nep-pub New Economics Papers
on Public Finance
Issue of 2008‒07‒20
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Golden Rule of Public Finance: A Panacea? By M Ismihan; G Ozkan
  2. Rate Cutting Tax Reforms and Corporate Tax Competition in Europe By Heinemann, Friedrich; Overesch, Michael; Rincke, Johannes

  1. By: M Ismihan; G Ozkan
    Abstract: This paper shows that adopting a golden rule does not guarantee that public investment will improve economic outcomes. Our results suggest that only when the rate of return on public capital is greater than the cost of public borrowing, expandingpublic investment is beneficial. Otherwise, both macroeconomic stability and debt sustainability are compromised. As such, we argue that policy-makers should prioritise the productivity of public investment rather than its level.
    Keywords: Public investment; public debt; golden rule.
    JEL: E62 H50 H63
    Date: 2008–07
  2. By: Heinemann, Friedrich; Overesch, Michael; Rincke, Johannes
    Abstract: While there is a large and growing number of studies on the determinants of corporate tax rates, the literature has so far ignored the fact that the behavior of governments in setting tax rates is often best described as a discrete choice decision problem. We set up an empirical model that relates a government's decision whether to cut its corporate tax rate to the country's own inherited tax and taxes in neighboring countries. Using comprehensive data on corporate tax reforms in Europe since 1980, we find evidence suggesting that the position in terms of the tax burden imposed on corporate income relative to geographical neighbors strongly affects the probability of rate cutting tax reforms. Countries are particularly likely to cut their statutory tax rate if the inherited tax is high and if they are exposed to low-tax neighbors.
    Keywords: Tax reform, tax competition, corporate taxes
    JEL: H20 H25 H71
    Date: 2008

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