Taking a bite out of Apple? Fixing international corporate taxation
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.
It’s hard to pick up a newspaper these days (or, more likely for those reading this, do the digital equivalent) without reading about Apple, Amazon, Google, or a host of others managing, by some magic, to pay little corporate income tax – and the consequent outrage of duly shocked and horrified politicians. Entertaining though all this is, understanding the rules that make such tax avoidance possible is a dull task that many of us are happy to leave to the tax nerds – detail really matters (just ask an international tax lawyer).
tax, taxation, IMF, corporate taxation, corporate income tax, spillovers, tax treaties, tax avoidance, multinationals, tax competition, tax harmonisation
Tax harmonisation in Europe: Moving forward
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.
The issue of tax harmonisation has been repeatedly debated in the EU since the European Economic Community was established. Substantial tax harmonisation exists in the area of indirect taxation, and proposals regarding corporations are on the table, such as the project of Common Consolidated Corporate Income Tax (CCCTB, see European Commission 2011a). According to widely accepted economic theory (Zodrow and Mieszkowski 1986), tax harmonisation is a way to curb tax competition that leads to either the under-provision of public goods or to burden-shifting from mobile to immobile tax bases.
EU policies Financial markets Taxation
EU, tax, multinationals, tax competition, tax avoidance, banking union, tax harmonisation, corporation tax, Tiebout competition, financial activity tax
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.
It is well-established that government spending in developing countries has often been procyclical. In other words, government spending has increased in good times and contracted in bad times, thus exacerbating the underlying business cycle. The inability to save in good times to build a war chest for bad times has often led to wrenching financial and sovereign-debt crises.
Macroeconomic policy Taxation
tax, developing countries, business cycles, fiscal policy, austerity, cyclicality
Advertising and consumer prices
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.
There is an old debate in economic theory, which goes back at least to Marshall (1919), about whether advertising increases or decreases the prices of consumer goods. Some have argued that advertising provides information to consumers, such as information on prices or the existence of products (for example Butters 1977 or Stahl 1989). This information increases the degree of competition in a market, and thereby lowers consumer prices.
Microeconomic regulation Taxation
tax, consumer prices, advertising
Socioeconomic differences in the impact of smoking tobacco and alcohol prices on smoking in India
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.
“Sugar, rum, and tobacco, are commodities which are no where necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation”
—Adam Smith, The Wealth of Nations, 1776.
tax, India, price elasticity, Tobacco
Taxation and international migration of superstars: Evidence from the European football market
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.
This month news stories are coming thick and fast of footballers moving clubs during the European transfer window. The latest gossip suggests that David Beckham could be making an emotional return to English football. Could this movement of supposedly highly skilled and certainly highly paid individuals tell us something about the influence of taxes on international labour mobility?
Frontiers of economic research Labour markets Migration
tax, migration, Football, economics of sport
The timing of fiscal interventions: Don’t do tomorrow what you can do today
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.
The current macroeconomic downturn has sparked repeated calls for fiscal stimuli to combat the ensuing decline in activity and labour market conditions (e.g. Blanchard and Cottarelli 2008; Corsetti 2008; Krugman 2008).
tax, fiscal policy
Taxing gambling: Some precedents
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.
Today, the notion that Britain is in danger of becoming, or has become, a ”nation of gamblers” is commonplace. In fact, the chairman of the UK government’s recently established Gambling Commission has said that “we are a nation of gamblers”. Three hundred years ago, commentators were saying much the same thing.
tax, gambling, Britain, seventeeth century
Tax competition tames big government
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.
Is tax competition good or bad for the well-being of society?
tax, tax competition
The uncertain future of inheritance taxation
Graziella Bertocchi 15 July 2007
Inheritance tax revenues have long been declining in all OECD countries, both in terms of total revenues and GDP. This trend is explained by the secular decline of wealth inequality, and is also influenced by differential rates of tax avoidance and by the evolving composition of wealth.
One of Sarkozy’s electoral promises to the French people during his recent electoral campaign has been a drastic reduction of the inheritance tax. In a country where a wealth tax on large fortunes has been introduced as recently as 1989, this has undoubtedly been perceived as a substantial break with the past.
tax, inheritance, wealth