nep-pub New Economics Papers
on Public Finance
Issue of 2013‒04‒20
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Growth Effects of Tax Rates in the OECD By Gemmell, Norman; Kneller, Richard; Sanz, Ismael
  2. Corporate Taxation and US MNCs: Ensuring a Competitive Economy By Gary Clyde Hufbauer; Martin Vieiro
  3. A Reality Check for BC: The Impact of Behavioural Responses on the 2013 Budget's Proposed Income Tax Increases By Alex Laurin
  4. Income inequality and the tax structure: Evidence from developed and developing countries By Adam, Antonis; Kammas, Pantelis; Lapatinas, Athanasios
  5. Fair inheritance taxation in the presence of tax planning By Wrede, Matthias
  6. On the desirability of tax coordination when countries compete in taxes and infrastructure By Yutao Han; Patrice Pieretti; Benteng Zou

  1. By: Gemmell, Norman; Kneller, Richard; Sanz, Ismael
    Abstract: The literature testing for aggregate impacts of taxes on long-run growth rates in the OECD has generally used tax rate measures constructed from macroeconomic aggregates such as tax revenues. These have a number of advantages but two major disadvantages: they are typically average, rather than marginal, rates, and are constructed from endogenous tax revenues. Theory predicts a number of responses to both average and marginal tax rates, but empirical analogues of the latter tend to be at the micro level. In addition though most OECD economies are best regarded as small open economies, previous macroeconomic tests of OECD tax-growth relationships have implicitly been based on closed-economy models, focusing on domestic tax rates. This paper explores the relevance of these two aspects – "macro average‟ versus "micro marginal‟ tax rates, and open economy dimensions – for test of tax-growth effects in OECD countries. We use annual panel data on a number of average and marginal tax rate measures and find: (i) statistically small and/or non-robust effects of macro-based average tax rates on capital income and consumption but more evidence for average labor income tax effects; (ii) statistically robust GDP growth effects of modest size from changes in marginal income tax rates at both the personal and corporate levels; (iii) international tax competition, in which both domestic and foreign corporate tax rates play a role, is consistent with the data; (iv) tax effects on GDP growth appear to operate largely via impacts on factor productivity rather than factor accumulation.
    Keywords: marginal tax rates, average tax rates, personal tax, corporate tax, GDP growth,
    Date: 2013–04–11
  2. By: Gary Clyde Hufbauer (Peterson Institute for International Economics); Martin Vieiro (Peterson Institute for International Economics)
    Abstract: The debate about "tax reform," during the 2012 presidential race and congressional budget battles this year has centered on closing loopholes, creating new incentives for growth, and raising revenue through higher personal taxation of wealthy Americans. But the debate overlooks an important priority for future US economic growth: the urgent need to reform the corporate tax. US-based multinational corporations (MNCs) are hobbled by an outmoded tax structure as they compete in the age of globalization. Reform would make American MNCs stronger competitors in markets abroad and enable them to expand and invest more at home. Tax rates should be lowered, both on profits earned in the United States and profits earned abroad.
    Date: 2013–04
  3. By: Alex Laurin (C.D. Howe Institute)
    Abstract: The 2013 British Columbia budget proposes a temporary 2.1 percentage point tax-rate increase on individual taxpayers earning more than $150,000, and a permanent 1 percentage point hike in the corporate income tax rate. Individual and corporate taxpayers will adjust their behaviour in response to the tax hikes, imposing economic costs and leading to tax revenues falling short of expectations. In the near term, personal tax revenues could disappoint by as much as 40 percent. In the long term, BC’s corporate income tax revenues may fall below the level they would have been without the tax increases. Less economically damaging tax reforms – such as the recently rejected Harmonized Sales Tax (HST), progressive property taxation, carbon tax increases, or lower tax expenditures – should be considered. As a matter of course, governments should disclose the extent to which their estimates for tax revenues after policy changes incorporate potential behavioural responses – if any.
    Keywords: Fiscal Policy and Tax Competitiveness
    JEL: H2 H21
  4. By: Adam, Antonis; Kammas, Pantelis; Lapatinas, Athanasios
    Abstract: This paper seeks to examine the effect of income inequality on the structure of tax policies. We first use a simplified theoretical framework which allows us to formalize the testable implications of the relevant literature. Subsequently, our analysis indicates that more unequal economies rely heavier on capital relative to labor income taxation. This relationship remains robust across various alternative measures of income inequality and most importantly through alternative political regimes. In addition, our analysis places the spotlight on the potential reverse causality between income inequality and structure of the tax policies and seeks to address it by making use of the most appropriate data and techniques.
    Keywords: inequality, tax structure, redistribution
    JEL: H10 H23
    Date: 2013–04–12
  5. By: Wrede, Matthias
    Abstract: This paper presents an analysis of the extent to which tax planning affects the level of the inheritance tax rate that is perceived to be fair. In a factorial survey conducted in Germany, tax planning was found to increase the fair tax rate by approximately 4 percentage points. The fair tax rate is determined by not only the size of the bequest, the relationship of the heir to the bequeather, and the type of bequest, but also by the perceived intentions of the bequeather. Families with pro-social motives should be taxed less than those without pro-social motives. The analysis described in this paper finds support in optimal tax theory. To this end, a simple model was developed that shows that taxation should not prevent individuals with warm-glow-of-giving motives from contributing substantially more to the social good than individuals who do not share these motives. --
    Keywords: tax planning,inheritance tax,fair taxation,warm glow of giving
    JEL: H21 H24 H26
    Date: 2013
  6. By: Yutao Han (CREA, Université du Luxembourg); Patrice Pieretti (CREA, Université du Luxembourg); Benteng Zou (CREA, Université du Luxembourg)
    Abstract: In our paper, we demonstrate that when countries compete in taxes and infrastructure, coordination through a uniform tax rate or a minimum rate does not necessarily create the welfare effects observed under pure tax competition. The divergence is even worse when the competing jurisdictions differ in institutional quality. If tax revenues are used to gauge the desirability of coordination, our model demonstrates that imposing a uniform tax rate is Pareto-inferior to the non-cooperative equilibrium when countries compete in taxes and infrastructure. This result is completely reversed under pure tax competition if the countries are sufficiently similar in size. If a minimum tax rate is set within the range of those resulting from the non-cooperative equilibrium, the low tax country will never be better off. Finally, the paper demonstrates that the potential social welfare gains from tax harmonization crucially depend on the degree of heterogeneity among the competing countries.
    Keywords: Tax competition, infrastructure, tax coordination, tax revenue, social welfare
    JEL: H21 H87 H73 F21 C72
    Date: 2013–03

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