Prospects for Co-ordination of Corporate Taxation and the Taxation of Interest Income in the EU

This paper evaluates the recent proposals for a co-ordinated capital tax policy in the European Union, focusing on an EU-wide minimum withholding tax on interest income and alternative ways to increase the effective tax rate on corporate profits. The analysis draws on current theoretical and empirical research and views the recent capital tax reforms undertaken by individual member countries as rational adjustments to changing conditions in capital markets. Special emphasis is placed on the constraints for EU tax policy imposed by the possibility of shifting capital income to third countries. The paper concludes that some aggregate efficiency gains can be expected from the EU co-ordination proposals, but additional tax collections will be limited largely to the group of small savers while highly mobile large-scale investors are likely to avoid the EU tax.     

知识农业国际发展前沿及中国发展知识农业的政策耦合

伴随知识经济时代的到来及经济国际化的发展,中国作为一个传统的农业大国,应加快由传统农业向现代农业的转变过程。通过借鉴发达国家知识农业发展的成功经验,并结合中国农业经济发展的基本国情,中国应走出一条具有中国特色的知识农业发展之路。     

Earnings Management During Antidumping Investigations in Europe: Sample‐Wide and Cross‐Sectional Evidence

This paper examines earnings management by EU firms that initiate an antidumping investigation. We first document economically and statistically significant income‐decreasing earnings management around the initiation of an antidumping investigation. We show that earnings management increases when accounting data directly affect the magnitude of the tariffs imposed in the trade investigation. We also find that earnings management decreases as the number of petitioning firms increases or as the distance between petitioning firms increases, suggesting free‐rider and coordination problems. We find that earnings management increases when the petition is directed at a country that imports more goods from the petitioning firm's home country, suggesting that retaliation threats affect incentives. We document that raising equity or debt financing moderates income‐decreasing earnings management, consistent with the idea that sample firms trade off capital market and regulatory considerations. Our results indicate that contemporary research methods can detect accruals‐based earnings management in settings in which the incentives for earnings management can be clearly identified.     

Comparing precaution in the United States and Europe

The regulation of health and environmental risks has generated transatlantic controversy concerning precaution and the precautionary principle (PP). Conventional wisdom sees the European Union endorsing the PP and proactively regulating uncertain risks, while the United States opposes the PP and waits for evidence of harm before regulating. Without favouring either approach, this paper critically analyses the conventional depiction of transatlantic divergence. First, it reviews several different versions of the PP and their different implications. Second, it broadens the transatlantic comparison of precaution beyond the typical focus on single-risk examples, such as genetically modified foods. Through case studies, including hormones in beef and milk production and mad cow disease in beef and in blood donations, as well as reference to a wider array of risks, the paper demonstrates that relative precaution varies enormously. Sometimes the EU is more precautionary than the US (such as regarding hormones in beef), while sometimes the US is more precautionary than the EU (such as regarding mad cow disease in blood). Thus, neither the EU nor the US can claim to be categorically 'more precautionary' than the other. The real pattern is complex and risk-specific. Third, the paper seeks explanations for this complex pattern in five sets of hypotheses: optimal tailoring on the merits, political systems, risk perceptions, trade protectionism, and legal systems. None of these hypotheses fully explains the observed complex pattern of relative transatlantic precaution. The paper concludes that differences in relative precaution depend more on the context of the particular risk than on broad differences in national regulatory regimes.     

Tax Systems in the World: An Empirical Investigation into the Importance of Tax Bases, Administration Costs, Scale and Political Regime

We study the structure of taxation in a sample of 100 democratic and nondemocratic regimes over three time periods. The results provide strong support for several regularities in the world as a whole, specifically (1) scale effect: utilization of each tax source increases as the government expands, (2) base effect: tax systems rely more heavily on relatively larger tax bases, and (3) administrative cost effect: lower costs of administration lead to increased reliance on the corresponding revenue source. We also investigate the role of political regime and find that democracies rely substantially more on other income taxation, possibly because this tax source requires a higher degree of voluntary compliance. JEL Code: H2, D72, D78, E31, E51, F13, P35     

The Distributional Implications of Income Under‐Reporting in Hungary*

The ability and inclination of specific social groups to evade tax vary widely, and this leads to considerable variation in the actual tax burden on individuals with similar levels of income. Thus, ignoring tax evasion can be seriously misleading in terms of the distributive and fiscal effects of the tax system. This paper estimates the distributional implications of income tax evasion in Hungary, based on a random sample of the administrative tax records of nearly 230,000 individuals. Gross incomes declared in the administrative tax returns are compared with incomes stated in a nationally representative household budget survey. Our estimates show that the average rate of underreporting is 9–13 per cent, though this conceals a big difference between the self‐employed (who hide the greater part of their income) and employees. The estimates are likely to be lower bounds. These rates are used in a tax– benefit microsimulation model to calculate the fiscal and distributional implications of under‐reporting. Tax evasion reduces households' personal income tax payments by about 16–20 per cent. While the poverty rate increases only slightly, income inequality rises significantly, suggesting that high‐income households tend to evade tax proportionately more. Finally, we find that tax evasion largely reduces the progressivity of the tax system.     

Means Testing and Retirement Choices in Europe: A Comparison of the British and Danish Systems*

We develop a simulation model of household behaviour in which both the consumption/saving and labour/leisure choices are endogenous. This model is used to explore the effects of the UK and Danish state tax and benefit systems on the labour supply of workers aged 50 or over. We find that, in broad terms, differences in labour force participation can be accounted for by differences in benefit structures. Furthermore, our simulations suggest that the UK system is preferred by young people while the Danish arrangement – which imposes a larger tax burden and provides larger welfare benefits – is chosen by people of 50 or older. Notably, people older than 60 are in the majority in the simulated population. The Danish system does not promote notably greater equality over the lifetime, but it does underpin a higher level of consumption for people of 50 or older.     

The Stability of Tax Elasticities over the Business Cycle in European Countries

We estimate short‐ and long‐run tax elasticities that capture the relationship between changes in national income and tax revenue. We show that the short‐run tax elasticity changes according to the business cycle. We estimate a two‐state Markov‐switching regression on a novel data set of tax policy reforms in 15 European countries from 1980 to 2013, showing that the elasticities during booms and recessions are statistically (and often economically) different. The elasticities of personal income taxes, corporate income taxes, indirect taxes and social contributions tend to be larger during recessions. Estimates of long‐run elasticities are in line with existing literature.     

Corporate Tax Consolidation and Enhanced Cooperation in the European Union*

We assess the economic impact of introducing consolidation with formula apportionment in the European Union and consider alternative enhanced cooperation agreements. We find that the consolidation is likely to yield a small aggregate welfare gain in Europe. However, not all countries benefit. A coalition of winning countries reduces the welfare gain and may induce a process of adverse selection which destroys the possibility of cooperation. We find that a coalition of similar countries (in terms of the size of their multinational sector) is more feasible in achieving agreement and is actually preferred by those countries over a Europe‐wide reform.     

Decline of Controlled Foreign Company Rules and Rise of Intellectual Property Boxes: How the European Court of Justice Affects Tax Competition and Economic Distortions in Europe

The European Court of Justice (ECJ) has become an influential player in the field of direct taxation in the European Union (EU) in the past 20 years. However, it is unclear whether or not the ECJ's decisions and the corresponding reactions by the member states actually contribute to tax neutrality in economic terms and, therefore, to the achievement of the internal market. In 2006, the ECJ limited the applicability of specific tax rules in the EU that are intended to prohibit the excessive use of low‐tax countries by multinationals. Our counterfactual analysis shows that the court's restriction of so‐called controlled foreign company rules and the related second‐round reactions by some member states – i.e. the introduction of low‐tax regimes for income from acquired intellectual properties (IP boxes for acquired IP) – cast doubt on the seemingly positive effects the ECJ has on reducing tax distortions. In addition, we demonstrate that the restricted applicability of IP boxes as endorsed by the OECD and the European Commission would strengthen tax neutrality in Europe.     

The Cyclical Reaction of Fiscal Policies in the Euro Area: The Role of Modelling Choices and Data Vintages*

We survey the recent empirical literature concerning the cyclical response of fiscal policies in the euro area, finding large differences in results. We show that these differences are heavily influenced by the choices made in modelling fiscal behaviour. We make a case for the use, in assessing policies and in the EMU context, of the standard modelling choice where the discretionary reaction of fiscal policy is directly estimated. Models where the overall reaction to the cycle – which includes the effects of both discretionary actions and automatic stabilisers – is directly estimated tend to suggest either strong pro‐cyclical or strong counter‐cyclical discretionary reactions, depending on how this component is identified. Within the standard model and for the years 1994 to 2008, we show that results are significantly affected by the data vintage (ex post or real‐time). With ex post data, we find an unambiguous indication of a‐cyclicality. Using real‐time data, we find that the output gap matters. However, depending on whether we assess policy intentions or actual policies, euro‐area governments' behaviour radically changes. A plausible interpretation is that in the implementation phase, governments loosen their fiscal stance, giving in to political pressures that are proportional to the scale of the economic difficulties in bad times and the size of the ‘growth dividend’ in good times.