ECONOMIC GROWTH AND THE STRUCTURE OF TAXES IN SOUTH AFRICA: 1960–2002*

One tenet of taxation is its distorting effect on economic behaviour. Despite the economic inefficiencies resulting from taxation, it is widely believed that taxes impact minimally on the economy's growth rate. Evidence in developing countries generally supports this view. In this paper, we present evidence that tax distortions in South Africa may be much more severe. Using tax and economic data from 1960 to 2002 and a two‐stage modelling technique to control for unobservable business cycle variables, we examine the relationship between total taxation, the mix of taxation and economic growth. We find that decreased tax burdens are strongly associated with increased economic growth potential; in addition, contrary to most theoretical research, decreased indirect taxation relative to direct taxation is strongly correlated with increased economic growth potential.     

The optimal delayed retirement age in aging China: Determination and impact analysis

Facing a deepening aging population, nations like China are calling for a gradually delayed retirement policy urgently. Based on the dynamic model of Miyazaki (2014), this paper first examines the difference between the agent's labor productivities in youth and old age (the age difference in labor productivity as defined below). We then establish an agent's optimal consumption model under the background of delayed retirement, and derive formulas to calculate the steady-state output per labor, wage rate, and rate of capital return. Based on the model, we propose a formula to determine the optimal delayed retirement age, which can optimize the government's delaying retirement policy. Moreover, we provide theoretical demonstrations and perform numerical simulations about how delayed retirement ages affect key variables such as the agent's optimal consumption and steady-state output per labor in the context of deepening population aging, and further analyze how the Chinese government determines the optimal delayed retirement age. Results are as follows: Firstly, extending the delayed retirement age will reduce the agent's optimal youth consumption, but increase the agent's optimal old-age consumption, life-time consumption, and the total consumption of economy in the current period. Secondly, the aging population problem is affected by both changes in the birth rate and the survival probability. From 2020 to 2100, the former is constantly declining in China, while the latter is gradually rising. Although these two drivers have different influences on the optimal delayed retirement age, the influence of a higher survival probability is greater, so aging postpones the optimal delayed retirement age in China. Thirdly, the degree of population aging and the agent's labor productivity of the elderly are two main factors affecting the optimal delayed retirement age. Although both factors present an increasing trend from 2020 to 2100, they have opposite implications: the former dominates the latter until 2075 and increases the optimal delayed retirement age. On the other hand, the inhibitory effect of the latter gradually increases and eventually dominates the former from 2075. Fourthly, under the cross influence of the above two factors, the optimal delayed retirement age in China shows an inverted U-shaped trend of rising initially and then decreasing after reaching the peak in 2075. Fifthly, we estimate that if the delayed retirement policy is adopted from 2025, it is reasonable to set the average annual delayed retirement time to two to three months. Finally, we propose measures and suggestions to mitigate the possible negative impacts of delayed retirement.     

The Complementarity between Tax Avoidance and Manager Diversion: Evidence from Tax Haven Firms

We investigate whether tax avoidance and manager diversion are complementary when the costs of diversion are low by comparing dividend payouts, performance, and overinvestments of tax haven firms versus other multinational firms based in countries with weak and strong investor protections. Desai and Dharmapala (2006, 2009a, b) and Desai et al. (2007) set forth a theory of tax avoidance within an agency framework (the D&D theory) based on the assumption that tax avoidance and manager diversion are complementary when the corporate governance system is “ineffective” (i.e., the manager's expected costs of diversion are low). Tax haven firms are corporate groups whose parent firms are incorporated in tax haven countries that are not the countries where the groups’ headquarters or primary operations are located (i.e., their “base” countries). We argue that tax haven incorporation potentially lowers the costs of diversion for managers of firms based in countries with weak investor protections. Using a sample from 28 base countries, we provide evidence that manager diversion and tax avoidance are complementary for tax haven firms based in countries with weak investor protections but not for tax haven firms based in countries with strong investor protections. Our results are consistent with the complementarity assumption underlying the D&D model and provide additional insights into the potential impact of the decentralization of the global firm.     

Revenue Mobilization in African Countries: Does Natural Resource Endowment Matter?*

Abstract: Natural resource endowment offers great opportunities for achieving high levels of growth and development, notably via fiscal revenue mobilization throughout the entire chain of operations from exploration to production to exports. In the case of African countries, however, resource‐rich countries have not yet been able to take full advantage of their resource wealth to mobilize government revenue. In fact it appears that they have often been outperformed by their resource‐scarce counterparts in this regard. Is the low revenue performance a result of distorted incentives induced by the natural resource bonanza or the lack of capacity to harness the revenue potential from the natural resource industry? This paper explores these questions and provides some empirical evidence based on data from a sample including African countries as well as countries from Latin America, Asia, and the Middle East for the period 1980–2007. The paper undertakes an econometric analysis to examine the factors that determine revenue performance in African countries from a comparative perspective, with a focus on the role of natural resource endowment. The results are consistent with the evidence from the literature, especially with regard to the role of economic structure (notably the share of agriculture in GDP), the tax base (per capita income), and trade. We compute an index of revenue performance that relates the actual revenue to the level predicted by the econometric model and we find that African resource‐rich countries have performed poorly relative to their resource‐scarce counterparts and compared to the oil‐rich Middle Eastern countries. The paper concludes with some policy implications for African countries.     

The growth strategy of Abenomics and fiscal consolidation

Using a general equilibrium model with an overlapping generation structure, this study examines the impacts of a new Abenomics growth strategy on fiscal consolidation in Japan. Our simulation yielded the following results. (i) It is difficult to achieve the government target of fiscal consolidation by the year 2020 even when assuming that the growth strategy has the desired effects. (ii) Moreover, further economic and fiscal reforms are required from 2030 to 2070 because of accelerated population aging. (iii) However, population policy and an extended retirement age contribute to significant improvements in Japan’s fiscal condition after 2070. (iv) In contrast, the promotion of productivity and the labor force participation rate have a lesser impact on fiscal reconstruction.     

Does inflation matter for growth?

The interaction between inflation and economic growth is studied within a simple model incorporating money and finance into an optimal growth framework with constant returns to capital. The model includes the potential impact of inflation on growth, via (a) saving and real interest rates, (b) velocity and financial development, (c) the government budget deficit through the inflation tax and tax erosion, and (d) efficiency in production through the wedge between the returns to real and financial capital. The hypothesized effect of inflation on long-run growth through these channels is estimated by applying the random-effects panel model to two sets of unbalanced panel data side by side, from the Penn World Tables and from the World Bank, covering 170 countries from 1960 to 1992. The cross-country links between inflation and growth are economically and statistically significant and robust. Specifically, the results show that inflation in excess of 10–20 percent per year is generally detrimental to growth.     

Implications for Savings of Aging in the Asian 'Tigers'

Significant aging is projected for many high-saving emerging economies of East and Southeast Asia. By 2025, the share of the elderly in their populations will at least double in most of these countries. The share of the young will fall. Aging populations could adversely affect savings rates in these economies, particularly after 2025. For the world, one may observe that initially, the Asian Tigers become increasingly important for world savings, reflecting their high saving and growth rates and the aging of the industrial countries. After 2025, the aging of the Tigers may reinforce the tendency toward a declining world savings rate.     

Impact of immigration on the Japanese economy: A multi-country simulation model

To quantify the impacts of immigration and fiscal reconstruction on the Japanese economy, we present a dynamic computable general equilibrium OLG model with an overlapping generations structure. We use a total of 16 countries and regions, both including those that are industrialized, such as Japan, the US, and the EU, and developing countries, such as China, Brazil, the Philippines, and Peru.Our simulation results show that a permanent immigration flows of 150,000 will improve the Japanese economy and the welfare of current and future generations. On the other hand, a standalone increase in the consumption tax will not improve long-run welfare. The results indicate that substantially increased inflows of working-age immigrants would alleviate the need for future fiscal reform and also help to dramatically reduce the public pension burden on the working generations.     

Public budgetary rules and GDP growth: An empirical study on OECD and twelve european countries

We study the long-term effects of budgetary rules on GDP growth rate and analyse the determinants of the short-term GDP growth dynamics. For both a sample of 19 OECD and a subsample of 12 European countries, we show that, in the long run, improvements in the cyclically adjusted budget balance, as well as increases in the tax burden, have negative effects on GDP growth. The highest effect of fiscal policy on GDP growth would be obtained if the structural deficits were used to increase the market size by reducing the tax burden. In line with Barro (1990), a deficit-financed reduction of tax burden has a stronger effect for European than for OECD countries, because in Europe the government size with respect to market size is too large. Therefore, if GDP growth is a dominant policy objective, in Europe specific actions should redress the 2012 Treaty toward a reduction of the tax burden.     

Corporate effective tax rates in Asian countries

This paper aims to (a) calculate Devereux and Griffith's (2003) forward-looking effective tax rates for 12 Asian countries over a span of 30 years, (b) show the impact of tax holidays on the effective tax rate in Asian countries, and (c) empirically explore the possibility of tax competition among Asian countries. Through relevant analyses, I arrive at three key conclusions. First, while small countries with little rent in domestic markets set their effective tax rates at almost zero, large countries maintain much higher effective tax rates. Second, for countries that have generous capital allowance systems, tax holidays may lead to a rise in not only the effective marginal tax rates (EMTRs), but also the effective average tax rates (EATRs). Third, some Asian countries may engage in tax competition, at least over the EATR, for a limited period of time. However, while some countries have raised their effective tax rates in recent years, others have continued with tax reductions. These results indicate that the recent tax interactions among Asian countries differ from the simpler interactions seen among the European countries.     

Why Nations Become Wealthy: The Effects of Adult Longevity on Saving

We analyze steady state and out-of-steady-state effects of the transition in adult longevity on the national saving rate using historical data and international panel data. The rise in adult life expectancy has a large and statistically significant effect on aggregate saving. The effects have been especially pronounced in East Asia because its mortality transition was very rapid. Gains in life expectancy are much more important than declines in child dependency. Population aging may not lead to lower saving rates in the future if life expectancy and the duration of retirement continue to increase.     

Aging of the population in Japan and its implications to the other Asian countries

"The speed at which Japan's population is aging is mainly a result of its rapid economic development, which is common to many other East Asian countries. Two aspects of the aging of the population are an increasing share of the elderly and a declining labor force. The larger the number of elderly, the more the transfer of income between generations, and the fiscal burden rises. The shrinking workforce will lower the economic growth directly, and indirectly through the falling saving ratio. However, the negative impacts from aging can largely be offset by stimulating participation of older persons in the labor force."     

Retirement of Older Workers and Employment of the Young

Policy makers have often argued that an additional benefit of facilitating early retirement is that it creates employment for the young. This may happen if older and younger workers are substitutes. Nowadays policies are aimed at increasing employment of older people to counter the economic consequences of an aging population. Opponents of such policies argue that these will adversely affect youth employment. This paper revisits the nexus between employment of older and younger workers, if only to put any concerns for adverse effects of later retirement on youth employment to rest. To empirically investigate this issue we estimate a dynamic model of employment of the young, prime age and old people using panel data of 22 OECD countries over the time period 1960–2008. Our empirical analysis does not support the hypothesis that employment of the young and old are substitutes and finds some minor complementarities. This suggests that encouraging later retirement will have no adverse effect on youth employment.     

Generational Accounts for the Dutch Public Sector*

After 2010 the aging of the population will start to form a sizable burden on public finances. On the other hand, some shifts in the private sector, such as the increase of labour participation, are expected to generate higher tax revenues. These contrasting developments raise the question whether the present system of public arrangements is sustainable in the long run or will, on balance, result in an unfavourable treatment of future generations. This paper, which assigns net public sector benefits to generations, indicates that the present arrangements are unsustainable when indexed to productivity growth. However, the required policy adjustment can be considered small. Because the alleviating factors will occur before the sizeable effects of aging set in, implementing a sustainable system implies a sharp reduction of the budget deficit in the coming decades. The paper uses, and in some ways extends, the standard Generational Accounting methodology as developed by Auerbach, Gokhale, and Kotlikoff.     

Mobilizing non-conventional budgetary resources in Asia in the 21st century

The 21st century will be characterized by the curtailment of tax policy autonomy and high locational elasticities for economic activities. Resource mobilization tasks for Asian governments will therefore be far more complex. With respect to traditional taxes, base broadening and modernization of tax administration will have to be primary instruments of raising additional revenue rather than rate increases.The paper suggests that Asian countries will need to substantially enhance their capacity to benefit from innovative instruments of resource mobilization. These include public asset restructuring, treasury management, and revenue from creation of property rights, regulatory levies and more effective use of cost recovery and user charges. Resource mobilization and delivery of public services will have to be increasingly linked. An Asia wide tax forum to address common concerns, such as tax avoidance will need to be considered.     

The search for determinants of catching up: Theory, the East Asian experience and the Chinese case

This paper aims to develop a framework to identify the key determinants of a country's growth in late development and apply the framework to analyze the case of China. I analyze the possible necessary and sufficient conditions for catching up. The analyses suggest that an adequate location, initial human capital and institutional arrangements are among the key determinants; for the majority of developing countries, institutional arrangements alone dictate catching up or not. If the institutional arrangements are efficient, then a follower can achieve what I term long-term potential growth rate provided that there exists an adequate location and initial human capital. The experience of Japan and the East Asian newly industrializing economies is evaluated in the framework. Based on the framework of catching up and the experience of East Asia, the Chinese case is analyzed. The analyses suggest with high probability that China will sustain high growth and get close to its long-term potential growth rate in the coming decades: 7–10% annually in the next 15 years and 5–7% annually in the following 15 years.     

Leaning against the wind: Macroprudential policy in Asia

In recent years, many countries have adopted macroprudential measures to safeguard financial stability, in particular to deal with the credit and asset price cycles driven by global capital flows. Using a newly constructed database on macroprudential instruments and capital flow measures in 13 Asian economies and 33 economies in other regions for the period 2000–2013, the paper formulates various macroprudential policy indices, aggregating sub-indices on key instruments. Asian economies appear to have made greater use of macroprudential tools, especially housing-related measures, than their counterparts in other regions. The effects of macroprudential policy are assessed through an event study, cross-country macro panel regressions, and bank-level micro panel regressions. The analysis suggests that housing-related macroprudential instruments-particularly loan-to-value ratio caps and housing tax measures—have helped curb housing price growth, credit growth, and bank leverage in Asia.     

Analysis of tax effort in WAEMU: How important are institutional/administrative reforms?

This paper examines, in depth, the hypotheses explaining the tax effort of seven West African Economic and Monetary Union (WAEMU) countries over the period 1996–2018. The studies of Karakaplan and Kutlu were applied to the stochastic tax frontier model. This provides a new method for analyzing tax effort that solves potential endogeneity problems, especially those of income. This study confirms the positive impact of income, trade openness, urbanization, government capital spending and anticorruption on tax revenue mobilization, while the size of the agricultural sector has a negative impact on tax revenue. On the other hand, reforms of tax institutions have no effect on tax effort. The average tax revenue of the countries of the WAEMU is 11.34 and the average tax effort is estimated at 0.7901 over the period 1996–2018. Thus, these countries could achieve a tax revenue to GDP ratio of 13.72% if they fully exploit their potential.     

The European Union: Eastern enlargement and taxation

The European Union has not defined its limits in geographical terms. Each enlargement has led and will lead to a decrease of the European Union's per capita GDP. After the collapse of the Soviet Union, the transition countries went through a long and deep recession. However, they have reached a stage of positive growth and their tax levels are approaching the lower limit of the range of tax/GDP ratios in European Union countries. Differences exist in tax capacity and tax effort. In some countries, greater efforts are possible to improve tax revenues. Further examination of the timing of tax administration reform may shed light on tax effort in transition countries. The paper also suggests the existence of a negative relationship between tax effort and corruption. (JEL P27, H20) This research is supported in part by San Jose State University (SJSU) during the author's stay at SJSU as 2003-04 International Tax Policy Research Fellow. An earlier version of this paper was presented at a seminar at SJSU. The author gratefully acknowledges useful comments received from seminar participants.     

实现税收代际公平目标的国际经验及启示

在可持续发展思想的指导下,税收的公平原则内涵应发生改变,即税收的公平原则必须引入代际公平理论,注意和追求世代间的税收公平。借鉴西方发达国家的经验,我国应选择构建绿色税收体系及开征遗产税这两条路径实现税收代际公平目标。