Taxation

Partial corporate tax harmonisation in the EU

Agnès Benassy-Quéré, Alain Trannoy, Guntram Wolff, 22 July 2014

Tax harmonisation has been controversial since the establishment of the European Economic Community, and corporation tax proposals are currently on the table in the EU. Although tax competition can be beneficial, tax harmonisation could curb tax competition that leads to the under-provision of public goods or to burden-shifting from mobile to immobile tax bases. As yet, no agreement has been reached on any ambitious harmonisation plan for mobile tax bases. This column explores the possibility of implementing partial tax harmonisation for corporate taxation and the taxation of the banking sector.

Tax compliance and taxpayers’ ‘voice’

Cait Lamberton, Jan-Emmanuel De Neve, Michael I. Norton, 30 May 2014

Non-compliance with tax costs governments billions, in part because people really don't like paying taxes. This column reports two experiments designed to see if it's possible to make people hate taxes a little less and raise tax compliance. The results indicate that if people are given the opportunity to express a preference (though not actually make the final decisions) on how their taxes are spent, they are much less likely to cheat. Simply by making the tax form more interactive, governments could increase tax compliance, while empowering citizens and improving their attitudes towards taxation.

Tax policies in resource-rich economies

Ernesto Crivelli, Sanjeev Gupta, 27 May 2014

Resource-rich countries face a peculiar set of challenges; natural wealth can be both a blessing and a curse. This column looks at links between natural-resource revenues and other taxes. Results suggest that these countries tend to substitute domestic taxes with natural-resource-based revenue; 30 cents in non-resource tax revenue are lost with each dollar of resource revenue. Worryingly, the substitution occurs disproportionately for growth-friendly taxes.

Taxing, spending, and inequality

Benedict Clements, David Coady, Ruud de Mooij, Sanjeev Gupta, 15 April 2014

The causes and consequences of rising inequality have stirred a lively debate on appropriate policy responses. This column reviews how governments have successfully used fiscal policy to address distributive concerns. It also examines the policy alternatives that countries can pursue in order to reduce income and wealth inequality at a minimum cost to efficiency. Such policies include exploitation of property taxes, reductions in tax deductions that favour upper-income groups, investing in increasing the human capital of low-income groups, and reforming social benefits.

Thin capitalisation rules and corporate leverage

Jennifer Blouin, Harry Huizinga, Luc Laeven, Gaëtan Nicodème, 29 March 2014

Multinationals take advantage of heterogeneity in tax deduction rules by reallocating debt to high-tax countries. This reduces tax revenue and distorts the trade-off between debt and equity financing. Some countries have enacted thin capitalisation rules that restrict deductibility when the debt-to-leverage ratio exceeds a certain threshold. This column provides evidence that such rules are only effective when restrictions are automatic, rather than allowing for government discretion.

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