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National tax systems versus the European capital market
... The derived relative optimality of source-based taxes contradicts the result that Ž . the residence-based tax performs better in the models of Apel and Dillen 1994 , Giovannini 1989, Razin and Sadka 1991and Sorensen 1992 . This difference occurs because of two reasons. ...
... This seems to be reassuring, as it is almost impossible to enforce the residence principle Ž . effectively in practice Giovannini, 1989 . However, whether a transition from the residence principle to the source principle can be enacted in a Pareto-optimal way, is an issue that we have not addressed. ...
... The derived relative optimality of source-based taxes contradicts the result that Ž . the residence-based tax performs better in the models of Apel and Dillen 1994 , Giovannini 1989, Razin and Sadka 1991and Sorensen 1992 . This difference occurs because of two reasons. ...
... This seems to be reassuring, as it is almost impossible to enforce the residence principle Ž . effectively in practice Giovannini, 1989 . However, whether a transition from the residence principle to the source principle can be enacted in a Pareto-optimal way, is an issue that we have not addressed. ...
This paper compares source and residence-based capital income taxes in the steady state of a dynamic two-country model. Contrary to the results in the literature, it shows that the source-based tax performs better than the residence-based tax does in the sense that the welfare costs of tax competition are smaller. This is due to the facts that the steady-state conditions determine the tax bases and that the residence-based tax distort savings more than the source-based tax does.
... Harmonization has been discussed extensively with respect to the European Union. The formal economic analysis of harmonization has been limited to the case of single taxes, however; either commodity taxes in Keen (1987), de Crombrugghe andTulkens (1990), and Kanbur and Keen (1993), or capital taxes in Giovannini (1989). While a regulated increase in tax rates above the competitive outcomes is typically shown to be pareto improving, fully harmonized (or uniform) rates are not preferred; see Giovannini (1989) and Kanbur and Keen (1993). ...
... The formal economic analysis of harmonization has been limited to the case of single taxes, however; either commodity taxes in Keen (1987), de Crombrugghe andTulkens (1990), and Kanbur and Keen (1993), or capital taxes in Giovannini (1989). While a regulated increase in tax rates above the competitive outcomes is typically shown to be pareto improving, fully harmonized (or uniform) rates are not preferred; see Giovannini (1989) and Kanbur and Keen (1993). No studies have yet considered the harmonization of individual state tax rates when states have access to several taxes, the general case under review here. ...
The emerging economic federations of the European Union, Russia, and South Africa, along with the established federations in Australia, Canada, and the United States, confront the task of designing the institutions for federal fiscal policy. This paper reviews the literature on the design of tax policy in federalist economies. We conclude that taxation by lower level governments can lead to significant economic inefficiencies and inequities. The usual ‘assignment’ view of federalis recommends central government policies — for example, resident-based taxation or grants-in-aid — to correct these failures. These recommendations assume that the central government will act as a benevolent social planner. The ‘political economy’ view of federalism suggests that this assumption is in error and that additional federalist institutions must be considered. Alternative legislative structures and constitutional rules are considered.
... This derives from the fact that countries do not take into account the externalities which arise from base usurpation and tax burden export. Reference to two models is useful to illustrate these aspects in the case of large (Sorensen, 1989) and small (Giovannini, 1989) economies. In both models the government is assumed to maximize the utility of a representative individual, with consumption and public expenditures as arguments. ...
... Given the negative externality, coordination would yield lower tax rates and higher welfare. For small economies, Giovannini (1989) considers the situation of two small countries where resources are used to purchase domestic capital or foreign assets; the world interest rate is taken as given by the single country. Each country sets its tax rate independently, given that chosen by the other country. ...
The author analyzes (both theoretically and empirically) the international distortions and fiscal interdependence that arise because of different tax rates among a region's countries. The author also studies what happens when the countries try to harmonize taxes, focusing on how the countries'size influences results, how strategic behavior changes under different international tax rules, and what happens to relationships with countries excluded from the integration process. Among the findings are: 1) In the case of highly mobile factors, such as financial capital, competition involves the risk of tax rates and revenues being brought down to extremely low levels, so some form of concerted agreement seems necessary, although cooperation need not involve tax rate uniformity. But regional agreements might be ineffective when factors can move to rest of the world. 2) In the case of less mobile factors, such as physical capital, competition would not yield the outcome of extremely low tax rates. Then the need for concerted international intervention is weaker. But international coordination in the form of imposing a minimum tax rate might be beneficial in some cases. 3) As for taxing foreign direct investment in developing countries, in the context of regional North-South integration agreements, it is possible that differences in the countries'objective functions eliminate the incentive for strategic reactions. In the context of South-South agreements, incentives for the integrating, capital-importing countries to compete with each other are determined by the kind of tax system chosen in the capital-exporting rest of the world. In the case of exemption, competition would drive capital income tax rates down. In the case of a credit system, competition would take place only in tariffs (or other trade taxes). What is required then is an agreement not on capital income taxes but on a common external tariff. 4) In the presence of migration costs or a link between the tax rates on mobile and immobile factors, the absence of coordination does not lead to a zero tax rate on mobile factors. Both countries welfare can be improved by imposing a minimum tax rate, but not a uniform tax rate.
... Esta era la advertencia que Sinn (1992) formulaba en vísperas de que se pusiera en marcha la liberalización formal del mercado de capitales en la Comunidad Europea en 1993, llegando a afirmar que esta carencia podría poner en peligro los beneficios económicos del mercado común, tal y como quedaban recogidos en el Informe Cecchini 68 . Otra manifestación ciertamente agorera sobre la necesidad de armonizar tributos con motivo de la liberalización del mercado de capitales es la de Giovannini (1989), cuando afirmaba que si no hay armonización fiscal, en cuanto los estados reconozcan el libre movimiento de factores ajustarán a la baja sus tipos impositivos a largo plazo para competir por estos recursos, por lo que los gobiernos perderán el control de la política fiscal, verán reducidos los ingresos, se intensificará la competencia por atraer individuos de altos ingresos, se forzará a los estados a abandonar ciertos objetivos sociales y puede conducir a la muerte del estado del bienestar. La alarma entre los economistas en esos años previos llegó hasta el extremo de predecir una peligrosa aceleración del descenso del tipo impositivo marginal en todo el mundo y es lo que llevó a Hallelberg (1996) a escribir un curioso repaso a lo que ha sido la competencia fiscal en territorio alemán desde 1866 en busca de lecciones para la nueva Unión Europea. ...
La literatura económica sobre competencia fiscal ha sido muy abundante en las últimas dos décadas, hasta el punto de que se echa en falta una mayor sistematización que contribuya a su mejor comprensión con el fin de servir de guía a la toma de decisiones. Este trabajo contribuye a conseguir este objetivo, pero también repasa la literatura económica empírica de la competencia fiscal en Europa, concluyendo que, a pesar del peculiar proceso de construcción europeo, no hay especificidades significativamente diferentes para la competencia fiscal, encontrando acertada, en términos generales, la estrategia llevada a cabo en materia de cooperación fiscal entre estados miembros. En tercer lugar, hemos analizado la incipiente competencia fiscal que se está produciendo entre las Comunidades Autónomas españolas; la conclusión aquí no es optimista para el futuro, dados los problemas de índole institucional que rodean al estado autonómico y que no parecen tener fácil solución.
... It has been argued on empirical grounds that the quantitative magnitude of the welfare loss from distorting inter-temporal consumption will tend to be smaller than the effect resulting from distortions of production efficiency (e.g. Giovannini, 1989). The reason is that most individuals appear to have a low cross-price-elasticity between present and future consumption. ...
This paper surveys possible motivations for having a net wealth tax. After giving a short overview over the state of wealth taxation in OECD countries, we discuss both popular arguments for such a tax, as well as economic arguments. It is argued that classical normative principles of taxation cannot give a sound justification for a net wealth tax. The efficiency-related arguments are also discussed and shown to be theoretically ambiguous, while empirical evidence hints at a negative effect on GDP growth. Finally, it is argued that despite of widespread and persistent lobbying for a revitalization of the net wealth tax, this is unlikely to happen due to political economy constraints.
... These extensive options for evading interest taxation establish de facto a regime of source taxation for interest income, with the tax burden on foreign interest income being determined by the tax rate of the host country, although in principle foreign interest income are subject to the residence principle, i.e. they have to be fully taxed in the investor's country of residence. Particularly small countries may take advantage of the resulting violation of capital export neutrality and promote their financial markets by offering low or no source taxes, a strategy which can be viewed as a specific form of a "beggar-thy-neighbour-policy" (Giovannini 1989). ...
... These extensive options for evading interest taxation establish de facto a regime of source taxation for interest income, with the tax burden on foreign interest income being determined by the tax rate of the host country, although in principle foreign interest income are subject to the residence principle, i.e. they have to be fully taxed in the investor's country of residence. Particularly small countries may take advantage of the resulting violation of capital export neutrality and promote their financial markets by offering low or no source taxes, a strategy which can be viewed as a specific form of a "beggar-thy-neighbour-policy" (Giovannini 1989). ...
... To facilitate tax enforcement, source countries might impose a preliminary withholding tax on inward foreign investment. The revenue would be transferred to the residence country (possibly via an international clearing union), and the residence country would grant the taxpayer a credit for the foreign withholding tax against his home country tax bill (see Giovannini, 1989 for an elaboration of such a proposal). ...
Tax competition for mobile capital can undermine the attempts of governments to redistribute income from rich to poor. I study whether international tax coordination can alleviate this problem, using a general equilibrium model synthesizing recent contributions to the tax competition literature. The model highlights the crucial distinction between global tax coordination and regional coordination. With high capital mobility between the tax union and the rest of the world, the welfare gain from regional capital income tax coordination is only a small fraction of the gain from global coordination, even if the tax union is large relative to the world economy.
... La modellistica economica ha da tempo indicato come l'assenza di cooperazione o armonizzazione fiscale determini una forma di competizione fiscale e di sottotassazione del capitale (fattore mobile), in presenza di economia aperta ed elasticità dei flussi di capitali alle aliquote fiscali 39 . 39 Si vedano ad esmpio Giovannini (1989) e Razin e Sadka (1991). ...
The paper examines the economic effects of the tax rules that entered into force on 1 July 1998. While the difference with respect to the previous regime is negligible for bond portfolios, the taxation of capital gains has an appreciable impact on equity portfolios, reducing positive returns but also increasing negative returns (tax credit). The risk-sharing effect created by the new legislation reduces expected returns and volatility and, under certain conditions, can lead to greater demand for risky financial assets and higher equilibrium pre-tax returns. The uniformity of the tax rates and the equalizer mechanism tend to eliminate distortions and lock-in effects and to ensure the neutrality of taxation on the financial market. However, the tax advantage awarded to managed portfolios finds a limit in the difficulties of tax harmonization and coexistence between different, competing national systems.
... Insofar as they raise the overall level of capital taxation, expanded withholding taxes may reduce the intertemporal efficiency of resource allocation, leading to lower levels of saving and investment than that which would maximize welfare over time. 35 In the simulations reported in the previous section, the expanded withholding tax did indeed augment the overall level of capital taxation because the additional taxes were not 33 See Bovenberg (1989b), Giovannini (1989), and Mintz (1986) for a discussion of the efficiency of residence-based (and source-based) taxation. Although universal adoption of residence-based taxation may yield a "neutral" tax environment in the sense that pre-tax rates of return are equal across countries and industries, if consumption-side taxes are not optimal or if different types of capital goods are not equally complementary to labor in production, neutrality of this type is generally sub-optimal. ...
This paper explores efficiency and equity issues related to the introduction of a withholding tax on foreigners' interest income from their investments in the U.S. Because of existing treaty obligations and tax-avoidance options, the effective tax rate of any practicable withholding tax is likely to be considerably below its statutory rate. A statutory 30 percent U.S. withholding tax on portfolio interest, if not accompanied by similar (retaliatory) tax measures introduced by foreign governments, appears to yield aggregate domestic welfare gains. The gains are attributable to U.S. financial market power stemming from the large share represented by the U.S. of world financial transactions and from the imperfect substitutability between U.S. and foreign securities in port-folios. Gains also derive from effects on domestic saving. The withholding tax leads to only a temporary improvement in the U.S. trade balance and in aggregate exports. The ultimate deterioration of the trade balance is closely related to effects of the tax on international interest flows. If foreign governments respond in kind to a U.S. withholding tax initiative, the combined effect is a decline in U.S. residents' aggregate welfare. Foreign retaliation enlarges the global efficiency losses associated with a new U.S. withholding tax. The equity arguments for the withholding tax are mixed. Restricting the application of the tax to investors from countries that already impose similar measures may have more justification on fairness grounds than applying the tax to all foreign investors. An attraction of the tax is its ability to discourage capital flight to the U.S. and related tax evasion; however, other policies with less serious efficiency costs might be equally effective in addressing tax evasion problems.
... For example, Scandinavian and European countries have multilateral agreements (Nordic Mutual Assistance Treaty and EC Directive on Mutual Assistance, 77/799/CEE). 4. See, for example, Giovannini (1989), Frenkel, Razin, and Sadka (1991), Mintz and Tulkens (1990), Ghosh (1991), or Gordon (1992). 5. Persson and Tabellini (1992), Bacchetta and Caminal (1992), and Bacchetta and Espinosa (1995) use a similar function in related setups. ...
This paper examines bilateral double taxation treaties, with an emphasis on information exchange among tax authorities. A major objective is to understand which countries are more likely to sign a tax-relief treaty and when information-exchange clauses will be added to a treaty. A simple model with two asymmetric countries and repeated interactions among governments is used. The paper shows that no information exchange clause may be added to a tax treaty when there is a reciprocity requirement, when there is a high cost of negotiation, when there is a cost of providing information, or with one-way capital flows. It is also shown that an information clause increases the gains from a tax relief treaty, but may make it less sustainable. Copyright Kluwer Academic Publishers 2000
... The difference between the two goes to zero as the number of jurisdictions becomes large, because then the impact of changes in the strategic variable of one jurisdiction becomes negligible for the others. Giovannini (1989) considers the effects of the liberalization of capital markets on taxation. The liberalization will force tax authorities to lower the taxation of capital, otherwise financial and productive capital would move abroad. ...
This paper examines the issue of harmfulness of tax competition commenting on issues like welfare, growth, redistribution,
harmonization and individual freedom. A simple game theoretical ap
proach is formulated, where for the first time the two players start from unequal initial conditions, thus influencing strategy
and outcomes. Next we propose the new criterion of Optimal Tax Area under which the possibility and feasibility of tax harmonization
is examined. The policy implication of our paper is that we do not expect harmonization for direct taxes like corporate taxes
in the EU in the near future and if so, harmonization of corporate tax rates on low levels. We conclude that both more theoretic
research and empirical evidence are needed before we can answer with certainty whether tax competition is harmful or not.
Michael Wallerstein was a leader in developing a rigorous comparative political economy approach to understanding substantive issues of inequality, redistribution, and wage-determination. His early death from cancer left both a hole in the profession and a legacy that will surely provide the foundation for research on these topics. This volume collects his most important and influential contributions, organized by topic, with each topic preceded by an editorial introduction that provides overview and context.
The purpose of this thesis is to contribute to the knowledge of a subject whose importance is inversely proportional to the amount of research that has taken place so far. However, the establishment of the Single Market and the accelerating process of European integration together with recent initiatives taken at Community level (Adoption by the Council of two Directives and of a Convention, Proposal for new Directives by the Commission, Setting up of the Ruding Committee) have revived the academic interest on this topic. The research has been carried out taking into account that the topic covers two fields of law, namely European Community law and international tax law. As a result, the content of the thesis is a synthesis of both laws and covers several aspects of the topic. More specifically, after a theoretical analysis of the concept of harmonisation of laws with particular reference to the harmonisation of tax laws in the EC it follows the identification of the problem, that is the potential distortions that will be caused to the Single Market by the existence of twelve different corporate tax regimes. The identification of the problem is supplemented by the analysis of its sensitive political aspects and by detailed reference to the principles which should characterise any attempt to solve the problem. In addition, the close examination of the legislative measures which have been proposed or adopted at Community level and are intended to tackle some parts of the problem occupies a significant position in the thesis. Finally, the research on the topic concludes with the critical juxtaposition of the possible solutions and with a brief speculative description of the prospects of the process of corporate tax harmonisation.
This chapter examines the effect of source-based capital taxation on capital accumulation in both countries with endogenous fertility and free international capital mobility.
The ‘1992’ programme for the completion of the internal market within the European Community is a major exercise in trade liberalization. As non-tariff barriers are removed, the cost of exporting from one member state to another will be reduced, and competitive access between European markets will be improved. As outlined by M. Emerson et al. (1988, p. 138), ‘after a time lag, the increased dynamicism of the competitive process will also promote new investment, prompt the restructuring and multinationalism of companies, lead to relocation, disengagement and “creative destruction”’. Hence, competition should intensify in all markets, leading to lower price-cost margins and lower unit costs as X-inefficiency is reduced and economies of scale are achieved and industries are restructured. In particular, it is envisaged (see, for example, Buigues and Ilzkovitz, 1988) that in industries such as advanced materials, chemicals, pharmaceuticals, computers, telecommunications, aerospace, electronics and precision instruments, structures will eventually emerge with fewer, larger and more competitive firms than at present. These are industries where non-tariff barriers were still significant and where potential gains from restructuring could be reaped because of unexhausted scale economies (see also Pratten, 1988). Indeed a significant part — maybe as much 60 to 70 per cent (see Smith and Venables, 1988) — of the gains from the 1992 programme, which the Cecchini Report (1988) estimated to be between 2½ and 6½ per cent in terms of GNP in total, are expected to come from such industrial restructuring.
Founded at the end of the turbulent 1970s, the European Monetary System (EMS) goes into the 1990s with surprising (sometimes artificial) viability. Having successfully passed infancy in the 1980s the EMS now faces several challenges of adolescence, some of which are related to EC internal developments—above all “Project 1992”, the elimination of capital controls and the shift to an Economic and Monetary Union (EMU)—and others which concern a rapidly changing global environment. In June 1988, the European Council entrusted the later so-called Delors Commission to prepare a report on economic and monetary union in the EC; the Delors report received support at the Madrid EC summit in June 1989 which adopted stage I of the report: the removal of capital controls and the strengthening of intra-EC policy coordination. The deliberations within the EC do not point to a basic consensus with respect to an institutional framework for an EC central bank—a dual speed monetary integration scheme in which major continental EC countries would adopt a stability-oriented common monetary policy under the leadership of the German Bundesbank (central bank) seems to be possible.
La relation fiscalité/épargne des ménages est, à l›orée de la décennie 90, en France comme dans les grands pays industrialisés, d›importance et d›actualité certaines. D›importance tout d›abord, dans la mesure où la fiscalité étant une composante du rendement net de l›épargne, elle est susceptible de jouer un rôle dans la constitution et, plus encore, le placement de cette épargne. D›actualité ensuite, les écarts de fiscalité entre produits financiers pouvant induire des risques de délocalisation de l›épargne, non-négligeables dans un espace financier européen en voie d›intégration avec harmonisation de facto au «moins disant fiscal», tout en se rappelant que les mouvements de capitaux sont désormais mondialisés avec la levée générale du contrôle des changes.
Founded at the end of the turbulent 1970s, the European Monetary System (EMS) goes into the 1990s with surprising viability. Having successfully passed infancy in the 1980s the EMS now faces several challenges of adolescence, some of which are related to EC internal developments — above all “Project 1992”, the elimination of capital controls and the shift to an Economic and Monetary Union (EMU) — and others which concern a rapidly changing global environment. In June 1988, the European Council entrusted the later so-called Delors Commission to prepare a report on economic and monetary union in the EC; the Delors report received support at the Madrid EC summit in June 1989 which adopted stage I of the report: the removal of capital controls and the strengthening of intra-EC policy coordination. The deliberations within the EC do not point to a basic consensus with respect to an institutional framework for an EC central bank — a dual speed monetary integration scheme in which major continental EC countries would adopt a stability-oriented common monetary policy under the leadership of the German Bundesbank (central bank) seems to be possible.
Founded at the end of the turbulent 1970s, the European Monetary System (EMS) goes into the 1990s with surprising (sometimes artificial) viability. Having successfully passed infancy in the 1980s the EMS now faces several challenges of adolescence, some of which are related to EC internal developments — above all “Project 1992”, the elimination of capital controls and the shift to an Economic and Monetary Union (EMU) — and others which concern a rapidly changing global environment. In June 1988, the European Council entrusted the later so-called Delors Commission to prepare a report on economic and monetary union in the EC; the Delors report received support at the Madrid EC summit in June 1989 which adopted stage I of the report: the removal of capital controls and the strengthening of intra-EC policy coordination. The deliberations within the EC do not point to a basic consensus with respect to an institutional framework for an EC central bank — a dual speed monetary integration scheme in which major continental EC countries would adopt a stability-oriented common monetary policy under the leadership of the German Bundesbank (central bank) seems to be possible.
Im Rahmen der bisherigen Untersuchungen erfolgte eine systematische Ableitung und Erläuterung der Wertentscheidungen, die der deutschen und ausländischen Einkommensbesteuerung privater Finanzanleger zugrundeliegen. Hierauf aufbauend zielen die weiteren Ausführungen darauf, die zwischen einzelnen einkommensteuerlichen Vorschriften und Anpassungsreaktionen auf den Finanzmärkten bestehenden ökonomischen Zusammenhänge abzuleiten. Um die Anpassungen der Finanzanleger, der Finanzintermediäre und der Geldkapitalnachfrager in ein geordnetes Beziehungsgeflecht zu stellen, wird auf das Konzept des gedanklichen Bezugsrahmens zurückgegriffen1).
This paper surveys several facets of the way in which taxation interacts with the financial decisions of households and corporations to shape the character of financial intermediation and of the financial instruments traded in various countries. Whilst the importance of taxation in affecting corporate financial decisions is widely appreciated, little attention has been paid to the broader effects of taxation on the structure of the financial industry. This is surprising because taxes are often cited as influencing the growth of particular financial instruments. Moreover, the deductibility of interest rates on home mortgages is widely believed to have been one of the major factors behind the recent growth of household indebtedness in certain countries and to have contributed to the current problems arising from excessive lending to the housing sector.
The eighties showed a worldwide discussion of tax reform scenarios, based on the theoretical and empirical evidence that national income tax regimes suffered from major shortcomings. The criticism is not new that the system of direct taxes needed adaptation in order to achieve the goals of an equitable distribution of tax burdens and net personal income, of avoiding allocative distortions and welfare losses for the society and of low costs of information, compliance, administration and control. All this has led to changes in the tax systems in the past. In the last three decades major reform steps have included measures to integrate corporate and personal income taxes, indexation rules to mitigate inflationary distortions or the introduction of assignment rules for household income in order to escape undesirable progressivity effects.
Anfang der 90er Jahre war man sich unter Sozialwissenschaftlern einig, dass die Vollendung des Binnenmarktes zu erheblichem
Wettbewerb zwischen den Mitgliedstaaten führen werde (statt vieler Gatsios/Seabright 1989; Giovannini 1989; Scharpf 1994; Sinn 1995). Je freier sich Güter, Dienstleistungen, Kapital und Personen über nationale Grenzen hinweg bewegen dürften, desto einfacher
würden sie sich auch unliebsamen Regulierungen und Steuern durch Abwanderung entziehen können. Die Abwanderungsdrohung wiederum
werde die nationalen Regierungen zwingen, Regulierungen und Steuern zu senken, um wirtschaftliche Aktivität im Land zu halten
oder ins Land zu locken. Das Ergebnis, so fürchteten viele und hofften manche, werde eine Aufweichung regulativer Standards
und eine chronische Unterfinanzierung des Wohlfahrtsstaates sein.
Since the foundation of the European Economic Community there is an incessant debate about the necessity of an overall tax and fiscal cooperation and harmonization in Europe, which recently has been intensified mainly because of EMU. By reviewing the literature, this article argues that closer cooperation in tax issues, for both indirect and direct taxation, needs to accompany the current state of integration in the EU. Advances have taken place in indirect taxes, value added tax (VAT) and excises. With respect to VAT, the major agreements were achieved with the Sixth VAT Directive (1977) and the agreements on rates after the elimination of the frontier controls (1992).In the case of excise duties, the progress have been less significant and there can be noted only the agreements of minimum rates for alcohol, tobacco and energy (fuels). In direct taxation, it is necessary to point out that the powers are national and the EU is limited to guaranteeing the performance of the single market. Community legislation is centered on company taxation and the taxation of savings income. Taxes and social security contributions strongly influence patterns of saving, consumption, investment and employment, and thus shape the operation of markets for goods, services, capital and labor. The reforms launched by the Cardiff European Council of June 1998 are designed to ensure that the differences between systems that have become even more apparent since the introduction of the euro do not hamper trade, result in fragmentation of the single market or prevent the efficient allocation of resources. Tax fraud is another problem of increasing concern in the Community. European Parliament and Council Decision 888/98/EC instituted a program (Fiscalis) to improve the operation of indirect taxation systems in the single market and to secure wide-ranging and effective cooperation between Member States and with the Commission, and to improve administrative practice. International VAT fraud, particularly on sales and deliveries within the EU, has led to serious losses of revenue. Only through closer coordination of national tax policies a balance can be struck between the diversity of Member States’ tax and social contribution systems and the right to the freedom of establishment and movement throughout the EU. In a monetary union, with one currency and common policies, a larger harmonization and coordination of the fiscal policies are forced. © 2013, Inzinerine Ekonomika-Engineering Economics. All right reserved.
This article examines the role that economic and political factors played in tax reform in Organization for Economic Cooperation and Development (OECD) countries from 1986 to 1990. Some writers argue that economic integration forced states to reform their tax systems. The authors' findings indicate that economic openness had an indirect effect on the level of change in marginal tax rates. The institutional structure of a country was most important - countries that had only one veto player or only one institution or party whose approval was necessary for a bill to become law enacted more sweeping reform than states that had more than one veto player. These results suggest that even when international or domestic economic factors might dictate a change in policy, reform will not be as sweeping in countries in which agreement among several institutions and/or parties is necessary.
The twenty-five German states from 1871 to 1914 present a useful data set for examining how increasing economic integration affects tax policy. After German unification the national government collapsed six currencies into one and liberalized preexisting restrictions on capital and labor mobility. In contrast, the empire did not directly interfere in the making of state tax policy; while states transferred certain indirect taxes to the central government, they maintained their own autonomous tax and political systems through World War I. This paper examines the extent to which tax competition forced the individual state tax systems to converge from 1871 to 1914. In spite of a diversity of political systems, tax competition did require states to harmonize their rates on mobile factors like capital and high income labor, but it did not affect tax rates on immobile factors. In states where the political system guaranteed agricultural dominance, taxes on land were reduced, while in states with more open systems, tax rates remained higher. One unexpected result is that tax rates on capital and income converged upward instead of downward. The most dominant state, Prussia, served as the lowest-common-denominator state, but pressure from the national government, especially to increase expenditures, forced all states to raise their tax rates. These results suggest possible ways for the European Union to avoid a forced downward convergence of member state tax rates on capital and mobile labor.
We examine the effect of source-based capital taxation on capital accumulation in countries with endogenous fertility and free international capital mobility. When fertility is constant, a tax cut accelerates domestic capital accumulation through international arbitrage and exerts negative influences on the welfare of a foreign country. In contrast, with endogenous fertility, a tax cut by an economy with a higher tax rate and exporting capital may deter capital accumulation and hence lower the welfare in not only domestic but also foreign economies in the long term, although the tax cut may accelerate domestic capital accumulation in the short term.
In this paper we make two points. First, we show the 'constructedness' of international tax competition. Tax competition is not simply out 'there' in the global market place but is con- stituted and shaped by the rules of an international regime, namely the double tax treaty re- gime. Secondly, we explain how the international double tax treaty regime, by constituting international tax competition, changes the problem context in which states operate, and, hence, ultimately the states themselves. It is an example of an international regime turning against the states, which are its notional masters. It may thus convey an interesting message about international regimes as a medium of the (self-)transformation of the state.
The direction of global economic change in this century is relatively clear. State- owned enterprises are being privatized and new capital markets are emerging in many countries. These and existing markets are becoming increasingly liberalized and interconnected. A truly global financial system is emerging, one in which huge sums of money and capital are continuously and rapidly transferred from one location to another. This system is composed, in part, of large, privately-owned financial institutions. These institutions construct and rapidly adjust portfolios composed of assets from many locations with the aim of maximizing a world-wide rate of return. They and the intermediaries through which they deal constantly are inventing new financial products and services as well as new technologies with which to process their transactions. The
Since 1975, both corporate income tax rates and top marginal income tax rates have been lowered in most OECD countries. A common explanation of this phenomenon is that increased international capital mobility reduced the ability of governments to tax income from capital. In this paper, we examine the constraints on the taxation of income from capital with free capital mobility. We demonstrate that capital mobility increases the constraints on the taxation of income from capital only when investors expect future taxes to rise. As long as taxes are stable, governments using the right tax instruments can collect substantial taxes on uninvested profits without affecting private investment whether capital is mobile or not. We conclude that increased capital mobility is not a compelling explanation of the reduction in tax rates that has occurred in the past fifteen years.
This paper addresses the question of the need for income tax harmonization in the context of regional integration. It analyses the international distortions and fiscal interdependence arising in the presence of tax rate differentials both under a theoretical and an empirical perspective, and with reference to actual experiences of harmonization attempts. Attention is also paid to the influence of the countries’ size on the results, to the strategic behaviour of countries under different international taxations rules, and to the relationships with the countries excluded by the integration process. International tax uniformity does not appear to be the preferable solution, even if some form of concerted agreements might help in reducing inefficiencies deriving from taxation differentials. For instance, in the case of highly mobile factors, like financial capital, if the integrating countries apply the source principle and the interest rate is the same across them, the source‐based tax rate on non residents must equal the residence country tax rate on residents. Such a rule would allow the countries to set autonomously their tax rate and, at the same time, eliminate cross‐border effects. If there are more than two integrating countries, the tax rates on non residents should discriminate according to the internal tax rate of the residence country.
(J.E.L.: H87, F20, H20).
This paper examines the effects of perfect capital mobility on the determination of optimal capital taxation. It shows that capital movements do not change dramatically the optimal tax path studied for the closed economy. In addition, the paper provides a counterexample to the standard belief that the worldwide system is the optimal regime of taxation. Finally it shows that the rate of taxation of the rest of the world is not fundamental to determine the optimal decision of a small economy.
The residence-based principle has been proposed as a second-best measure to the full international coordination of capital tax policies. This system requires that tax authorities have full information about the foreign investments of their residents. However, the degree of information transmission among governments can be considered as a strategic variable. We show that under some features of the tax system there will not be any information sharing, while there are institutional arrangements under which governments may transmit partial information for strategic purposes. We also show that full information sharing is not necessarily a Pareto optimum.
The paper argues that trade balances and exchange rates may be quite responsive to changes in the relative attractiveness of locating production facilities or storing other ‘taxable’ forms of wealth in different countries. This suggests that there are at least three important channels through which fiscal policy changes may be transmitted to exchange rates. It is argued that a country-oriented analysis of asset choice, as distinct from the traditional currency-oriented portfolio balance framework, may be important for understanding the behavior of exchange rates.
This paper establishes optimal rules for capital income and profits taxation in the open economy with or without foreign ownership of domestic firms. We show that if there are constraints on the feasibility of profits taxation, both saving and investment taxes generally enter the optimal tax package. If instead profits can be fully taxed, then source-based investment taxes vanish. If domestic firms are in part owned by foreigners, then source-based investment taxes can be used to shift income away from these to domestic citizens and they may even be used to finance lump sum transfers to domestic residents.
This is the second of a two‐volume study of the adjustment of advanced welfare states to international economic pressures, in which leading scholars detail the wide variety of responses in 12 countries to the challenges to their employment and social policy systems in the period between the first oil‐price crises of the early 1970s and the increasing economic globalization of the 1980s and 1990s. Chapters in this volume provide in‐depth studies of countries’ adjustment experiences over three decades, beginning with a snapshot of the ‘golden age’ of the welfare state c.1970, then proceeding with a chronology of the successive external economic challenges and internal policy responses up until today, ending with a depiction of the new model or model in the making, and of what went right and what went wrong. The country studies include three welfare states representing the ‘Anglo‐Saxon’ model (the UK, Australia, and New Zealand), seven varieties of the ‘Continental’ welfare state (Switzerland, Austria, Belgium, and the Netherlands, Germany, France, and Italy), and two ‘Scandinavian’ welfare states (Sweden and Denmark). In addition, the volume includes analyses focusing on cross‐national differences in the labour‐market participation of women and of older workers, on the employment effects of service liberalization, and on international tax competition.
Capital moves more rapidly across national borders now than it has in at least fifty years and perhaps in history. This article examines the effects of capital mobility on different groups in national societies and on the politics of economic policymaking. It begins by emphasizing that while financial markets are highly integrated within the developed world, many investments are still quite specific with respect to firm, sector, or location. It then argues that contemporary levels of international capital mobility have a differential impact on socioeconomic groups. Over the long run, increased capital mobility tends to favor owners of capital over other groups. In the shorter run, owners and workers in specific sectors in capital-exporting countries bear much of the burden of adjusting to increased capital mobility. These patterns can be expected to lead to political divisions about whether or not to encourage or increase international capital market integration. The article then demonstrates that capital mobility also affects the politics of other economic policies. Most centrally, it shifts debate toward the exchange rate as an intermediate or ultimate policy instrument. In this context, it tends to pit groups that favor exchange rate stability against groups that are more concerned about national monetary policy autonomy and therefore less concerned about exchange rate stability. Similarly, it tends to drive a wedge between groups that favor an appreciated exchange rate and groups that favor a depreciated one. These divisions have important implications for such economic policies as European monetary and currency union, the dollar-yen exchange rate, and international macroeconomic policy coordination.
In June 2009 a new financial supervisory framework for the European Union (EU) was endorsed, consisting of a macro- and a micro-prudential pillar. The latter is composed of a Steering Committee, a supranational layer and a network of national supervisory authorities at the bottom, de facto establishing a complex multiple principals-multiple agents network. This paper focuses on the network of national agencies. Starting from an analysis of supervisory architectures and governance arrangements, we assess to what extent lack of convergence could undermine efficient and effective supervision. The main conclusion is that harmonization of governance arrangements towards best practice would better align supervisors' incentive structures and, hence, be beneficial for the quality of supervision.
This paper addresses a key but neglected task in the theory of international taxation, lent increased urgency by growing awareness of the potential gains from tax coordination: the characterization of Pareto-efficient international tax regimes. It shows that the Diamond- Mirrlees theorem on the desirability of production efficiency, which underlies the key tenets of policy advice in international taxation--- the desirability of destination basis for commodity taxation, of the residence principle for capital income taxation, and of free trade---is rendered inherently inapplicable to problems of international tax design by the distinctness of national budget constraints that is of the essence in thinking about international taxation. Conditions are established---relating to the availability of explicit or implicit devices for reallocating tax revenues across countries---under which production efficiency is nevertheless desirable, and a general characterization developed of the precise ways in which Pareto efficient international taxation may require violation of established tenets.
In a two-period overlapping-generations model, residence criteria are shown to be optimal with lump-sum transfers to the younger generation in a dynamically efficient open economy even if all wage income, corresponding to rent income under exogenous labor supply, is not taxed away. When tax revenues are also distributed to the older generation — which indeed may be desirable for short-term intergenerational welfare distribution reasons — a weighted average rule is derived for optimal international taxation. The taxation of domestic savings income follows the inverse elasticity rule in respect to savings and, surprisingly, higher investment elasticity increases the tax level. Finally, for a small open economy and for large identical economies, tax competition with a mixed scheme of residence-based taxes and source-based subsidies yields the same tax policy as tax cooperation with no restrictions on the domestic and international capital income tax instruments.
This paper examines the effect of taxation on foreign investment and on business location within the United States. The idea is to compare the inter-state distribution of investments from certain foreign countries (those with foreign tax credit systems) with the distribution of investments from other countries. Investors from countries with foreign tax credit systems receive home-country tax credits for income taxes paid to US states, so they are less likely than are other investors to avoid investing in high-tax states. The results indicate that 1% differences in state corporate tax rates are associated with 7-9% differences between the investment shares of foreign tax credit investors and the investment shares of all others, suggesting that state taxes significantly influence the pattern of foreign direct investment in the US.
The increase of economic internationalisation has caused the increase of international direct inversions. This has caused an increase in international double tax problems. For this reason, states and organisations have developed mechanisms of tax coordination to elude the distortions in the investment that have originated through the tax variable. The main objective of this paper is to analyse the developments in the European Union international organisms to avoid double taxation of income capital and in international direct investments. Using these instruments it is possible to avoid double taxation and improve investment efficiency at international level.
This paper chronicles the experiences of the U.S. withholding tax on interest income. In 1984, the U.S. repealed its 30 percent withholding tax on interest income paid to foreign persons or corporations. While the tax raised little revenue, it had imposed substantial implicit costs on U.S. corporate borrowers. Since, prior to repeal, domestically issued bonds were subject either to withholding or strict information requirements, many U.S. multinationals raised funds through foreign finance subsidiaries, primarily in the Netherlands Antilles, to avoid the tax. Although the withholding tax rate was effectively reduced to zero in the U.S., this paper demonstrates that interest flows were highly sensitive to their after-tax cost. Copyright Kluwer Academic Publishers 2000
Dit doctoraat behandelt een vergelijkende empirische studie van vennootschapsbelastingconcurrentie zowel op regionaal als op Europees niveau. Niet alleen landen verschillen onderling, maar ook regio's binnen ��n land kunnen grote economische verschillen vertonen. Dit doctoraat bestaat uit vier hoofdstukken. De eerst twee hoofdstukken bestuderen regionale belastingsverschillen binnen ��n land. Belgi� en Itali� worden als voorbeeld genomen in deze studies omwille van hun sterk verschillende regio's. Ondanks het feit dat de vennootschapsbelasting een federale materie is in deze landen, kan de effectieve belastingdruk van bedrijven en regio's sterk verschillen. Mogelijke redenen zijn de complexiteit van de belastingregels, belastingsaftrekken voor bepaalde ondernemingen of investeringen in bepaalde regio's en voordelige belastingsregimes. Een derde hoofdstuk onderzoekt belastingconcurrentie tussen Europese landen onderling. Tenslotte, behandelt hoofdstuk vier de invloed van belastingen, economische integratie en instituties op export specialisatie in Centraal- en Oost-Europa. Een eerste hoofdstuk in dit doctoraat bestudeert regionale belastingsverschillen in Belgi�. Deze studie, die uitgevoerd werd met gegevens van 12167 jaarrekeningen van grote Belgische ondernemingen, komt tot de conclusie dat de feitelijke belastingdruk van een gemiddeld Belgisch bedrijf 26% in plaats van 40.17% bedroeg tijdens de periode 1993-2002. Ook wijzen de resultaten erop dat de feitelijke belastingdruk tussen 1993 en 2002 gestegen is en dan vooral vanaf 1999. Een mogelijke verklaring is dat de overheid vanaf 1999 de belastbare basis verbreed heeft om in december 2002 het belastingtarief te kunnen verlagen tot 33.99%. Dit is een fenomeen dat ook in andere Europese landen geobserveerd wordt, namelijk het samengaan van een verlaging van de belastingvoet enerzijds maar een uitbreiding van de belastbare grondslag anderzijds om het effect op de begroting van het land te neutralis
The term "international taxation" is something of a misnomer. Tax systems are almost invariably national. An exception is international tax treaties which set tax rules on a bilateral or multilateral basis. International taxation generally refers to the tax treatment of transactions that involve entities in more than a single nation.
We introduce a new hybrid approach to joint estimation of Value at Risk (VaR) and Expected Shortfall (ES) for high quantiles of return distributions. We investigate the relative performance of VaR and ES models using daily returns for sixteen stock market indices (eight from developed and eight from emerging markets) prior to and during the 2008 financial crisis. In addition to widely used VaR and ES models, we also study the behavior of conditional and unconditional extreme value (EV) models to generate 99 percent confidence level estimates as well as developing a new loss function that relates tail losses to ES forecasts. Backtesting results show that only our proposed new hybrid and Extreme Value (EV)-based VaR models provide adequate protection in both developed and emerging markets, but that the hybrid approach does this at a significantly lower cost in capital reserves. In ES estimation the hybrid model yields the smallest error statistics surpassing even the EV models, especially in the developed markets.
CHAPTER 1:Saving, Investment, Financial Integration and FDI in Central Europe (Magorzata Jakubiak) Evidence on domestic savings and investments in industrialised countries indicates that capital markets are not perfectly integrated. On the contrary, various measures of financial integration prove that capital has become highly mobile. This paper presents theoretical explanations for this fact, data on the European Union "Northern" and "Southern" states and estimations of the saving-investment relation for some emerging Central and Eastern European countries (CEECs). It was found that domestic investments in Poland, Hungary, Estonia, and the Czech Republic have been partly financed by FDI inflows in recent years. A similar situation was taking place in the so-called "Southern" Europe in the 1980s. There has been a geographical shift in FDI inflows from Southern EU countries to more developed CEECs in the mid-1990s. It seems possible that fast growing FDI inflows in Poland and in Estonia could hamper the future growth of saving rate. CHEPATER 2: The Interactions between Private Savings and Governments Budget Deficits (Joanna Siwinska) This paper attempts to assess the influence of government budget deficit on private saving rate, with special emphasis on Poland and other transition economies. The theoretical predictions concerning the direct impact of budget actions on private savings are given by the Ricardian-Barro Equivalence Theorem and the Neo-classical view. Existing empirical research on the correctness of the Ricardian versus the Classical view is largely inconclusive. A simple empirical analysis for Poland indicates, that in years 1991.1997 there was no strong Ricardian-type relationship between the government net lending and private savings. There is however a possibility of the existence of a weak form of Ricardian Equivalence in Poland, when one assumes, that the social security is treated differently than the rest of governme
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