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.
Government spending is procyclical in developing countries, exacerbating the business cycle. However, an analysis of tax policy is also required in order to properly assess the overall stance of fiscal policy. This column presents recent research showing that tax policy tends to be procyclical in developing countries and acyclical in developed countries. Although some developing countries have managed to escape the procyclical fiscal policy trap, some developed nations – notably Eurozone members – are falling into it.
Tax evasion and noncompliance reduce government revenue and exacerbate the problem of increasing debt. Standard economic theory predicts that the identity of the tax remitter shouldn’t affect outcomes – but this ignores the possibility of evasion. This column provides evidence that in the presence of evasion, both the amount of revenue collected and the incidence of burden are sensitive to the identity of the remitter. These results should inform future tax reform.
How responsive is international migration by high-skilled workers to tax differentials across countries? This column provides evidence from Denmark suggesting that a preferential scheme was highly successful in attracting rich foreigners. It warns that, absent international tax coordination, preferential tax schemes to high-income foreigners could substantially weaken tax progressivity at the top of the distribution.
Abenomics comprises three ‘arrows’. The monetary and fiscal arrows have been launched; the pro-growth arrow has not. This column suggests that arguments over the consumption tax burn up precious political capital that would be better spent on growth reforms. A consumption-tax hike won’t stall the expansion, but debates over it threaten to stop reform momentum. The time to release the third arrow is now.
Other Recent Articles:
- 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
- Eurobonds are the wrong solution
- Financing fiscal stimulus
- Why banks are under-taxed and what to do about it
- Patent Boxes: An innovative way to race to the bottom?
- 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
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- Panic-driven austerity in the Eurozone and its implicationsDe Grauwe, Ji
Adelman, 28 October 2013
Reichlin, Giugliano, 7 November 2013
Holmes, McGrattan, Prescott
Beck, De Haas, Ongena
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 <