Greece’s austerity package included an unprecedented increase in the VAT rate, but the resulting increase in revenue was much lower than expected. This column links this disappointing result to the ‘transparency response’ of firms to higher tax rates. In countries like Greece with poor tax monitoring, firms face a tradeoff when deciding whether to declare their activity. Transparency is a necessary condition for accessing external finance, but it also means having to pay tax. Improving credit conditions for small and medium-size Greek firms might shift this tradeoff in favour of transparency.
Though taxing corporations may be a political no-brainer, it may be a big economic mistake. This column discusses recent research showing that the tax is not paid primarily by rich corporate shareholders. They can, and do, move their capital away from countries that have high corporate rates. Eliminating the US corporate tax by, for example, taxing accrued global corporate profits as personal income can produce dramatic increases in US investment, output, real wages, and saving. Modest gains accrue to early generations with very sizable gains going to young and future generations, both skilled and unskilled.
The housing market is a key link between the financial economy and the real economy. Since the onset of the Great Recession, there has been renewed interest in understanding the role of the housing market in the financial crisis. This column shows that transaction taxes introduced in the UK in 2008 had a strong effect on prices and demand in the housing market. Transaction tax cuts were enormously successful at stimulating the housing market during the recession. The effects on real expenditure per dollar of foregone tax revenue were significantly larger than for typical fiscal stimulus policies such as income tax rebates.
Policymakers often use local corporate tax and other policies to induce businesses to locate in their jurisdictions. This column describes new evidence on the effect of state tax cuts on business location and provides a new framework for evaluating the welfare effects of these policies. Contrary to the conventional view of many policymakers and economists, the results suggest that firm owners bear a substantial portion of the incidence of state corporate tax changes.
Fiscal consolidation, and public concern that its pain be fairly spread, is putting tax systems under considerable pressure. This column takes stock of how they have been faring, and how they could do better.
Other Recent Articles:
- Tax evasion and incidence
- Migration and wage effects of taxing top earners
- Japan’s consumption tax as a diversion
- Why do multinationals pay less profit tax?
- Tax shelters and the theory of the firm
- Advertising and consumer prices
- Taxes and the workforce: Insights from the US
- Fiscal consolidation and reforms: Substitutes, not complements
- Income taxation of US households: Facts and parametric estimates
- Income tax and labour supply: Let’s acknowledge what we don’t know
- Eurozone crisis: Time to tax the rich?
- The alternatives to austerity: The effect on jobs and incomes in the UK
- Is a European Tobin tax likely to be efficient?
- The Darwin economy
- Taxing the 1%: Why the top tax rate could be over 80%
- Tax evasion: Why the crackdown comes at a cost
- Sovereign debt, government myopia, and the financial sector
- US budget fight: The role of tax expenditures?
- The Future of Banking – solving the current crisis while addressing long-term challenges
- Financial transaction tax: Feasible and desirable if done right
- A tale of two depressions: What do the new data tell us? February 2010 updateEichengreen, O’Rourke
- The ECB’s stealth bailoutSinn
- Educated in America: College graduates and high school dropoutsHeckman, LaFontaine
- Eurozone breakup would trigger the mother of all financial crisesEichengreen
- Panic-driven austerity in the Eurozone and its implicationsDe Grauwe, Ji
DellaVigna, Durante, Knight, La Ferrara
Ostry, Berg, Tsangarides
Allen, Eichengreen, Evans
Greenwood, Guner, Kocharakov, Santos
CEPR Policy Research
- The buyer margins of firms' exportsCarballo, Ottaviano, Volpe
- Commodity and Equity Markets: Some Stylized Facts from a Copula ApproachDelatte, Lopez
- Ethnic Unemployment Rates and Frictional MarketsGobillon, Rupert, Wasmer
- Finance and Poverty: Evidence from IndiaAyyagari, Beck, Hoseini
- The Manipulation of Basel Risk-WeightsMariathasan, Merrouche
- Making city lights shine brighterYusuf, Leipziger
- The euro in the 'currency war'Bénassy-Quéré, Martin
- The roots of shadow bankingPerotti
- What’s wrong with Europe?Baldini, Manasse
- How the EZ crisis is permanently changing EU institutionsMicossi
- 21st Century Challenges: The Mobile Middle Class13 - 13 March 2014 / Royal Geographical Society, 1 Kensington Gore, SW7 London / Royal Geographical Society (with IBG)
- The 13th Annual GEP Postgraduate Conference 20141 - 2 May 2014 / Nottingham / Sponsored by Nottingham Centre for Research on Globalisation and Economic Policy (GEP) University of Nottingham, United Kingdom
- Exchange Rates and External Adjustment2 - 3 June 2014 / Zurich / Swiss National Bank
- 13th Summer School in International Development Economics: Investment, Saving and Wellbeing in Developing Countries10 - 13 June 2014 / Palazzo Feltrinelli, Gargnano, Lake Garda (Italy) / Organisers: Centro Studi Luca d’Agliano, Centre for Economic Policy Research (CEPR), Paolo Baffi Center on International Markets, Money and Regulation, Department of Economics, Management and Quantitative Methods of the University of Milan, Department of Economics, Quantitative Methods and Business Strategies of the University of Milan Bicocca, Vilfredo Pareto Doctoral Program in Economics of the University of Turin, The Lombardy Advanced School of Economic Research (LASER).
- 3rd WB-BE Research Conference: Financing growth: Levers, Boosters and Brakes23 - 24 June 2014 / Banco de España headquarters in Madrid / This conference is sponsored by Banco de España and The World Bank