati ons/Enterprises + + - + + - Turnover Corp orations /Enterprises + + - + - + Corp orate Profit share + - 0 0 0 0 0 + Self-empl o y ed/Total e mployment - - - + - - - Country NL AT PL PT SK FI SE UK C/P + + + - - + + + Corporations/Enterprises + + + + - Turnover Corp orations /Enterprises + + + + + Corp orate Profit share 0 + + 0 + 0 Self-empl o y ed/Total e mployment 0 0 0 + + - 0 - "+": increase "0": constant "-": decrease Another way to look at corporatization is by analysing the evolution of the share of corporate income in total business income. In Austria, Belgium, the Czech Republic, Denmark, Estonia, Finland, Italy, Lithuania, the Netherlands and the UK, corporate 20 Calculated as the ratio of gros s operating surplus t o gr oss valu e added of corporations. 18 21 income accounts for the bulk of the business income . The growth of the corporate share in total business income was accompanied by a relative decline of the share of the non-corporate sector. In Austria, the Czech Republic, Estonia; Italy and Lithuania, the corporate share overtook the non-corporate share over the period observed. The Czech Republic, Estonia, the Netherlands and the UK experienced also an increase in business income from households and Italy reported an increase in mixed income. In France, Poland, Portugal, Spain, Slovakia and Sweden the share of non-corporate income accounts for the bulk of the business income. The growth of the share of non-corporate income in total business income was accompanied by a relative decline of the share of the corporate sector in Portugal, Spain, Slovakia and Sweden. In Slovakia and Sweden, the non-corporate share overtook the corporate share over the period observed. In France and Poland, the growth of the corporate share in total business income was accompanied by a relative decline of the share of the non-corporate sector. In Austria, Belgium, the Czech Republic, Denmark, Estonia, Finland, Lithuania, the Netherlands, Poland and the UK, corporate income grew at a higher rate than GDP. The growth of corporate income was accompanied by a growth of non-corporate income at a rate slower than GDP in Belgium, Denmark, Lithuania and the Netherlands. In Austria, both corporate and non-corporate income grew faster than GDP, but growth in corporate income was stronger. The Czech Republic and the UK also reported an increase of income from households, which was stronger than GDP growth. In the case of Italy, Portugal Slovakia, Spain and Sweden, corporate income grew at a slower pace 21 In 1995, corporate income in Italy and Sweden represented respectively 40% and over 60% of total business inco me. 19