Taxation in developing nations has always been difficult, but the Global Crisis has brought further complications. This column examines and compares the tax revenue trends in Asia and Latin America to shed light on some of these issues. Despite their similarities, there is no one-size-fits-all explanation for tax/GDP ratios between the two regions. While progress has been made, the gap between the advanced economies and developing countries offers ample room for improvement. This is particularly important for developing nations as they face growing demand for fiscal spending.
Joshua Aizenman, Yothin Jinjarak, Jungsuk Kim, Donghyun Park, 08 January 2016
Mariacristina De Nardi, Giulio Fella, Fang Yang, 22 December 2015
Thomas Piketty’s "Capital in the Twenty-First Century" quantified the evolution of wealth inequality and concentration over time and across a number of countries. This column examines existing macroeconomic models of wealth inequality through the lenses of the facts and ideas in Piketty’s book. It further examines the importance of the mechanism that Piketty champions – post-tax rate of return on capital. Gaps in existing knowledge and directions for future research are identified.
Dominika Langenmayr, 13 November 2015
Voluntary disclosure programmes offer tax evaders the opportunity to come clean with reduced penalties. This column uses data from the US and Germany to examine the merits of such programmes. They are found to increase tax evasion, but also to significantly lower administrative costs, leading to a net increase in tax revenues.
Arash Nekoei, Andrea Weber, 10 July 2015
The generosity of unemployment insurance is often cited as a reason for long spells of joblessness. But this view neglects other important, and potentially positive, economic aspects of such programmes. Using Austrian data, this column presents evidence that unemployment insurance has a positive effect on the quality of jobs that recipients find. This can in turn have a positive effect on future tax revenues, and has implications for the debate on optimal insurance generosity.
Alberto Alesina, Matteo Paradisi, 29 May 2015
Most of us intuitively believe that politicians reduce taxes and increase spending in the run up to elections to curry favour with voters. But our logic may well be flawed. This column presents evidence from recent Italian elections suggesting that things aren’t so black and white. Yes, some municipalities set lower tax rates in the run up to elections. But the evidence also suggests that municipalities running deficits will think twice about tax breaks and spending sprees. Politicians in big cities are also more cautious, choosing to focus not on tax but on more pressing local issues.
Ricardo Perez-Truglia, Ugo Troiano, 20 March 2015
Although most of the tax compliance literature focuses on tax evasion, a significant portion of the tax gap includes tax delinquencies. This column discusses new research about the enforcement of tax debts, including evidence from a field experiment in the US with nearly 35,000 tax delinquents who collectively owe half a billion dollars in taxes. In addition to financial penalties, this research studies the effectiveness of a common ‘shaming’ penalty in which the names, addresses, and other identifying information of individuals and businesses with delinquent taxes are published online.
Hans Holter, Dirk Krueger, Serhiy Stepanchuk, 20 February 2015
Since the Global Crisis, debt sustainability has received increasing attention. This column argues that the maximum sustainable debt level depends negatively on the progressivity of the tax system. The authors estimate that the US is still relatively far from the peak of its Laffer curve and from its maximally sustainable debt level. However, adopting a flat tax would raise the maximum sustainable debt from 330% to more than 350% of benchmark GDP, whereas adopting Danish-style progressivity would lower it to less than 250%.
Tim Besley, Anders Jensen, Torsten Persson, 12 February 2015
The Eurozone sovereign debt crisis has highlighted the problem of tax evasion. This column examines the effect of social norms on tax compliance using the UK poll tax as a natural experiment. Comparing councils where tax evasion spiked more during the poll-tax period to those where it spiked less, there was no systematic difference before the poll-tax period. However, once the poll tax was abolished, tax evasion remained higher in the former group, suggesting that high poll-tax non-compliance created a persistent norm of non-compliance.
Maarten van ’t Riet, Arjan Lejour, 05 January 2015
The recent actions of the US Treasury to rein in corporate tax inversions leave their rationale largely intact. This column discusses new evidence suggesting that the potential tax benefits of inversions are still huge. The recent Treasury measures raised legal obstacles, but the heart of the problem remains unaddressed. At some point a new technique is likely to be found to circumvent the new measures – just as happened with earlier measures. This is a worldwide problem.
Ronald B. Davies, Julien Martin, Mathieu Parenti, Farid Toubal, 05 January 2015
Allegations of tax-avoiding transfer pricing by multinational firms are common, but economic evidence is scarce. This column discusses detailed price data for intra-firm and arm’s length transactions that reveals tax-driven transfer pricing, and suggests that it may be reduced by focusing on a small number of large firms in a small number of tax havens.
Fabian Kindermann, Dirk Krueger, 15 November 2014
Optimal tax rates for the rich are a perennial source of controversy. This column argues that high marginal tax rates on the top 1% of earners can make society as a whole better off. Not knowing whether they would ever make it into the top 1%, but understanding it is very unlikely, households especially at younger ages would happily accept a life that is somewhat better most of the time and significantly worse in the rare event they rise to the top 1%.
Ruud de Mooij, Michael Keen, Victoria Perry, 14 September 2014
Multinational companies’ ability to pay little corporate income tax has grabbed headlines recently. This column argues that the details of international tax rules matter for macroeconomic performance – especially in low-income countries. This emphasises the importance of the G20–OECD Action Plan on Base Erosion and Profit Shifting. However, dealing properly with tax spillovers will require a deeper global debate about the international tax architecture itself.
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.
Carlos A. Vegh , Guillermo Vuletin, 01 October 2013
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.
Ferdinand Rauch, 13 November 2012
Advertising is expensive and thus raises the cost of goods, but it may encourage competition that keeps prices down. This column addresses the old question with data from a natural experiment brought about by tax harmonisation in Austria. It argues that on average advertising decreases consumer prices and estimates that if the 5% tax were abolished, consumer prices would decrease by about 0.25 percentage points.
Emmanuel Guindon, Arindam Nandi, Frank J Chaloupka, Prabhat Jha, 23 December 2011
In India, 1 in 5 of all adult male deaths and 1 in 20 of all adult female deaths at ages 30-69 are due to smoking. This column estimates that raising the price of cigarettes by 1% would decrease smoking by about 1.1% and even more so for poorer households.
Emmanuel Saez, Henrik Kleven, Camille Landais, 06 January 2011
This month some of Europe’s most skilled footballers will switch clubs in deals worth millions of euros. This column analyses the movement of Europe’s footballers between the top 14 leagues and finds that a major influence on player decisions to move is the difference in the tax regime – with policy implications going well beyond the football pitch.
Morten O. Ravn , Karel Mertens, 26 August 2009
The composition and timing of the fiscal stimulus is a major concern for policymakers. This column presents research showing that anticipated tax cuts result in reduced economy activity before they take effect. During the current downturn, that constitutes a strong argument against stimulus policies that phase in tax cuts over time.
Nicholas Tosney, 05 May 2008
There is increasing public concern about gambling, and the UK government recently established a Gambling Commission. This column examines England’s historical experience with regulating and taxing gambling to draw lessons for the present.
Marius Brülhart, Mario Jametti, 02 November 2007
Opponents of international tax harmonisation argue that tax competition can rein in the tax-raising powers of big-government ‘Leviathans’ and thereby act as a force for good. An analysis of taxation across Swiss municipalities lends support to that argument.