Why the European Union Should Adopt Formula Apportionment with a Sales Factor*

Using a two‐country tax competition model with a multinational enterprise (MNE), this paper addresses the question of whether the European Union should replace separate accounting (SA) in corporate income taxation by formula apportionment (FA) and, if so, which apportionment factors should be used. Our main result is that FA with a sales factor may mitigate or even eliminate fiscal externalities caused by the countries' tax policy. Hence, our analysis provides a microfoundation for the sales apportionment factor. In an empirical calibration to the EU‐15 we show that the transition from SA to FA with a sales‐only formula raises average tax rates by 2% and average tax revenues by 1 billion euros or 0.1% of GDP. These effects result in an increase of welfare.     

The Credit Channel of Capital Tax Policy

A neoclassical growth model is augmented by a corporate sector, financial intermediation, and a set of tax rates. In this setting, capital structure is determined by the interplay between a tax advantage of debt finance and costly state verification entailed by asymmetric information. Effects of capital tax reforms are investigated with a special focus on this micro‐founded credit channel of tax policy. The theoretical part of the paper establishes a new, institution‐based view on the motivation of debt finance in general equilibrium and derives financial and real effects of private and corporate income tax policies. Using a calibration with U.S. data, the applied part demonstrates that tax cuts cause significant adjustments of capital structure. Nevertheless, it turns out that the credit channel generates relatively small effects of tax reforms on consumption, investment, and growth.     

Taxes and firm investment

We investigate the firm-level investment response to unanticipated narrative shocks to average personal and corporate tax rates using a universal micro dataset of publicly-traded U.S. firms for the post-1976 period. Using local projections, we show that: (i) corporate tax shocks have significant effects on investment while personal tax shocks do not; (ii) corporate income tax responses are negative overall, and this result is driven by smaller firms who face larger borrowing constraints, especially when the accompanying monetary policy is contractionary or output gap is slack; (iii) there is some evidence of positive personal income tax responses during monetary contractions by dividend-paying firms, which is consistent with the recent literature.     

IS ECONOMIC GROWTH GOOD FOR THE POOR? TRACKING LOW INCOMES USING GENERAL MEANS

We propose the use of an alternative methodology to track low incomes based on Atkinson's “equally distributed equivalent income” functions or “general means” and present a new characterization to justify their application. To evaluate the effects of growth on lower incomes, growth rates are compared for two income standards: the ordinary mean and a low‐income‐sensitive general mean. The question is: How closely related are these two variables? After estimating the growth elasticity, we find that it is not significantly different from zero. Thus, it cannot be concluded that poorer incomes grow proportionately to increases in the average income.     

生态赤字税：绿色发展与税制改革*

本文在量化生态占用并评估生态价值基础上,提出运用税收实现超额生态占用价值补偿的税收方案,也称生态赤字税。根据税制生态化的改革思路,本文运用CGE模型分析了征收生态赤字税和降低所得税的政策效应。本文研究发现：(1)在各税收方案中,生态赤字减少,就业增加,支持双重红利假说,全行业中间投入减少相对总产出减少更大,名义GDP保持增长;(2)实际GDP在生态赤字税基础上仅减少企业所得税的方案中下降,同时减少个人所得税则能实现增长,此时减税额低于生态赤字税收入;(3)在开征生态赤字税同时,降低个人所得税在保持经济增长方面较好,降低企业所得税在减少生态赤字方面较好,但降低企业所得税所减少的生态赤字价值低于降低个人所得税时劳动和资本增加值的提高。本文建议在完善生态占用核算基础上开征生态赤字税,并减轻所得税,促进经济增长由资源环境消耗转向劳动和资本投入的绿色发展。     

Dividend Taxes and Income Shifting

In this paper, we analyze whether a dividend tax cut for owner‐managers of closely held corporations encourages income shifting, income generation, or both. We use rich Swedish administrative micro data from 2000 to 2011 comprising detailed firm‐ and individual‐level information. We find robust evidence of extensive income shifting across tax bases in response to the 2006 Swedish dividend tax cut. Owner‐managers of closely held corporations reclassify earned income as dividend income but do not increase total income. The response is more pronounced for owner‐managers with tax incentives and with easier access to income shifting through a high ownership share.     

International corporate taxation and U.S. multinationals' behaviour: an integrated approach

Abstract .  This paper explores the effects of corporate taxation on U.S. capital invested abroad and on tax planning practices. The econometric analysis first indicates that investment is strongly influenced by average tax rates, with a magnified impact particularly for low-tax rates, implying that the attractiveness of low-tax countries is not weakened by anti-deferral rules and cross-crediting limitations. Further explorations suggest that firms report higher profit, higher Subpart F income, and are less likely to repatriate dividends when they are located in low-tax jurisdictions. Finally, when the role of effective transfer pricing regulations is estimated, it appears that low degrees of law enforcement are associated with higher income shifting.     

How elastic are national corporate income tax bases in OECD countries? The role of domestic and foreign tax rates

Abstract To what extent do reductions in corporate income tax (CIT) rates attract foreign tax bases? What are the revenue implications of a unilateral tax reduction when tax bases are internationally mobile? These questions are explored using annual data from 17 OECD countries spanning the period 1982 to 2005. Controlling for fixed country effects, year effects, and country time trends, and subjecting our results to an extensive robustness analysis, we find (i) a country’s aggregate reported corporate profits are negatively and significantly affected by CIT rate reductions in neighbouring countries; (ii) a unilateral reduction in the domestic CIT rate results in lower domestic CIT revenues.     

Supply-Side Economics of Germany's Year 2000 Tax Reform: A Quantitative Assessment

Abstract. The paper provides an assessment of supply‐side economics following Germany's year 2000 tax reform. Investigated are a corporate tax cut, deteriorating depreciation allowances and imputation rules, and a private income tax cut. For this purpose, a neoclassical growth model is augmented by various fiscal policy parameters and endogenous corporate finance and calibrated with German data. The model is used to evaluate consequences of Germany's tax reform on production, firm finance and leverage, investment, consumption and welfare of a representative household.     

Impact of Taxes and Benefits on Inequality among Groups of Income Units

This paper analyzes the redistributive impact of the fiscal system and simultaneously explains how each tax and benefit instrument satisfies the principles of vertical and horizontal equity within and across different groups of income units. The decompositions of the redistributive effect are based on new axioms concerning the vertical and horizontal equity of the overall fiscal system, including taxes and benefits. The method is based on pairwise comparisons of income units and the “micro” concepts of income supremacy change, deprivation from reranking, and income distance change. The decomposition results provide more detailed insights into the income redistribution process than is typical in the literature. This is illustrated by an empirical application of the method to the Croatian scheme of personal income taxes and non‐pension social benefits, in which households are divided into two groups, those with and those without children.     

New evidence on taxes and portfolio choice

Identifying the effect of differential taxation on portfolio allocation requires exogenous variation in marginal tax rates. Marginal tax rates vary with income, but income surely affects portfolio choice directly. In systems of individual taxation – like Canada's – couples with the same household income can face different effective tax rates on capital income when labor income is distributed differently within households. Using this source of variation we find portfolio responses to taxation among more affluent households. The estimated effects are statistically significant but economically modest. In a “placebo” test, using data from the U.S. (which has joint taxation), we find no effect of the intra-household distribution of labor income on portfolios.     

A spatial analysis of provincial corporate income tax responses: evidence from Canada

Abstract.  Using a model of interdependent tax choices, and accounting for equalization entitlements and general transfers, this paper estimates – making use of a spatial econometric framework – corporate income tax-setting functions for all Canadian provincial governments. The results show that there is a statistically significant positive fiscal interaction among a subset of provinces and between all provinces and the federal government. Provincial corporate income taxes are also found to be negatively related to equalization entitlements, general federal transfers, and the federal corporate income tax. A robustness check on the fiscal relationship between Ontario and Quebec verifies the existence of significant bi-directional fiscal interdependencies. The paper also introduces U.S state corporate income taxes as covariates and examines their interaction with Canadian provinces.     

SOCIAL SECURITY AND THE INTRAGENERATIONAL REDISTRIBUTION OF LIFETIME INCOME IN JAPAN*

We investigate how social security redistributes lifetime income within the same generation in Japan, based on data from the micro data. The progressivity of Japan's state pension programme appears to be much more limited on a lifetime basis than on an annual basis. Given an ageing population, replacing the current Pay As You Go system with a simple one that consists of a flat benefit and a wage‐proportional premium, and has no maximum contribution, can be desirable in terms of both efficiency and intragenerational equity. The redistributive effects of income tax and consumption tax to finance the benefit are also examined.     

Social Security Contributions and the Business Cycle

We investigate business cycle dynamics of social security contributions (SSC), by far the largest labor tax distortion in the OECD. In most countries, we find a negative covariation of SSC tax burdens with levels and growth of GDP at business cycle frequencies and lower. In detrended data, a decline of GDP of 1% is associated with a 0.05-0.2 percentage point increase in the aggregate SSC burden, measured as a fraction of the wage bill. For most countries, average marginal SSC rates exceed, but track average rates. Changes in average SSC tax burdens are largely due to adjustments in statutory tax schedules rather than cyclical shifts in earnings distributions. Our findings are consistent with Esping-Andersen's (1990) typology of social welfare states. In some countries, SSC rates co-move with measures of the “labor wedge” (Chari et al. 2007, Brinca et al. 2016).     

Viewpoint: Innovations in the theory and practice of redistribution policy

Abstract We present a survey of key results from second‐best optimal redistribution theory and their implications for tax‐transfer policy. The core results include the Corlett‐Hague theorem, the Deaton conditions, the production‐efficiency theorem, the Atkinson‐Stiglitz theorem, and the Mirrlees‐Saez characterization of the optimal non‐linear income tax system. These have been augmented in recent years by optimal participation tax rates, the implications of involuntary unemployment, the use of unconventional instruments, such as minimum wages, in‐kind transfer, and workfare, and the optimal taxation of capital income and bequests.     

生态赤字税：理论与实证研究框架

文章基于生态足迹核算方法和生态服务价值理论所确定的价格体系,在核算生态赤字及其价值并提出其价值补偿的环境税方案的基础上,将生态占用作为一种要素投入,构建绿色社会核算矩阵和环境税 CGE 模型,通过数值模拟比较分析了在5%、10%和30%的补偿强度下税收方案的环境效应、就业效应、增长效应、分配效应和贸易效应。模拟结果表明：(1)生态赤字税方案具有减少生态占用和增加就业的双重红利效应;(2)各部门的总产出和中间投入总体上下降,但名义 GDP 增长,绿色 GDP 增幅更大,而实际 GDP 则下降,表明税收政策会造成价格指数一定程度的上升;(3)政府税收收入因生态赤字补偿额度较大而增长较快,且增速高于劳动和资本要素报酬的增长,但居民收入和企业收入比重略有下降。基于我国资源与环境等税收在总税收中的比重,以及 OECD 国家的税制结构和变化趋势,文章最后建议生态赤字税的补偿性税率应低于5%。     

Improving Work Incentives and Incomes for Parents: The National and Geographic Impact of Liberalising the Family Tax Benefit Income Test*

The effective tax rates and possible work disincentives created by Australia’s tax and welfare systems have been receiving extensive policy attention in recent years. Family Tax Benefit‐Part A (FTB‐A) is one of the key causes of high effective marginal tax rates for many families. This study uses national and spatial microsimulation models to evaluate the national and local impacts of a possible FTB‐A reform option, which involves reducing the income test withdrawal rate associated with the FTB‐A income test. The modelling suggests that the option would be an effective way to reduce high effective marginal tax rates for around 415,000 parents of FTB‐A children, would benefit around 850,000 families, and would deliver additional assistance to middle income families living on the outskirts of our cities.     

对新疆财政收入状况的分析与判断

近年来我国财政收入增长快于经济增长这一现象引起了世人的普遍关注，并由此引发了对财政收入与经济增长是否协调、企业负担是否加重等问题的思考。从税收负担、地方政府可支配财力、转移支付的公平效果进行分析，可得出结论：新疆财政收入增长过快的同时也加重了企业负担，且受新疆特定产业结构和分税制的影响，地方财力有所削弱。对此应当从产业政策和完善转移支付制度等方面进行调整。     

What Drives Corporate Tax Rates Down? A Reassessment of Globalization,Tax Competition,and Dynamic Adjustment to Shocks*

We reassess the driving forces behind the recent decline of corporate tax rates in Europe. Using data for up to 32 countries from 1983 to 2006, we analyze the roles of economic and financial openness as well as tax competition, while allowing for dynamic adjustment to shocks and period‐specific and country‐specific effects. While there is no evidence that countries that have become more open have reduced their tax rates more, our findings suggest that countries strongly compete over statutory tax rates. A simulation of tax rates in a scenario with no cross‐sectional dependence in tax setting suggests that, in the absence of tax competition, the mean statutory tax rate of Western European countries in 2006 would have been about 12.5 percentage points above its actual level. We conclude that the recent downward trend in corporate taxes is mainly a result of tax competition.     

The dual nature of public goods and congestion: the role of fiscal policy revisited

Abstract The role of fiscal policy is examined when public goods provide both productive and utility services. In the presence of congestion, the consumption tax is shown to be distortionary. Optimal fiscal policy involves using consumption‐based instruments in conjunction with the income tax. An income tax‐financed increase in government spending dominates both lump‐sum and consumption tax‐financing. Replacing the lump‐sum tax with an income tax to finance a given level of spending dominates introducing an equivalent consumption tax. These results contrast sharply with the literature, where the consumption tax is generally viewed as the least distortionary source of public finance.