The economic consequences of corporate tax rates reductions in the EU: Evidence using a computable general equilibrium model

In a globalised world, governments are eager to attract foreign investors by lowering corporate tax rates. Recent trends point towards a revival of a race to the bottom in corporate income tax (CIT) rates in developed economies. EU countries have been active in this respect. A generalised fall in CIT rate could prove detrimental to tax revenues and trigger increase in other taxes to meet fiscal policy objectives. However, it could also spur investment and growth and prove to be a good fiscal policy strategy if, as a result, the corporate tax base increases. The final economic and fiscal impact of a reduction in CIT rates is therefore unclear. Using a CGE model, we find that uncoordinated tax reforms significantly impact national economies and third‐country effects can be significant when large countries implement CIT rate cuts. Small countries are better off unilaterally reducing their CIT rate at the expense of other EU countries. We find that negative spillovers are mitigated when the country reducing its CIT rate restores its budget balance by cutting either public expenditures or social transfers. A larger degree of non‐EU capital mobility also tends to reduce the negative spillover effects of unilateral CIT rate reductions.     

Fiscal incentives and local tax competition: Evidence from China

This paper explores how fiscal incentives affect capital tax decisions by local governments in the Chinese context. We develop a model in which local governments, facing different fiscal incentives, compete for mobile capital over corporate taxes. The key prediction of the model, borne out in data from Chinese cities over the years 2004–13, is that an increase in the local corporate income tax-sharing ratio, proxying local fiscal incentives, makes city governments’ horizontal tax reactions stronger. Our results contribute to the fiscal federalism literature by providing evidence in support of the argument that fiscal incentives faced by local governments significantly shape their policy choices. Additionally, we provide explicit evidence on local tax competition within provinces in China, which has long been regarded as one of the driving forces of China's rapid economic growth.     

Möglichkeiten zur Kompensation der kalten Progression: Wirkung in Österreich

Regardless of the latest tax reform the fiscal drag brings an additional tax burden of € 6.2 billion for the period 2016-2021 to Austrian taxpayers. In 2021 alone this fiscal drag will levy an additional € 2.17 billion. The study in hand gives an overview how other countries control the fiscal drag and analyses the effect of such adjustments in the Austrian tax system. Depending on the adjustment model, the range of the fiscal drag by 2021 lies between a tax burden of € 4 billion (tax brackets adjusted once the cumulative inflation reaches the 5 percent threshold) and between a tax reduction of € 1.6 billion (the tax system is adjusted to the development of nominal wages). In the latter case an adjustment leads to an over-compensation of the fiscal drag yielding a constant tax burden relative to income. For the entire elimination of the fiscal drag an annual inflationary adjustment of the tax brackets, tax credits and deductibles is necessary.     

Corporate taxes and the demand for labor and capital in developing countries

This article provides evidence about the impact of corporate taxation on both labor and capital demand by private companies in a developing economy, using firm level data from Chile. Our results show that higher corporate tax rates reduce not only the demand for capital, but also the demand for labor due to complementarities between both inputs. An interesting element of the results presented in this article is the asymmetry between the effects of taxation according to company size. The impact on labor demand is significantly higher in large corporations than in small enterprises, while the demand for capital is more responsive to corporate tax changes in small firms. We can explain these results based on differences in credit constraints according to firm size.     

Capital Structure Choices and Taxes: Evidence from the Australian Dividend Imputation Tax System

The introduction in 1987 of a dividend imputation tax system in Australia represented a significant change to the tax framework. To the extent that tax incentives influence the use of debt financing, changes in tax laws that alter these incentives will lead to changes in corporate capital structures. This paper examines the changes in corporate capital structure around the introduction of a dividend imputation tax system. The introduction of dividend imputation provides an incentive for firms to (a) reduce the level of debt financing utilized where this incentive varies across firms depending on the firm’s effective corporate tax rate, and (b) increase the level of external equity financing. The results present evidence consistent with these incentives.     

从财税政策角度分析中小企业融资难的问题

中小企业对国民经济和社会发展具有重要的战略意义。受金融危机影响,中小企业融资难严重制约其发展。目前,中小企业融资现状为企业税费负担加重、资金来源渠道狭窄、融资成本相对较高和信用担保体系不完善等。现行财政政策对中小企业融资主要存在财政扶持机制运作不畅、税收政策优惠力度不够、政府采购倾斜力度小及税收政策激励性不足等约束。有效解决中小企业融资难困境,政府应发挥采购的引导作用,加大财政扶持投入和结构性减税力度,完善担保机构风险补偿机制。     

Composition of trade flows and the effectiveness of fiscal devaluation

We empirically explore whether the magnitude of the effects of fiscal devaluation, which consists of reducing the employers’ social security contribution rate and increasing the value‐added tax rate, depends on the composition of trade flows. Our sample comprises data on bilateral balances of trade between 28 European Union (EU) Member States and their main EU trade partners over the 2000–14 period. We use robust ordinary least squares regressions, controlling for the country‐pair and time fixed effects, to test whether there are differences in the sizes of relationships between these taxation forms and bilateral trade balances for different types of goods, by distinguishing between: (i) consumer, intermediate and capital goods; and (ii) labour and capital‐intensive goods. Our results show that the overall effectiveness of fiscal devaluation depends on the composition of trade flows. Value‐added tax is more strongly (positively) associated with (bilateral) balances of trade in consumer goods, compared to balances of trade in capital and intermediate goods. The employers’ contribution rate, in contrast, is more tightly (negatively) related to balances of trade in capital goods. The latter finding also holds true for trade balances of labour‐intensive goods compared to balances of capital‐intensive goods.     

Political Rivalry Effects on Human Capital Accumulation and Inequality: A New Political Economy Approach

We propose an endogenous growth model with new political economy elements in order to (1) examine how political incentives affect economic allocations and (2) study the effects of political rivalry on human capital accumulation and income inequality. Focusing on two important policies affecting economic performance—fiscal policy and public investments in human capital accumulation—we find that different political incentives have distinct effects on policies and economic allocations. We also find that political rivalry increases income inequality and reduces economic growth and human capital accumulation through its negative impact on public investments in education, wages and individual learning choice.     

Should countries control international profit shifting?

We present a fiscal competition model with two policy instruments: the level of corporate taxation and the tightness of control of profit shifting by multinational firms (MNF). We show that a country may optimally decide not to monitor the MNF for two reasons. Firstly, this country becomes an attractive location for MNF activity despite a high corporate tax. Secondly, as the profits of the MNF become mobile, the focus of tax competition is shifted. Taxation then influences both an MNF's location and the place where it declares its profits.     

Determinants of Speed of Adjustment (SOA) toward Optimum Capital Structure: Evidence from Listed Firms in Sri Lanka

This research article aims at examining the determinants of speed of adjustment (SOA) toward the optimum capital structure (OCS). Particularly, this study focuses the impact of firm-specific factors and corporate governance factors on the capital structure adjustment in the Sri Lankan context. The methodology utilizes the benefits of the partial (stock) adjustment model, namely, two-step panel framework using generalised method of moments (GMM) to determine the SOA to OCS. The results indicate that Sri Lankan firms are found to have an OCS and do rapidly adjust toward their target structures. Further this study reveals that profitability, size, tangibility, nondebt tax shields, and governance factors such as directors’ compensation and CEO duality significantly affect the SOA to OCS. The past studies in the emerging market context hardly go into corporate governance factors, leaving a large space for research in the area of capital structure. This study of the listed firms in Sri Lanka contributes to the literature, by examining the determinants of SOA to OCS decision.     

积极运用税收政策优化中国企业资本结构

本文分析中国企业资本结构的基本特征及其所产生的问题,结合MM定理讨论税收对企业资本结构的深刻影响,提出应积极运用税收政策,降低中国企业银行贷款融资比重,努力发展企业债券市场,以优化企业资本结构,改善企业治理机制的相关建议。     

Commercial and tax policy with endogenous capital flows: a welfare analysis

A model of two small trading countries linked by flows of two types of sector specific capital is analysed. We present the effects of a country's commercial and tax policy on its welfare in the presence of complete capital mobility between these ‘neighbouring’ countries. The welfare effects are shown to depend crucially on multilateral factor intensity rankings, as well as on the relative importance of exported versus imported capital.     

Wage Effects of Labour Migration with International Capital Mobility

Wage effects of immigration are investigated in a setting with international capital mobility, which eliminates two‐thirds of the native wage effects of immigration. Without international capital mobility, overall gains from migration in the immigration region are only a small fraction of total losses to native workers, but with perfect international capital adjustment, overall gains are larger than total losses to native workers. Two alternative tax policies to eliminate the negative wage effects of immigration on low‐skilled native workers are evaluated.     

我国地方政府间税收竞争研究：2006-2011年

本文以资源流动模型为理论基础，以我国30个省级政府2006-2011年的财政收入以及地方税种为对象，运用空间面板德宾模型实证研究了地方政府间税收竞争存在性和竞争类型问题，研究结果表明：第一，地方政府间无论在财政总收入还是具体地方税种上都存在空间竞争关系；第二，地方政府间在增值税和企业所得税两种地方税上存在策略互补的竞争类型，而在其他税种上存在策略替代的竞争类型；第三，人口特征变量、就业率变量、固定资产投资率变量、城镇化率变量以及对外开放水平变量对特定或所有地方税税负水平有显著影响。     

FISCAL POLICY AND ECONOMIC GROWTH IN THE IMPERFECT LABOR MARKET

Using a simple overlapping generations model with the growth engine of public capital by incorporating the union wage setting, we examine the effects of fiscal policies on unemployment, economic growth and welfare in the imperfect labor market. We demonstrate that the growth‐maximizing tax in the imperfect labor market is larger than that of the perfect labor market. However, as the allocation ratio of public capital increases, the growth‐maximizing tax in the imperfect labor market approaches that of the perfect labor market, thus reducing the unemployment rate. The policy implications of the intergenerational welfare aspects are also mentioned.     

Abschaffung der Abgeltungsteuer — gerechter und steuersystematisch einheitlicher?

There is a rising political discussion in Germany around abolishing the final withholding tax on capital income. The German tax reforms that introduced this tax lowered tax rates, in particular on interest income. According to some authors, the growing inequality of income and property is a strong argument for the higher taxation of capital income. However, other authors argue that the neutrality aspects concerning private investment are inadequate. An abolishment of the final withholding tax would not solve these problems and, moreover, would turn back the achieved improvements. Therefore, the German Council of Economic Experts suggests complementing the previous reforms by introducing an allowance for corporate equity.     

The welfare and employment effects of trade and factor taxes with variable factor supply

This paper develops a general trade model with many traded goods, many internationally mobile factors, and with endogenous labor supply. Within this framework, the employment and welfare effects of taxes on trade, on wages and on the returns of the internationally mobile factors are examined. The employment maximizing and the first- and second-best tax structures are determined. The analysis identifies the conditions under which variable labor supply increases the welfare cost of a trade and a capital tax, and demonstrates the need for joint determination of taxes on trade and on the returns of factors in variable domestic supply.     

EXTERNAL SHOCKS AND THE URBAN POOR

This paper examines the effect of external shocks on urban poverty in a two‐household (rich and poor), two‐sector intertemporal model of an open economy with segmented labor markets. Skilled and unskilled labor are used in the formal sector, whereas only unskilled labor (which moves freely across sectors) is used in the informal economy. The extent to which a permanent increase in the world risk‐free interest rate affects the incidence and depth of poverty is shown to depend crucially on the wedge between consumption and product wages. The model is also extended to account for endogenous minimum wages and capital accumulation.     

PUBLIC CAPITAL,TAXATION AND ENDOGENOUS GROWTH IN A FINITE HORIZONS MODEL

This paper presents development of an endogenously growing finite horizons model with public capital, and investigates macroeconomic effects of fiscal policy and a change in life expectancy. Specifically regarding novel results, a growth‐maximizing income tax rate exists that is less than the elasticity of public capital to output. In addition, in the model with income tax financing, there might exist an inverted‐U‐shaped relationship between life expectancy and growth, which is consistent with some empirical evidence. In this paper, we elucidate the interaction among public capital accumulation, taxes, growth, welfare and life expectancy.