Imperfect competition,indirect tax harmonization and public goods

This paper shows that the welfare implications of indirect tax harmonization in a two-country imperfectly competitive framework, are, in general, indeterminate in the presence of public goods: Both countries can be made either worse off or better off. This holds under both the destination and origin principles of taxation and is in sharp contrast to existing results where revenue effects are not present. A consequence of this indeterminacy is that a precise evaluation of tax-harmonizing policies under both tax regimes requires an explicit consideration of the underlying preferences for private and public goods as well as the oligopolistic sectors’ relative cost structures. JEL code F15⋅ H21⋅ H41⋅ H87     

Pollution and reforms of domestic and trade taxes towards uniformity

This paper builds a small open economy trade model where there is pollution from the production and consumption of goods. In the presence of production and consumption pollution, we examine a piecemeal consumer-price-neutral reform of the tariff and consumption tax and a piecemeal producer-price-neutral reform of the export and production taxes on a specific good. The paper identifies sufficient conditions under which the above tax reforms improve welfare and increase government tax revenues.     

The origin principle and the welfare gains from indirect tax harmonization

This paper establishes a parallelism between indirect tax harmonization when taxes are levied according to the destination principle and its counterpart when taxes are imposed on an origin basis. Using a simple two-country model of international trade it is argued that, under normal circumstances, indirect tax harmonization under the origin principle, considered as a movement of domestic taxes toward an appropriately designed average tax structure, is potentially Pareto improving. It is also shown that if the initial position is a Nash equilibrium, there are exceptional situations under which the above-mentioned reform may generate an actual Pareto improvement, so that both countries improve their welfare without any need for a compensating international transfer.     

The Effect of Volume of Intrafirm Transfers on Market Metrics

In this paper, we examine the relationship between international intrafirm area transfers and market metrics as measured by market-to-book value and systematic risk. Intrafirm transfers – the amount that multinational corporations charge one another for the transfer of goods, intellectual property, and services – have become an increasingly important issue for policymaking, managerial, financial, and tax purposes. This paper also examines whether international intrafirm intergeographic area transfers are attributed to corporate tax. We find that firms with a sizable volume of international intrafirm transfers have higher systematic risk than comparable firms without these transfers. We show cross-sectionally that firms engage in international transfers have a higher market-to-book ratio, suggesting that transfers add value through their effect on earnings and taxes. Consistent with Mills and Newberry (2003) and Collins, Kemsley, and Lang (1998), we document that U.S. (global) income tax is positively (negatively) related to intrafirm transfers, implying that U.S. multinational firms shifted taxable income to the United States from 1995 to 1999.     

International tax competition: do public good spillovers matter?

We study the impact of public good spillovers on tax competition between two imperfectly integrated countries with different levels of productivity. We show that international public good spillovers, by reducing the tax gap between countries, strengthen the agglomeration of firms in the most productive country. Then we carry on a welfare analysis. We first assume that governments are engaged in a redistributive tax policy. At the non-cooperative equilibrium, the tax level in the high-productivity country is inefficiently high while it is inefficiently low in the other country. A different conclusion emerges when tax revenues are recycled in a public good provision: taxes are inefficiently low in both countries and public good spillovers increase the global welfare. Finally, for a given amount of total tax revenues, public good provision in the high-productivity country is inefficiently high compared to its level in the low-productivity country.     

Interregional redistribution through tax surcharge

The paper considers a utilitarian federal government that levies a tax to finance a national public good or to effect a redistributive policy. Regions differ in their incomes and in their preferences for a local public good. First, we assume that the central government observes each region's public expenditures (and, hence, local tax revenues) but cannot perfectly observe revenues and preferences. We derive the (constrained) Pareto-efficient allocation and show how it can be implemented by a surcharge on local taxes. The level of redistribution that can be achieved is limited by the fact that it may be difficult, or even impossible, to distinguish low-income regions with a high preference for the public good from high-income regions with a low preference. Then we allow for the possibility that the central government can observe incomes through a costly audit. We examine the optimal audit policy and study the impact of audits on the optimal taxation scheme. Throughout the paper we focus on the properties of average and marginal tax rates and on the resulting under- or overprovision of regional public goods.     

国际税收竞争的实质及应对

国际税收竞争实质上是市场竞争规律在政府行政领域的体现形式。良性税收竞争有助于降低总体税负、减少经济扭曲、提升公共产品生产效率,但对此类竞争的国际协调难以取得实质成效。恶性税收竞争则会掠夺性地侵占他国税基,对此类竞争的遏制具备理论的必要性和可行性。政府可通过改革现行税制、精简规范收费、优化公共服务以及加强国际合作来应对国际税收竞争。     

Mixed Tax Systems and the Public Provision of Private Goods

In contrast to what used to be conventional wisdom among economists,several recent contributions have shown that in-kind transfersschemes can be welfare-improving in the presence of distortionarytaxes (usually, linear taxes or a general income tax). In thisnote, we extend previous work by considering the most generaltax system compatible with reasonable information constraints,i.e. a mix of linear indirect and non-linear direct taxes. Threemain results are noted. We find that in the presence of a mixedtax system (as opposed to the non-linear income tax alone): i) not only encouraged but also discouraged goods satisfy a conditionfor the desirability of public provision; ii) there is a tendencyfor the optimal level of in-kind transfers to be lower; iii)there is a basic equivalence between uniform and income-contingentin-kind transfers. We also show how previous results can be derivedas special cases of ours and others have to be modified to accountfor the mixed tax system.     

Trade and domestic tax reforms in the presence of a public good and different neutrality conditions

This paper develops a perfectly competitive general-equilibrium model of a small open economy with production of private traded goods and of a public good which is financed by revenues from trade and domestic taxes. Within this framework we consider the effects on public good provision and on welfare of the following tax reforms: (i) a producer-price-neutral reduction in export taxes and a corresponding increase in production taxes, (ii) a consumer-price-neutral reduction in tariffs and a corresponding increase in consumption taxes, and (iii) a partial tax-revenue-neutral reform in trade and domestic taxes.     

Pollution Externalities in a Model of Endogenous Fertility and Growth

An endogenous growth model with human capital formation, pollution caused by production of consumption goods, and endogenous fertility decisions made by altruistic agents with infinite horizons is presented. Consequences for optimal policy of modelling fertility as an explicit decision variable are examined. Because ordinary lump-sum transfers to individuals are no longer neutral, either revenue from a pollution tax must be redistributed to dynasties (working as an implicit tax on child births), or lump-sum transfers must be supplemented with an explicit fertility tax. Alternatively, the government can avoid distortions of the fertility decisions by maintaining an appropriate public debt. When abatement is highly productive, it can be optimal to subsidize fertility in order to increase total production.     

Why Do Countries Mandate Accrual Accounting for Tax Purposes?

This study investigates why countries mandate accruals in the definition of corporate taxable income. Accruals alleviate timing and matching problems in cash flows, which smoothes taxable income and thus better aligns it with underlying economic performance. These accrual properties can be desirable in the tax setting as tax authorities seek more predictable corporate tax revenues. However, they can also make tax revenues procyclical by increasing the correlation between aggregate corporate tax revenues and aggregate economic activity. We argue that accruals shape the distribution of corporate tax revenues, which leads regulators to incorporate accruals into the definition of taxable income to balance the portfolio of government revenues and expenditures. Using a sample of 26 OECD countries, we find support for several theoretically motivated factors explaining the use of accruals in tax codes. We first provide evidence that corporate tax revenues are less volatile in high accrual countries, but high accrual countries collect relatively higher (lower) tax revenues when the corporate sector grows (contracts). Critically, we then show that accruals and smoother tax revenues are favored by countries with higher levels of government spending on public services and uncertain future expenditures, while countries with procyclical other tax collections favor cash rules and lower procyclicality of corporate tax revenues.     

Indirect tax reform and the role of exemptions

This paper examines the question of whether indirect tax rates should be uniform, using four different modelling strategies. First, marginal tax reform is examined. This is concerned with the optimal direction of small changes in effective indirect tax rates and requires considerably less information than the calculation of optimal rates. Second, the welfare effects of a partial shift from the current indirect tax system in Australia towards a goods and services tax (GST) are considered, with particular emphasis on differences between household types and the role of exemptions. Third, in view of the stress on a distributional role for exemptions of certain goods from a GST, the potential limits to such redistribution are considered. The fourth approach examines the extent of horizontal inequity and reranking that can arise when there are non‐uniform tax rates. These inequities arise essentially because of preference heterogeneity.     

Monetary union, price level convergence, and inflation: How close is Europe to the USA?

The pattern of price dispersion across European and US cities from 1990 to 2004 is documented. There is a striking decline in dispersion for traded goods prices in Europe, most of which took place prior to the launch of the euro. Dispersion in the euro area is now quite close to that of the USA. This evidence provides useful facts for future work assessing the importance of various developments in Europe: harmonization of tax rates, convergence of incomes and labor costs, liberalization of trade and factor markets, and increased coherence of monetary policy.     

Cost of capital and valuation in the public and private sectors: Tax,risk and debt capacity

Cost of capital and valuation differ in the private and public sectors, because taxes are a cost to the private sector but are only a transfer to the public sector. We show how to transform the after-tax private sector cost of capital into its pre-tax equivalent, for comparison with the public sector cost of capital. We establish the existence of a tax induced wedge between these two costs of capital. The wedge introduces a preference on the part of the private sector for assets with rapid tax depreciation, high debt capacity and low risk. We show that, in circumstances where an asset has identical public and private sector valuation in the absence of taxes, the tax induced difference in valuation is identical to the change in government tax receipts that results from having the asset owned by the private rather than the public sector. We provide some examples of distortions that result from failure to adjust for changes in tax revenues, and show how to effect such adjustment.     

西方国家碳税收入使用政策比较及其启示

碳税收入使用政策是西方国家碳税制度设计的一项重要内容,其主要基于税收中性原则,将税收收入或投资于环保节能项目,或以税式支出方式降低纳税人负担,确保碳税收入的循环,实现节能减排的目标。在我国碳税制度设计的构想中,应借鉴西方国家税制经验,结合本国现实情况,科学合理地设计碳税收入使用政策,确保碳税调节功能的充分发挥,将碳税发展成培育战略性新兴产业的重要政策工具之一。     

Tax Evasion and Auditing in a Federal Economy

This paper analyzes the relation between tax auditing and fiscal equalization in the context of fiscal competition. We incorporate a model of tax evasion by firms into a standard tax competition framework where regional governments use their audit rates as a strategic instrument to engage in fiscal competition. We compare the region’s choice of audit policies for three different cases: A scenario of unconfined competition without interregional transfers, a scenario with a gross revenue equalization (GRS) scheme and finally, a scenario with net revenue sharing (NRS), where not only the revenues from taxation but also the regions auditing costs are shared. Without regional transfers, fiscal competition leads to audit rates which are inefficiently low for revenue-maximizing governments. While in general GRS aggravates the inefficiency, NRS makes the decentralized choice of auditing policies more efficient.JEL Code: H26, H71, H77     

Efficient Redistribution of Lifetime Income through Welfare Accounts*

Compared with a conventional tax–transfer system, individual welfare accounts can redistribute lifetime incomes at a lower efficiency cost. These welfare accounts employ mandatory contributions rather than taxes to finance social transfers to people of working age. We describe a design for welfare accounts that guarantees a Pareto improvement if behavioural responses to the accounts improve the public budget. We also develop a formula for quantifying the impact of welfare accounts on the government budget and economic efficiency. Applying the formula to Danish data, we find that the proposed welfare accounts would generate a Pareto improvement, thus improving the trade‐off between equity and efficiency. We discuss how the gains from welfare accounts can be distributed in an equitable manner.     

Agglomeration,tax competition,and fiscal equalization

This paper analyzes the impact of fiscal equalization on asymmetric tax competition when positive agglomeration externalities are present. It uses a model focusing on the strategic reason for capital taxes to demonstrate that per capita fiscal capacity equalization improves the spatial allocation of capital provided a sufficiently rich (marginally) larger region and sufficiently strong agglomeration externalities. If tax revenue is used to finance public goods, per capita fiscal capacity equalization generally cannot simultaneously eliminate public good inefficiency and spatial inefficiency. However, the achievement of full efficiency for ex ante identical regions requires excessive (full) equalization in the presence (absence) of agglomeration externalities.     

Endogenous free riding and the decentralized user-fee financing of spillover goods in a n-region economy

The paper analyzes the strategic effects of decentralized user-fee and enforcement policies for the financing of interregional spillover goods. We derive the equilibrium pricing and enforcement rules for a n-region economy. We show that under mild conditions on the pattern of substitution between spillover goods and contrary to the 2-region case, the decentralized equilibrium cannot be Pareto improved by coordinated policy changes. However, decentralized equilibria are suboptimal from the point of view of utilitarian welfare. We characterize the direction of the distortion for this case. The regions’ incentives for user-fee enforcement are ambiguous in general. With only two regions and if regions only charge non-residents, however, there is overinvestment in user-fee enforcement in the decentralized equilibrium. For the case of a Tullock enforcement function and linear demand for the spillover goods we show that welfare is u-shaped in a parameter that measures the technological advantage of user-fee enforcement.     

The revolutions in China’s inter-governmental fiscal system

There were three periods in the development of China’s inter-governmental fiscal system. In the first period (1950s to 1979), local governments collected tax revenues and remitted upward to the central government. Reforms during the next two periods made revolutionary changes to the system. The tax-sharing system (established in 1994) provides for revenue centralization, spending decentralization, and large central transfers to local governments. This system remains largely in force.