Tax cut could reduce grant by £270m
Reducing Northern Ireland's corporation tax rate could mean a £270 million reduction in the block grant after five years, a Treasury paper has said.
That could be offset by a 6% rise in investment by domestic and foreign companies, the consultation document added.
Alternatives to a straight reduction include deferring it for several years and phasing the change in to allow companies to plan their strategies.
The Treasury is considering allowing the Northern Ireland Executive to reduce the tax level to 12.5% in line with the Irish Republic.
The Secretary to the Treasury and Northern Ireland ministers attended the consultation launch in Lisburn on Thursday.
The document warned: "Northern Ireland would bear the fiscal consequences of devolution including upside and downside risks if tax receipts were more or less than forecast.
"Given the volatility of corporation tax in a relatively small private sector base like Northern Ireland this may be a significant risk."
By 2014 the main rate of corporation tax for the whole of the UK will drop to 23%.
Options outlined in the Treasury paper include allowing a tax-varying power up or down by 11% from the 23% rate, similar to Scottish powers over income tax; setting the UK rate in Northern Ireland at 12.5% and allowing the Executive to vary it; and setting the rate at 0% and allowing the Executive to vary it.