Tax policy implications for a two‐engine growing economy

In an endogenous growth model with two engines of R&D and capital, we investigate the environment of “inclusive growth” for tax reallocations (tax increases or tax credits) to gain broader benefits in terms of promoting the overall GDP growth without an increase in income inequality. Our results show that a tax increase in the capital‐good sector can result in inclusive growth, boosting overall growth and reducing income inequality, provided that the status quo tax rate is not too high. Surprisingly, tax credits are not able to achieve such inclusive growth. While the GDP growth rises, a tax credit in the R&D sector not only increases income inequality but also decreases the aggregate employment, if the labor mobility cost between the final‐good and R&D/capital‐good sectors is relatively low. This provides a caution to policymakers given the fact that research tax credits have served as a common incentive to strengthen the R&D environment.     

Taxes and Benefits in a Non-linear Wage Equation

This paper estimates a structural non-linear wage bargaining model for the Netherlands. The estimation results show a significant positive long-term impact of the average tax rate on wages. The marginal tax rate exerts a small negative impact on wages. The impact of benefits rises with the unemployment rate.     

Home ownership,housing price and social security expenditure

This paper analyzes the substitution and trade-off effects of homeownership and housing price on social security expenditure. We construct a theoretical model to investigate the optimal choice for individual and government in social security system with estate transaction. The model predicts that the government is more likely to decrease (increase) social security spending under a higher home rate when house price rises (falls). We test 35 metropolises panel data which spans the year of 1998–2012 under a two-way fixed effects framework. Our empirical analysis supports the theoretical prediction. The estimation results show that at the current home rate 82%, 1% increase in housing price will lead to 1.15 Yuan reduction in social security spending per capita.     

On optimal income taxation with heterogeneous work preferences

This paper considers the problem of optimal income taxation when individuals are assumed to differ with respect to their earnings potential and work preferences. A numerical method for solving this two-dimensional problem has been developed. We assume an additive utility function, and utilitarian social objectives. Rather than solve the first order conditions associated with the problem, we directly compute the best tax function, which can be written in terms of a second order B-spline function. Our findings show that marginal tax rates are higher than might be anticipated, and that very little bunching occurs at the optimum. Our simulation results show that the correlation between taste for work and productivity has a crucial role in determining the extent of redistribution in our model.     

How Quickly Do Firms Adjust to Optimal Levels of Tax Avoidance?

The trade‐off literature asserts that managers weigh the direct benefits of tax avoidance against the associated nontax costs. This literature implies each firm has a unique optimal level of tax avoidance that balances these costs and benefits. Our study is the first to document how quickly the average firm moves toward its optimal level of tax avoidance. We find that the typical firm converges toward its optimum at a rate that ranges from approximately 69 to 84 percent over a three‐year period, depending upon model specifications. Consistent with asymmetric levels of frictions across the tax avoidance distribution, we find the speed of adjustment is greater for firms below their optimal level of tax avoidance than for firms above. We perform additional cross‐sectional analyses to provide insight into some of the frictions that prevent firms from adjusting completely to their optimal level of tax avoidance. We generally find growth firms exhibit slower adjustment speeds and provide limited evidence that both multinational firms and income‐mobile firms exhibit faster adjustment speeds.     

Taxing Energy to Improve the Environment: Efficiency and Distributional Effects

We study the effects of environmental tax policy in a dynamic overlapping generations model of a small open economy with environmental quality incorporated as a durable consumption good. Raising the energy tax may yield an efficiency gain if agents care enough about the environment. The benefits are unevenly distributed across generations since capital ownership, and the capital loss induced by a tax increase, rises with age. A suitable egalitarian bond policy can be employed in order to ensure everybody gains to the same extent. With this additional instrument the optimal energy tax can be computed.     

Government budget,public-sector wages and capital taxes in a small open economy: A Hong Kong case

This paper examines the welfare implications of adjustments in public-sector wages and capital tax rates for a small open economy in a general equilibrium setting. The individually and jointly optimal wage and tax policies are derived and interpreted. Facing reductions in land sales and falls in foreign interest rates, a cut in public workers' pay is needed to make their wage comparable to the private sector and a hike in capital taxes is recommended for a budgetary consideration. Using a computable general equilibrium model for Hong Kong, we numerically evaluate the various optimal policies which not only confirm the theoretical results but also provide quantitative estimates of the optimal policy variables.     

Depreciation,inflation and capital replacement*

Abstract. This paper examines the effects of depreciation, taxes and inflation on the optimal timing of asset replacement in accordance with the Canadian tax laws. The main findings are that an increase in the capital cost allowance rate will delay (accelerate) replacement of fixed assets at low (high) levels of capital cost allowance rates, and that an increase in the annual inflation rate will delay (accelerate) replacement of fixed assets at low (high) levels of inflation. The applications of the replacement model are illustrated with numerical examples.     

Human capital formation in professional sports: Evidence from the PGA tour

Summay This paper examines human capital formation by professional golfers using a three step procedure. First, production functions relating golfers' earnings to their skills indicate that putting and driving distance are the most important skills, both in terms of magnitude and statistical significance. Between the two, putting is by far the more important. In the second step, production functions relating a golfer's skill level to his practice time indicate robust relationships for putting and driving distance, again with putting being the more significant relationship. The data show little support for any kind of diminishing marginal product of practice. The simplest formulations with constant marginal products outperform other more complex specifications. In the third step, individual VMPs for practicing the separate skills were calculated using the estimates from the first two steps. The VMPs vary over a wide range with practice on putting sometimes calculated to be worth over $500 per hour while practice on sandtrap shots is worth only a few dollars per hour. If the cost of practicing is a constant across the different skills, then these results indicate that golfers wishing to allocate their practice time optimally should be spending more time on putting and driving distance than other skills, with putting the more important of the two. Alternatively, if golfers are assumed to be optimizing, then these statistics support the contention that practicing putting is more costly, physically or mentally, on the margin, than practicing driving.     

The determinants of immigration-policy preferences in advanced economies: A cross-country study

This paper employs survey data to examine the determinants of immigration-policy preferences among ten advanced economies. Ordered probit specifications suggest that skill level is a robust determinant of immigration-policy preferences and that less-skilled workers are more likely to express a preference for policies that restrict immigration. The results also suggest that older individuals, members of trade unions, and those who classify their political ideology as conservative are more likely to favor limiting immigration while non-citizens are less likely to favor such policies. Individual country-level regression results vary, in particular with regard to the influence of trade union member-ship, which is a robust determinant of immigration-policy preferences for both measures of skill in only a subset of nations.     

The Supply Side of the Race Between Demand and Supply: Policies to Foster Skill in the Modern Economy

In his celebrated book on income inequality, Jan Tinbergen (1975) wrote about the race between demand and supply in determining the evolution of wages and inequality. The demand side of the recent labor market is well understood. Skill-biased technical change favors skilled workers in many different economic environments. The supply side is less well understood. In the Netherlands, until recently, the supply side was winning and the returns to education were declining or stagnant. The exact reasons for this phenomenon are not well understood. Recently, however, there is evidence that suggests that the returns to schooling are increasing and that demand is outstripping supply, as it has done in most developed countries around the world. This has produced rising wage inequality. Unless more active supply side measures are undertaken, this trend is likely to continue. This problem, joined with the persistent problem of immigrant assimilation and the growing role of immigrants in the Dutch economy, renews interest in the supply side of the labor market. This lecture examines the determinants of the supply of skills in the short run and the long run. It examines the roles of short- term credit constraints and long-term family factors in fostering or retarding skill accumulation. It summarizes the evidence on a number of policy proposals to foster skills including early childhood programs, programs to alleviate short-term financial pressure, job training and second chance programs, and tax policies. This lecture stresses the cumulative dynamic nature of skill production and the importance of recognizing that skill begets skill in designing suitable policies to reduce inequality and foster economic growth. While the evidence is based on American data, the lessons are relevant for economies around the world. Specific lessons for the Netherlands are emphasized.     

Optimal government investment and public debt in an economic growth model

This paper establishes a nonlinear theoretical model and uses panel smoothing transitional regression to study the optimal levels of government investment and public debt in a growth model using a panel dataset of 65 developed and developing economies over the period 1991–2014. The empirical results show that the effect of government investment on economic growth is decreasing as the level of expenditure rises. When the government investment/GDP ratio reaches a certain point (threshold), the effect of government investment could change from positive to negative. The effect of public debt on economic growth demonstrates a similar pattern. Our results suggest that there must exist an optimal level of government investment or public debt as far as economic growth is concerned, although the optimal level may vary in different economies. The government investment/GDP and public debt/GDP ratios of China were respectively 15.66% and 41.14% in 2014. These levels did not reach their respective thresholds and hence their effects on economic growth were still in the positive territory. Despite the expansion of government investment and public debt in China after the world financial crisis, their scales had not affected the country's economic growth during the data period.     

Should East Asia’s currencies be pegged to the yen? The role of invoice currency

Growing concern that a dollar peg exposes East Asian economies to fluctuations in the dollar–yen exchange rate has stimulated research on currency basket regimes as alternatives for these economies. However, existing studies have mostly ignored an important characteristic of East Asia, i.e., most of its international trade is invoiced in the U.S. dollars. This paper investigates how the preponderance of dollar invoicing affects optimal currency basket regimes for East Asian economies. I develop a three-country center-periphery sticky-price dynamic stochastic general equilibrium model for the analysis. The model is solved numerically by taking second-order approximations to the policy functions with the expected lifetime utility of households chosen as the welfare criterion. Contrary to the conjecture of existing literature, I show that predominance of dollar invoicing implies that the dollar should receive a smaller weight than suggested by bilateral trade shares between emerging markets in East Asia and the United States. The results hinge on the interaction of different degrees of pass-through implied by the choice of invoice currency and endogenous responses of monetary policies in the center countries.     

世界经济新格局与中国经济长期增长前景

中国各行业企业资本边际收益率普遍下降,意味着中国宏观经济增速下行已成为必然趋势。实际上,这标志着中国在完成基本工业化后开始从高速增长阶段进入中低速增长阶段,这也是国际发达经济体和东亚新兴经济体都遵循的发展规律。面对经济增长的趋势性变化,货币政策对经济增长的刺激作用是非常有限的,大量超发货币只会加剧信贷泡沫、增加企业尝债能力的系统性风险。当前经济的核心问题在于宏观税赋过高和企业盈利能力不足,因此,最重要的财政政策应该是实施总量减税而不仅是结构性减税,尤其是对中小企业减税减赋,才能增加就业,提高居民消费比例,转变经济增长方式。     

International Capital Competition and Environmental Standards

This paper examines the welfare effects of capital taxation and environmental standards with and without a government spending constraint or international tax credits. This analysis delineates the intricate linkages of the two policy measures to both private income and government welfare. Loosening environmental control leads to more capital tax revenue for the government. The optimal capital tax rate may be of any sign, depending upon the ranking of the weights of government objectives and private utility. The same criterion also applies in determining how stringent the optimal environmental standards should be.     

Do quits cause under-training?

A recent finding in the training literature is that there willbe under-investment in skills if there is a positive quit rate,training is at least partially transferable, and there is imperfectcompetition in the labour market. We explore the conditionsunder which this under-investment result might be reversed.In economies characterised by uncertainty about future productivity,we show that a higher quit rate may increase the number of workerstrained, by making firms wait less for information about futureproductivity before training new workers. At low quit rates,this offsets all of the under-investment effect.     

On Income Transfers and Equivalence Scales

This article focusses on the relations between equivalence scales and income transfers linked to household characteristics, also called demogrants. Since transfer payments have to be financed, the relation is analyzed in the framework of an optimal tax model. The – in a second-best sense – optimal demogrants and optimal marginal tax rate are characterised by their first-order conditions. Some general properties of the demogrant structure are derived and discussed. Finally, an adopted version of Stern's model for the numerical calculation of optimal taxes is used to obtain more explicit indications about how different factors affect the structure of demogrants and the marginal tax rate.     

我国有效税率结构的经济增长效应：基于SVAR模型的实证研究

通过测算我国劳动、资本和消费的有效税率,以反映我国劳动收入、资本收入和消费支出的真实税收负担情况,并在此基础上构建SVAR模型来考察有效税率结构冲击对经济增长的动态影响。结果表明：消费支出有效税率和劳动收入有效税率的提高有利于投资率和经济增长率的提高,长期累积效应为正;对资本收入征税,无论在短期还是长期都不利于投资率和经济增长率的提高,长期累积效应为负。研究我国有效税率结构的经济增长动态增长效应,对政府税收政策的制定和实施时机的选择有一定的参考意义。     

Genes and Social Mobility: A Case for Progressive Income Tax

Abstract

The effect of ability inheritance on income distribution and social mobility is analyzed with an emphsis on the role of progressive income tax. Epstein–Zin style utility function is used to highlight the role of risk aversion. The result shows that higher genetic inheritability leads to lower per capita income, higher income variance and lower aggregate welfare at the steady state. This tendency is intensified when the elasticity of a child's income to parent's educational investment is higher. In this setup, it is shown that progressive income tax can be a welfare-enhancing tool by increasing social mobility. The optimal progressive income tax rate is obtained in the benchmark model and its positive effect is discussed in the context of “Veil of ignorance”, a concept proposed by Rawls (A Theory of Justice (Cambridge, MA: Harvard, University Press), 1971).     

How to increase global resource productivity? Findings from modelling in the petrE project

The analysis in the chapter is based on the extensive and disaggregated global GINFORS model that contains 50 countries and two regions and their bilateral trade relations, energy balances, material, macro-economic and structural data. The model is applied in the petrE project to analyze the impacts of major environmental tax reforms (ETR) and the EU ETS to reach the EU GHG reduction targets until 2020. The ETR includes a carbon tax for all non-ETS sectors and a material tax. Scenarios look at unilateral EU action and at international cooperation by all OECD countries and the major emerging economies. The chapter presents some of the modelling results. A major ETR in Europe could significantly reduce environmental pressures in Europe while creating additional jobs. Small negative GDP impacts are within the range of results of other studies. The results clearly demonstrate that only global action with substantial carbon prices may lead to an emission path still in line with the 2° target. But even if a far-reaching global climate agreement is reached later in 2010, global resource extraction will continue to increase without additional international measures.