On the impact of a tax shock in Portugal

In 1999, Cavaco Silva, the Portuguese Prime Minister from 1985 to 1995, proposed a comprehensive tax reform package, which is to this day the basic reference in the tax policy debate in Portugal. A tax shock would consist of 4pp cuts in the corporate income tax and in the firms social security contribution rates, and a 5pp reduction in the highest personal income tax rate. These cuts would be financed by combating tax evasion, curbing wasteful public expenditure and, if necessary, by increasing the VAT rate by up to 2pp. Using a dynamic general equilibrium model to evaluate the effects of this tax shock, we find that the long-term GDP gains would be between 0.72% and 2.91% while the effects on lifetime private welfare would range between -0.99% and 0.9%. The efficiency of this tax reform package depends critically on the way the tax cuts are financed to ensure deficit neutrality. Because investment is subject to adjustment costs, to alleviate the long-run trade-off between GDP and welfare, tax policy changes must induce a significant increase in net labor income.Received: July 2001, Accepted: March 2002, JEL Classification: C68, D58, E62, H21, H30Correspondence to: Alfredo M. PereiraA previous version of this paper was presented at the Society of Computational Economics and SPiE conferences. Thanks are due to Fernando Chau, Emanuel Santos, and two anonymous referees for very insightful comments and suggestions. The views in this article are of the authors alone and do not reflect the position of the Portuguese Ministry of Finance.     

Impacts of an EC carbon/energy tax and deregulating thermal power supply on CO2, SO2 and NOx emissions

Emission of CO₂, SO₂ and NO_x are all closely linked to the burning of fossil fuels. Here we report on simulations done by linking a Sectoral European Energy Model (SEEM), covering energy demand in nine Western European countries, with the emission-transport-deposition model RAINS developed by IIASA. The study analyses emissions of CO₂, SO₂ and NO_x, deposition of sulphur and nitrogen and the extent of areas where the critical load for sulphur is exceeded in year 2000 under four different energy scenarios. Two different sets of future behavioural patterns for the thermal electric power production sector are considered. In one regime, called the plan-efficient regime, the sector is assumed to follow official plans with regard to investment in new capacity. In the other regime, called the cost-efficient regime, the thermal power sector is assumed to behave in a cost minimizing manner. The effects of the proposed EC carbon/energy tax are studied under both regimes, giving rise to altogether four scenarios.In both regimes the effect of the EC tax is to reduce emissions by between 6 and 10 per cent in year 2000 relative to the scenarios without the tax. A change of regime, from the regulated, plan-efficient regime to the market-based, cost-efficient regime, will, by itself, reduce emissions of CO₂ and NO_x by approximately 3 per cent, while SO₂ emissions are reduced by 13 per cent. The EC tax will reduce sulphur deposition by more than 5 per cent in the nine model countries under the plan-efficient regime. A change of regime further reduces the total deposition by 9 per cent. The area where depositions exceed the critical load is reduced by approximately 6 per cent in year 2000 by the tax in both regimes. Changing from the plan-efficient to the cost-efficient regime has a similar impact.Although the emission reductions due to the EC tax may seem modest, they are shown to have a sizeable effect on the technological abatement costs of reaching targets like those prescribed in the Sofia protocol on the stabilisation of NO_x emissions, and the Helsinki protocol on SO₂ emission reductions. This is part of what can be considered to be secondary benefits of the EC carbon/energy tax.     

CO2-Stabilization May Be a 'No-Regrets' Policy

Restricting CO₂ emissions requires changing today's consumption pattern away from energy and emission intensive commodities towards cleaner goods. The cost of stabilizing CO₂ emissions at the 1990 level by the year 2000, say, as compared to a business-as-usual trend, is estimated by several researchers to be on the order of 1% of GNP. We will argue that the cost may be overestimated because of a too simple model describing the working of the economic system and the evaluation of welfare. We demonstrate that by expanding a model to include the actual tax system and negative externalities, the cost to present generations from restricting emissions by a CO₂ tax may be negative. That is, some reduction may actually correspond to a 'no-regrets' policy. The reasons are inefficiencies in today's tax system and non-optimal handling of negative externalities. Our analysis suggests that a CO₂ tax and reduced emissions will lessen such inefficiencies.     

Norwegian Emissions of CO2 1987–1994 A Study of Some Effects of the CO2 Tax

Several countries have introduced taxes on fossil fuels with the aim of reducing atmospheric emissions, partly because of local environmental goals (SO₂, NO_x) and partly to participate in a global effort to reduce emissions of greenhouse gases. Many macroeconomic studies, based on both global and national models, have been made of how emissions can be reduced with the help of taxes and the consequent reduction in GDP following the introduction of such taxes. Norway has had a CO₂ tax for five years, thereby providing a unique opportunity to evaluate the effects of this tax on emissions. The paper provides a counterfactual analysis of energy consumption and emissions if no CO₂ taxes had been introduced, compared with the actual situation in which such taxes exist. The effect of a CO₂ tax on oil consumption, and thus CO₂ emissions is studied on the basis of partial economic models for various sectors of the Norwegian economy. The study indicates that the CO₂ tax has had an impact on CO₂ emissions in Norway.     

Economic Impacts of the 1997 EU Energy Tax: Simulations with Three EU-Wide Models

In March 1997 the European Commission adopted aproposal that increases existing minimum levels oftaxation on mineral oils by around 10 to 25% andintroduces excises for other energy products. Thispaper analyses the macroeconomic impacts of theproposal. It employs three models: HERMES, GEM-E3, andE3ME. All models confirm that the proposal will havepositive macroeconomic impacts when the tax revenuesare used to reduce social security contributions paidby employers. For the EU as a whole, both GDP andemployment are expected to be higher and CO₂emissions are 0.9 to 1.6 percent lower. The positiveEU-wide effects can be observed in practically allmember states. The sector impacts are modest, with theenergy sector expected to face the most negativeimpacts. Differences between model results are due tothe model type (general equilibrium ormacro-econometric), the EU countries covered and theway tax exemptions were handled. Crucial assumptionsto obtain the ``double dividend' are the modelling ofthe labour market and the impacts on EU externaltrade. The sensitivity of the results for the use oftax revenues, tax exemptions and tax rate increases isassessed.     

Analysis and quantification of a new fiscally neutral European tax

The present study contributes to the discussion on the new European tax or excise which would be based on taxing end consumption (taxing the products and not the production) according to how much CO₂ is emitted during the production of particular commodities, irrespective of whether all or a part of this process takes place inside or outside the EU. The analysis is based on the input–output model, which provides an appropriate and unique approach for measuring the total CO₂ content of the various commodities taking the entire production chain into account. The calculation by products can be the basis for the estimation of product specific CO₂ taxes. The model calculations based on the input–output table for the EU-27 for the year 2011 leads to the tax rate of 40.69 euros per tonne of CO₂ emissions, which could have generated fiscal revenue in the amount of 1% of EU GDP. In line with the principle of fiscal neutrality, a reduction of the labour costs by ?2.03% could compensate the introduction of a CO₂ tax by the amount of 40.69 euros per tonne of CO₂. The cost push effects lead to change of relative prices in favour of environmentally produced goods and services.     

On the impacts of carbon tax and technological progress on China

Using a dynamic national computable general equilibrium model, we investigate the impact of carbon tax and energy efficiency improvement on the economy and environment of China. The Chinese social account matrix is presented based upon the latest input–output table (2012 IO table) and other data. The business as usual (BAU) scenario is designed according to several forecasts about China by 2030, followed by six policy scenarios, including different levels of carbon tax and technological progress as well as their combinations. The results show that carbon tax will frustrate the overall economic growth slightly. The CO₂ emission will be 13.81% lower in 2030 compared to BAU case if the carbon tax scheme is carried out at a rate of 200 RMB/ton of CO₂. Technological progress will stimulate the economic growth, enrich the household and government income, increase total investment and make most sectors prosperous with the exception of energy industries.     

Recycling of carbon/energy taxes and the labor market

This paper provides a quantitative assessmet of a cost shift from labor to energy by means of a carbon/energy tax. The analysis utilizes a general equilibrium model for the European Community, placing the emphasis on the modeling of labor supply. The paper highlights the importance of the feedback from an induced increase in labor demand to wage formation. It shows that the goals of CO₂ reduction and improved employment are complementary, provided the reduction in labor costs financed by the carbon/energy tax is not offset by increased wage claims. Under this condition, reduced CO₂ is consistent with an increase in GDP.     

Harmonization of carbon taxes in international climate agreements

The use of some kind of carbon tax is often proposed as part of an international climate policy. One possibility could be an international climate agreement requiring a harmonization of domestic carbon taxes. It is shown that there are several practical difficulties with such an agreement, and that it therefore is unlikely that CO₂ emissions will be allocated efficiently between countries with this type of agreement. Alternative types of agreements include an international carbon tax, in which the governments of the participating countries pay a tax, in proportion to their CO₂ emissions, to an international agency. A very similar arrangement would be to introduce a system of emission permits which are internationally tradeable between governments. Under quite general conditions, agreements of these two types can be designed so that they are both efficient and satisfy whatever distributional objectives one might have. Under both of these systems, the choice of domestic policies could be left to the individual countries. A domestic carbon tax is an obvious policy response from a country participating in an agreement of this type.Significant parts of the paper are based on research at CICERO (Center for International Climate and Energy Research, Oslo) and the Centre for Research in Economics and Business Administration (SNF), Oslo. The paper draws heavily on a related paper (Hoel, 1992a) which was prepared for Workshop on Fee and Charge Systems for Reducing Greenhouse Gases, OECD, Paris, November 5–6, 1991. I am grateful to an anonymous referee for useful comments on an earlier version of the paper.     

Corporate tax and location choice for multinational firms

This article examines the effects of corporate tax on these location decisions of newly established multinational subsidiaries across 26 European countries over an 8-year period. We contribute to the existing literature by examining the effects of a non-linear response of firm location decisions to changes in the tax rate. We also show that there are large variations in the sensitivity to tax rates across sectors and firm size groups. In particular, financial sector firms are more than twice as sensitive to changes in corporation tax rates relative to other sectors. Our baseline result is a finding that a 1% increase in the statutory or policy rate of corporation tax would lead to a reduction in the conditional location probability of 0.68%. Using the effective average tax rate, the marginal effect implies a reduction in the location probability of 1.15% following a 1% increase in the tax rate. Although overall tax has the expected negative effect on location probability, the marginal effect of an increase is lower at higher rates of tax.     

房地产税、市场结构与房价

本文在住房流量模型的基础上,构建了一个购房者和开发商的住房市场局部均衡模型,考察了完全垄断和完全竞争情形下房地产税与房价之间的关系。结果表明,无论何种市场结构,提高房地产税均导致房价下降;住房市场垄断性越强,房价越高,房地产税对房价影响越大。笔者对1996-2008年中国33个大中城市数据的检验发现,市场结构对房价影响大于房地产税。房地产税增长率每增加1%,房价增长率将减少0.03%;勒纳指数每增加1%,房价增长率将增加0.16%。房地产税与市场结构相互作用将使房价上涨,但影响微不足道。因此,对住宅开征房地产税,将对房价上涨有一定限制作用,但不能有效抑制房价上涨,而增强住宅市场竞争性、降低开发商垄断具有显著效果。     

Ramifications of a Flat Tax—Shifting the Burden to the Middle Class

An alternative to the current US tax system would be a flat tax. According to its supporters, the flat tax would decrease the complexity of the tax system. Opponents contend that the flat tax will shift the tax burden to the middle class. The current research tested the claim that the flat tax will shift the tax burden to the middle class by developing simulations of two flat tax proposals, the Steve Forbes Plan and the Hall and Rabushka Plan, and then examining the change in the tax burden for different income levels as compared to the current tax system. The results show that both plans shift more of the tax burden to middle income class taxpayers than under the current US tax system.

The rate elasticity of Florida tourist development (aka bed) taxes

One aspect of taxation in Florida is unique in that state policymakers have created several different tourist development taxes, generally allowing local governments to adopt up to four of these ad valorem levies (which can total 5%) on transient rentals. The rentals include, but are not limited to, hotel stays. In this article, we estimate the elasticity of this local tax base with respect to the rate for Florida counties with rate changes between 1998 and 2012. Results indicate several significant and large short-term declines from periodic county-level increases in the tax rate, but no significant long-term effects.     

The Golden Age of Tax Expenditures: Fiscal Welfare and Inequality in Portugal (1989–2011)

ABSTRACT

This paper studies social tax expenditures as an instrument of social policy, considering its broader social and political ramifications, particularly regressive distributive impacts, the targeting of social protection and making markets for non-state providers. Using OECD data and government budgets, we look at ‘tax breaks for social purposes’ in Portugal since the 1980s, with a focus on healthcare, educational and mortgage loan expenses. Portugal presents a comparatively high level of TBSP before the Great Recession. Why? Using Portugal as a theory-developing case, the paper argues that in the critical juncture following the late, double transition to democracy and structural economic reform, tax and welfare state developments combined to create social tax expenditures as a modality of targeted social expenditure favouring middle and higher strata. Once in place, a combination of powerful vested interests, obscure policy-making, regressive income distribution and high take-up rate across taxpaying groups obtained a path-dependent outcome, keeping inegalitarian and costly fiscal welfare growing during adverse fiscal conditions. Such a resilient outcome was curbed only in 2011 by the harsh conditionality of the economic and financial adjustment programme of the Portuguese bailout, an instance of how deep crises provide opportunities for path-shifting reconfigurations of social policy.     

Political Measures for Strategic Environmental Policy with External Effects

This paper investigates an environmental policy designed to reduce the emission of pollutants under uncertainty, with the agent problem as an optimal stopping problem. We first analyze the two cases in which there are one agent and two competing agents by following Ohyama and Tsujimura (2005). When we consider a model of strategic agents, we need to analyze the external economic effect that is peculiar to an agent’s environmental policy implementation. Then, to improve and resolve these external effects, we examine three alternative political measures, comprising an environmental subsidy, an environmental tax and an emission trading system. The results of the analysis indicate that the environmental subsidy and environmental tax promote environmental policy. However, they do not create an incentive to be the leader. On the other hand, an emissions trading system not only promotes environmental policy but also creates an incentive for leadership.This paper was previously circulated under the title “Political Measures for Strategic Environmental Policy with Induced Effects”. The authors would like to thank Masaaki Kijima for helpful comments. The authors would also like to thank Alistair Munro and two anonymous referees providing detailed comments and suggestions. This research was partially supported by Daiwa Securities Group Inc. The second-named author was partially supported by the Ministry of Education, Culture, Sports, Science and Technology, Grant-in-Aid for Scientific Research (B) (2), 16310118.     

On Teaching a Fractured Macroeconomics

One of the most interesting results in the tax evasion literature is that an increase in the income tax rate would increase tax compliance. Despite its peculiarity, this result has gained acceptance as a cornerstone for further developments of the rational tax evasion model. However, because of the mathematical format by which it is conveyed, this counterintuitive result has remained inaccessible to undergraduate students as well as to noneconomists. The author first introduces the rational tax evasion model in a nonmathematical style that is accessible to any reader. Second, he shows that the behavioral predictions of the rational tax evasion model can easily be obtained using a simple graphical representation of the optimum condition that involves the derivation of a demand curve for tax compliance.     

Taxation of multiple greenhouse gases and the effects on income distribution: A case study of the Netherlands

Current economic instruments aimed at climate change mitigation focus on CO₂ emissions only, but the Kyoto Protocol refers to other greenhouse gases (GHG) as well as CO₂. These are CH₄, N₂O, HFCs, PFCs and SF₆. Taxation of multiple greenhouse gases improves the cost-effectiveness of climate change mitigation. It is not yet clear, however, what the effect is of multigas taxation on the distribution of the tax burden across income groups. This paper examines and compares distributional effects of a CO₂ tax and a comprehensive tax that covers all six GHG of the Kyoto Protocol. The study concentrates on the Netherlands in the year 2000. We established tax rates on the basis of marginal abatement cost curves and the Dutch policy target. The distributional effects have been determined by means of environmentally extended input−output analysis and data on consumer expenditures. Our results show that taxation of multiple GHG improves not only the cost-effectiveness of climate change mitigation, but also distributes the tax burden more equally across income groups as compared to a CO₂ tax. These findings are relevant for the debate on the role of non-CO₂ GHG in climate change mitigation.     

AGE analysis of the impact of a carbon energy tax on the Irish economy

A computable general equilibrium model with specific detail in taxation and energy use is developed in this paper to quantify the impact of the implementation of energy taxation to reduce carbon dioxide emissions in Ireland. Benchmark data combining physical energy and emissions data and economic data in the form of a Social Accounting Matrix (SAM) had to be compiled from various data sources, because energy and pollution accounts from the SEEA are not available for Ireland. We find that the reduction target for energy related CO₂ emissions in Ireland of 25.8% compared to 1998 levels can be achieved with a carbon energy tax of 10-15 euros per tonne of CO₂. Though fuel switching is important in meeting the target, this result is more sensitive to the possibilities for producers to substitute away from energy use. Welfare would fall but only by small percentages. Production and consumption patterns would change more significantly, with a shift in demand from fuels with a high emission factor to energy sources with a lower carbon-intensity and from energy to other commodities. This paper confirms that a carbon energy tax leads to greater emission reductions than an equivalent uniform energy tax. The latter has a stronger negative impact on the less polluting energy sectors whereas the carbon tax greatly stimulates the use of renewable energy and reduces the use of peat and coal. The new SAM, the model and the application to energy taxes contribute to a better informed debate on environmental policy in Ireland.     

Taxation of multiple greenhouse gases and the effects on income distribution: A case study of the Netherlands

Current economic instruments aimed at climate change mitigation focus on CO₂ emissions only, but the Kyoto Protocol refers to other greenhouse gases (GHG) as well as CO₂. These are CH₄, N₂O, HFCs, PFCs and SF₆. Taxation of multiple greenhouse gases improves the cost-effectiveness of climate change mitigation. It is not yet clear, however, what the effect is of multigas taxation on the distribution of the tax burden across income groups. This paper examines and compares distributional effects of a CO₂ tax and a comprehensive tax that covers all six GHG of the Kyoto Protocol. The study concentrates on the Netherlands in the year 2000. We established tax rates on the basis of marginal abatement cost curves and the Dutch policy target. The distributional effects have been determined by means of environmentally extended input−output analysis and data on consumer expenditures. Our results show that taxation of multiple GHG improves not only the cost-effectiveness of climate change mitigation, but also distributes the tax burden more equally across income groups as compared to a CO₂ tax. These findings are relevant for the debate on the role of non-CO₂ GHG in climate change mitigation.     

The Big Bang: Tax Evasion After Automatic Exchange of Information Under FATCA and CRS

ABSTRACT

After decades of ineffective attempts to fight tax evasion, the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) recently implemented the first encompassing international exchange of tax-related information on an automatic basis. This is an important development because tax evasion contributes to rising socio-political inequality and political sovereignty losses. This article assesses the treaties’ impact on tax evasion by conducting a difference-in-difference analysis of cross-border asset data. The results show that the treaties are successful. Household assets in tax havens that are not hidden behind corporate identities are estimated to be 67 per cent lower than they would have been without automatic exchange of information. Furthermore, this reduction is not offset by an increase in treaty circumvention using identity concealment or asset shifting to non-compliant jurisdictions. FATCA and CRS thus implement the first effective international cooperation against tax evasion. The results imply that political globalisation is capable to mitigate the political sovereignty losses and rise of inequality caused by economic globalisation.