Can Capital Income Taxes Survive? And Should They?

The article surveys some main results in the theory of capitalincome taxation in the open economy; reviews recent trends ininternational taxation and discusses alternative blueprintsfor fundamental capital income tax reform from the perspectiveof an open economy faced with growing mobility of capital incometax bases. (JEL code: H21, H25)     

ACE versus CBIT: Which is Better for Investment and Welfare?

This article analyses the switch to an Allowance for CorporateEquity (ACE) or to a Comprehensive Business Income Tax (CBIT)type of tax system starting from the present German tax system.We show that in case an ACE type of reform is financed by anincrease in the VAT and not in the profit tax, it might be preferredto a CBIT even in the context of an open economy. Moreover,the required exogenous increase in the profit tax rate cannotensure revenue neutrality on its own due to the negative generalequilibrium effects it triggers on the whole economy. For aCBIT, the exogenous reduction in the tax rates on corporateand non-corporate profits leads to better results than whenwe allow for an endogenous change in the VAT. The best resultsarise when the CBIT is accompanied by a provision for immediatewrite-off and a lower profit tax or when the ACE with no additionalcapital gains taxation on household side is financed by an increasein the VAT. (JEL-Classification: C68, D58, D92, E62, H25.)     

Sharing the Burden? Empirical Evidence on Corporate Tax Incidence

This study investigates the direct incidence of the corporate income tax (CIT) through wage bargaining, using an industry‐region level panel dataset on all corporations in Germany over the period 1998–2006. For the first time we account for employment effects which result from tax‐induced wage changes. Workers share in reductions of the CIT burden; yet, the net effect of wage bargaining on the corporate wage bill, after an exogenous €1 decrease in the CIT burden, is as little as 19–28 cents. This is about half of the effect obtained in prior literature focussing on wages alone.     

Capital taxation, long-run growth, and bequests

It has been shown that higher capital taxes can have a growth-enhancing effect when combined with a revenue-compensating cut in wage taxes or with an expansion in productivity-increasing public services. The present paper demonstrates that these results critically hinge on the existence of a bequest motive. It is shown that a wage-tax cut is no longer growth-enhancing when bequests are operative. By way of contrast, increasing productive public services may well boost growth. The theoretical findings are illustrated by numerical simulations based on US data.     

Public investment,taxation, and long-run output in economies with multi-level governments

This paper examines the dynamic effects of taxation and investment on the steady state output level of an economy. A simple neoclassical growth model with different tiers of government is developed. The initial focus is on governments that aim to maximise their citizens' welfare and economic performance by providing consumption goods for private consumption and public capital for private production. It is shown that a long-run per capita output maximising tax rate can be derived and that there also exists an optimal degree of fiscal decentralisation. The analysis then extends to the case where governments attempt instead to maximise their own tax revenue to fund expenditures which do not contribute to the utility of their citizens. Three different cases of taxation arrangement are considered: tax competition, tax sharing, and tax coordination. The modeling shows that intensifying tax competition will lead to an increase in the aggregate tax rate as compared to the cases of sharing and coordination amongst governments. These tax rates are both higher than the long-run per capita output maximising rate that was implied under the welfare maximising government scenario.     

The political economy of capital market integration and tax competition

This paper investigates the effect of capital market integration (CMI) on capital taxes in a political economy framework in which policy is influenced by lobbying of interest groups. CMI increases the efficiency cost of the capital tax, which introduces incentives to reduce the tax rate, but also reduces lobbying by owners of capitalists, which introduces countering incentives to increase the tax rate. CMI can therefore result in a higher capital tax rate. When the market share of each country is small, CMI may increase government supply of public goods and enhance efficiency, which implies that, in the presence of policy endogeneity through lobbying, decentralized policymaking can be more efficient than centralized policymaking.     

On the existence of an implementable optimal income tax

Summary. This paper discusses the existence of an optimal income tax and distinguishes itself from the previous articles in two respects. In previous papers, the self selection condition was not necessarily consistent with the individual budget constraint. Furthermore, implementability in previous papers was implicit in individual ability, rather than individual income, as the basis of the tax function. We offer a different concept of the self selection conditions: Anti Normal Envy that is consistent with the individual budget constraint and that we show to be equivalent to the competitive equilibrium under a tax function based on income. We then establish the existence of an implementable optimal income tax.Received: 9 December 2000, Revised: 5 August 2003, JEL Classification Numbers: H21, C62, D59.Correspondence to: Jun IritaniThe authors are grateful to an anonymous referee of this journal whose suggestions were instrumental to our revision of the paper, and to Professors Takao Kataoka, Tomoyuki Kamo, Tetsuya Kishimoto, and Mototsugu Fukushige, and the members of the Kobe-Osaka Joint Seminar in Mathematical Economics, for their invaluable comments.     

企业所得税征管:问题与对策

我国企业所得税征管环节存在不少亟待解决的问题,如税源监控不到位,服务意识待提高;汇算清缴制度不规范;纳税评估流于形式等.因此,应对纳税人科学分类,加强日常监控;核实税基;优化服务以降低纳税成本;规范企业所得税征管环节的各项管理;强化纳税评估,提高信息化程度,为企业营造出公平的纳税环境.     

The politics of progressive income taxation with incentive effects

This paper studies majority voting over quadratic taxation and investigates under which conditions marginal progressivity emerges as a voting outcome. In our model with endogenous income, there is no majority (Condorcet) winning tax schedule. We then investigate less demanding political equilibrium concepts in order to see under which conditions the set of equilibria is composed only of progressive tax functions. We follow three strategies: (i) reduction of the policy space to the tax functions that are ideal for some voter; (ii) elimination of weakly dominated strategies and the use of mixed strategies in a standard Downsian two-party competition game; (iii) assumption that political parties interact repeatedly and care about the size of their majority. Although each approach captures a different aspect of political behavior, they point to the same (simulation-based) conclusion that progressivity is more likely to emerge for most distributions of abilities and that it is actually the only possible voting outcome if the distribution is sufficiently concentrated at the middle.     

Household bargaining and the design of couples’ income taxation

This paper studies the design of couples’ income taxation when consumption and labor supply decisions within the couple are made by maximizing a weighted sum of the spouses’ utilities; bargaining weights are given but specific to each couple. Information structure and labor supply decisions follow the Mirrleesian tradition. However, while the household's total consumption is publicly observable, the consumption levels of the individual spouses are not observable. With a utilitarian social welfare function we show that the expression for a spouses’ marginal income tax rate includes a “Pigouvian” (paternalistic) and an incentive term. The Pigouvian term favors a marginal subsidy (tax) for the high-weight (low-weight) spouse, whose labor supply otherwise tends to be too low (high). The sign and the magnitude of the incentive term depends on the weight structure across couples. In some cases both terms have the same sign and imply a positive marginal tax for the low-weight spouse (who may be female) and a negative one for the high-weight spouse (possibly the male). This is at odds with the traditional Boskin and Sheshinski results. Our conclusions can easily be generalized to more egalitarian welfare functions. Finally, we present numerical simulations based on a calibrated specification of our model. The calculations confirm that the male spouse may well have the lower (and possibly even negative) marginal tax rate.     

Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada

We study corporate income taxation when firms operating in multiple jurisdictions can shift income using tax planning strategies. Because income of corporate groups is not consolidated for tax purposes in Canada, firms may use financial techniques, such as lending among affiliates, to reduce subnational corporate taxes. A simple theoretical model shows how income shifting affects real investment, government revenues, and tax base elasticities, depending on whether firms must allocate income to provinces or not. We then analyze data from administrative tax records to compare the behavior of corporate subsidiaries that may engage in income shifting to comparable firms that must use the statutory allocation formula to determine their taxable income in each province. The evidence suggests that income shifting has pronounced effects on provincial tax bases. According to our preferred estimate, the elasticity of taxable income with respect to tax rates for “income shifting” firms is 4.9, compared with 2.3 for other, comparable firms.     

Tax competition with heterogeneous firms

A model of tax competition in which firms earn rents is described. The size of these rents, coupled with the degree to which the firms are foreign-owned, determine the equilibrium tax rates. The existence of rents significantly alters some generally accepted results involving the possibility of a Pareto-improving common tax rate and the underprovision of publicly provided goods.