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Effective levels of company taxation within an enlarged EU (update)
Michael P. Devereux, Christina Elschner, Dieter Endres, Christoph Spengel
The project 'Effective tax rates in an enlarged European Union' is based on the methodology used for the calculation of effective tax rates (ETRs) as set out by Devereux and Griffith (1999, 2003). It extends the scope of the calculation of ETRs conducted under the study on effective levels of company taxation within an enlarged EU (2008). The project includes a focus on the effects of tax reforms in the EU27 for the period 1998-2009 and their impact on the level of taxation for both domestic and cross-border investment.
Produced for the European Commission
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The impact of taxes and transfers on income inequality in Europe
Clemens Fuest, with J. Niehues and A. Peichl
This paper investigates the contribution of different components of the tax and transfer systems in Europe to overall income inequality. Our decomposition results reveal that while taxes have a highly inequality decreasing effect, surprisingly in the majority of countries inequality and benefits are positively associated. Overall, our study contributes to a better understanding of inequality patterns across EU countries and identifies which matters have to be assessed to reduce inequality. |
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Is the corporation tax an effective automatic stabilizer?
Michael Devereux and Clemens Fuest
We investigate the extent to which corporation tax can act as an automatic stabilizer by smoothing the effects on investment of shocks to income. The main stabilizing effect would be through a reduced tax liability affecting the internal funds available for investment by credit-constrained companies. We present evidence for the UK that most credit-constrained firms have also been likely to be in a tax loss-making position, implying that the tax does not smooth investment, and that there has therefore been virtually no automatic stabilization. A more generous treatment of tax losses would introduce significantly more automatic stabilization. |
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Automatic Stabilizers and Economic Crisis: US vs Europe
Clemens Fuest, with Matthias Dolls and Andreas Peichl
This paper analyzes the effectiveness of the tax and transfer systems in the European Union and the US to act as an automatic stabilizer in the current economic crisis. We find that automatic stabilizers absorb 38 per cent of a proportional income shock in the EU, compared to 32 per cent in the US. In the case of an unemployment shock 48 per cent of the shock are absorbed in the EU, compared to 34 per cent in the US. This cushioning of disposable income leads to a demand stabilization of 23 to 32 per cent in the EU and 19 per cent in the US. There is large heterogeneity within the EU. Automatic stabilizers in Eastern and Southern Europe are much lower than in Central and Northern European countries. We also investigate whether countries with weak automatic stabilizers have enacted larger fiscal stimulus programs. We find no evidence supporting this view. |
Politicians’ outside earnings and electoral competition
Johannes Becker, with Andreas Peichl, Johannes Rincke
forthcoming in: Public Choice
This paper deals with the impact of electoral competition on politicians’ outside earnings. In our framework, politicians face a tradeoff between allocating their time to political effort or to an alternative use generating outside earnings. The main hypothesis is that the amount of time spent on outside work is negatively related to the degree of electoral competition. We test this hypothesis using a new dataset on outside earnings of members of the German federal assembly. Taking into account the potential endogeneity of measures of political competition that depend on past election outcomes, we find that politicians facing low competition have substantially higher outside earnings |
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The evolution of OECD tax systems
Johannes Becker, with May Elsayyad
forthcoming in: Intereconomics
This paper considers theory-based expectations on the evolution of tax structures in developed countries and confronts them with stylized facts from aggregate tax revenue data. Moreover, a bilateral similarity index is introduced which allows measuring similarity of tax systems conditional on country characteristics. We find slow but steady convergence in tax revenue structures which depends on the proximity, similarity and exchange between a given pair of countries |
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VAT Rates Structures – A Case of Political Obstacles to Optimal Tax Policy
Rita de la Feria, Michael Walpole
Traditionally there has been a perception that exclusion of certain products from full taxation under a VAT achieves social and distributional aims. Non-full taxation is achieved primarily through two methods: exemptions for certain services, such as medical services, sports and cultural activities and education; and application of differential rates for certain products, such as food, books and pharmaceutical products. Both methods are widely used within Europe, as well as in most other countries applying a VAT, with Australia being no exception.
Yet, in the last decades an overwhelming body of legal and economic evidence has been building up against the use of multiple VAT rates structures – applying more than one rate of VAT gives rise to significant legal difficulties and creates economic distortions. Hence, beyond proving that using VAT reduced rates is an inefficient method of achieving social and distributional aims, the question which should be asked is why the allure of applying reduced rates of VAT is so hard to resist? Why have so many countries opted to apply reduced rates of VAT despite all evidence against it? This paper aims at answering these questions through an analysis of the European and Australian experiences. |
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The EU VAT system and the internal market
Rita de la Feria
Published by IBFD, 2009
This book focuses upon VAT in the context of the Community’s internal market. Its central aim is to prove that the current EU VAT system is incompatible with the concept of internal market as set out in the EC Treaty and interpreted by the Court of Justice. The study commences with an analysis of the concept of internal market, the main objective of which is to establish the basic legal framework for the proposed thesis. As part of this examination, it is demonstrated that the EC Treaty creates a temporally unlimited obligation for the Community to approve legislation with the aim of establishing and improving the functioning of the internal market. On the basis of historical, practical and jurisprudential analysis it is then demonstrated that the current EU VAT system does not fulfil this obligation. Historical analysis demonstrates that the current EU VAT system has failed to reach the minimum level of harmonisation traditionally regarded as a pre-requisite for the establishment of the internal market. From a practical perspective, the current system gives rise to serious difficulties, which qualify as obstacles not merely to the functioning of the internal market, but to its very establishment. By analysis of existing EU VAT jurisprudence, it is argued that obstacles cannot be overcome through incremental developments emerging from the Court of Justice, but can only be resolved by fundamental and substantive legislative amendment |
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VAT reform in China
Rita de la Feria
Report commissioned by the Governmental Group in charge of reforming the Chinese VAT system, which aims at highlighting areas of potential reform of the current system, on the basis of EU VAT experiences. |
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Introducing VAT in the USA
Rita de la Feria
The US has been interested in VAT since the 1970s. At present, whilst the political difficulties of enacting a VAT in the US are widely acknowledged, it is also clear that such a move remains very much under consideration. The aim of this paper is not to enter the debate of discussing the merits or demerits of introducing a VAT system in the US. Rather, it is to consider, should the US ultimately decide to introduce such a tax, what should be the legal design features of a US VAT, namely in terms of tax base and rate structure. The pitfalls highlighted are drawn from the EU VAT experience over the last four decades. |
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The impact of excise duties on market concentration in the beer market
Simon Loretz
The European Union has introduced a minimum beer excise duty of 0,748 per hectolitre/degree Plato in 1993. Further this directive includes a provision which allows the member states to reduce the excise duty for small and medium breweries (up to 200.000 hl yearly production). This therefore creates an opportunity for countries to give a preferential tax treatment in order to protect the small independent breweries. We therefore expect a stronger market concentration in countries which do not exploit this opportunity of reduced excise duties. Further we can test whether breweries with large home markets and low beer excise duties are more likely to acquire breweries from countries with less favourable beer taxes. |
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Selection into public civil service -- evidence from the German reunification experiment
Nadine Riedel, with Tobias Boehm
This paper provides empirical evidence for adverse selection into public civil service occupation. Since in many countries employment protection in the public sector exceeds employment protection in the private economy, risk averse individuals have an incentive to select into civil service employment despite a lack of talent and intrinsic motivation for public sector work. To empirically test for the effect, we exploit the natural experiment of the German reunification in 1990. While in the Federal Republic of Germany (FRG), job security in the public sector has traditionally outweighed employment protection in the private economy, workers in the former German Democratic Republic (GDR) enjoyed an employment guarantee irrespective of their occupation. Since both groups of workers are employed under the same contractual conditions today, the latter serves as control group in our analysis. Using micro data from the German Socioeconomic Panel and taking absenteeism as a proxy for intrinsic worker motivation and productivity, we find a strong selection effect: public sector employees who fell their employment decision in the FRG report more sick days than the control group of civil servants who chose their job in the former GDR. This effect turns out to be robust against the control of potential socio-economic and cultural differences between the groups. |
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International taxation and takeover premiums in cross-border M&As
Johannes Voget, with Harry Huizinga, Wolf Wagner
View abstract and download paper > |