Definition
- Corporation tax
- Corporation tax is based on company profits, so receipts rise automatically as profits grow in a boom and fall as profits shrink in a recession.
Example
Can you think of an example of corporation tax?
A large builder's profit falls from £40 million to £10 million in a recession. At a 25 per cent rate its tax bill drops from £10 million to £2.5 million, leaving it more cash to keep staff on.
Test yourself
Can you name the three main automatic stabilisers?