Tax Policy Reforms Research Articles

Promoting Growth, Maintaining Progressivity, and Dealing with the Fiscal Crisis

Trade-offs between economic efficiency, growth, and distributional equity permeate economics, including discussions of tax policy and tax reform. Computable general equilibrium (CGE) modeling is one tool that is often used to estimate the magnitudes of the variables that determine the efficiency, growth, and equity properties of alternative tax reforms. In this article, we report the results of simulations of a CGE model that examines the economic and distributional effects of the enactment in the United States of a temporary value-added tax used to reduce the level of the national debt. The results suggest that such a reform is generally moderately progressive both for cohorts alive at the time of reform and for future generations, at least within the context of lifetime measures of tax burden, and that current middle-aged and elderly generations must bear a burden to confer a gain, relative to the status quo, on younger and future generations.

Effective tax burden on investment at corporate level in Macedonia

This article presents the estimates of effective tax rates on investment at corporate level in Republic of Macedonia in the period from 2006 to 2012. In addition to accomplishing this research, 3 basic and most commonly applied indicators of the corporate income tax (CIT) burden will be used. They are the cost of capital, the effective marginal tax rate (EMTR) and the effective average tax rate (EATR), according to the Devereux-Griffith methodology. The results of the analysis will clearly show that the implemented domestic tax policy reform have transformed this country into one of the most, if not the most tax favorable country for investment in Europe.

Partisan Tax Policy and Income Inequality in the U.S., 1979-2007

We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method that allows us to disentangle the direct policy effect from the effect of changing market incomes. Over the whole period 1979-2007 the cumulative tax policy effect aggravated income inequality by increasing the income share of the top 20% in contrast to the middle class' share. The tax policy effect accounts for up to 29% of the total change in inequality; its contribution increases up to 41% if we take into account behavioral responses. Using our unique policy effect measure and variation in tax policies across U.S. states and time, we also identify the redistributive intention of policymakers. The estimated effect of partisan politics on the U.S. income distribution is statistically significant and economically important. Republican policymakers increased inequality especially at the top whereas Democrats increased the income share of the bottom 80% of the distribution.

The partisanship of systemic retrenchment: tax policy and welfare reform in Denmark 1975–2008

We hypothesize that decisions to constrain government revenue may constitute an attractive strategy, especially to right-wing governments, when pursuing a preference for welfare state retrenchment. Whereas programmatic retrenchment in social policy programs imposes concentrated losses in return for diffuse gains, the distributive profile of systemic retrenchment via tax cuts might entail concentrated benefits for specified groups financed by diffuse losses for larger groups in a distant future. Consequently, the electorate may accept or even desire tax cuts and associated initiatives to curb government income relative to retrenchment measures of services and benefits. Our empirical analysis supports such theoretical propositions. In an extensive comparative analysis of all tax laws adopted by four Danish governments, we find clear partisan differences. In an in-depth study of the tax policy of the latest right-wing government, we moreover empirically support the causality of the argument as the government did in fact try to curb specific taxes in order to constrain the spending side of the welfare state in an indirect manner.

Fragmentation mondiale de la production et différenciation de la demande dans un MEGC : proposition méthodologique

Dans un contexte de production mondiale fragmentée, une stratégie de développement consiste à se spécialiser dans la production d’un maillon spécifique de la chaîne de valeur. Or, la modélisation de cette stratégie, dans le cadre d’un modèle d’équilibre général calculable, nécessite une distinction de l’usage des biens, ce qui est rarement réalisé. Nous proposons une méthodologie qui permet cette distinction de la demande afin d’analyser les effets d’une réforme d’une politique fiscale spécifique des départements d’outre-mer, l’octroi de mer, pour La Réunion.

Fiscal Policy and Employment in Advanced and Emerging Economies

This paper discusses tax and expenditure policy reforms to raise employment. Using data for 58 advanced and emerging economies, the paper provides a unified assessment of tax and expenditure measures that have usually been addressed separately. The focus is on incentives to increase labor demand and supply rather than on the impact of fiscal policy on employment through aggregate demand effects. It also discusses policies to improve the matching of labor supply and demand, and the principles which should guide the design of country-specific fiscal reforms to boost employment. A comprehensive set of tables on fiscal policies and labor market outturns for advanced and emerging economies is provided, permitting cross-country comparisons to facilitate the design of reform strategies.

Tax subsidization of personal assistance services

BackgroundPersonal assistance services (PAS) is the term used to describe the range of assistance, services, and supports many people with disabilities and older Americans need to remain in their homes and communities. The Americans with Disabilities Act requires that people with disabilities receive essential services in the communities of their choice rather than in institutional settings. PAS availability often determines whether persons with disabilities become institutionalized or remain in their communities. PAS, however, are not inexpensive or broadly available. Strategies are needed to improve their availability to people with disabilities and the elderly. We sought to analyze 8 provisions of the Internal Revenue Code for their utility to make PAS more affordable and available. MethodsThe authors conducted a legal analysis of 8 statutory provisions, as interpreted by regulations, court decisions, and other authoritative sources. ResultsEach of the tax provisions analyzed covers some PAS expenses incurred by an individual or family. Favorable tax treatment is impacted by the nature and amount of expenses and by the location and conditions of services. The current limitations and complexities of legal interpretations and the fact that many individuals with disabilities are uninformed about these tax provisions present challenges and opportunities. ConclusionsAs the need for PAS grows, reform of tax policy is an important complement to health care and long-term services and supports for people with disabilities. To increase utilization of current beneficial tax provisions that subsidize the cost of PAS, individuals with disabilities and tax preparers must become better informed about using these provisions.

Taxation and Employment: Current Trends and Policy Options

In this article, Jeffrey Owens, discusses the ways in which taxes may affect labour markets and the tax policy reforms that are open to governments to promote employment.

Improving work incentives in Serbia: evaluation of a tax policy reform using SRMOD

Inactivity and unemployment rates as well as informal employment rates in Serbia are particularly high among low-paid workers. Several studies argued that one of main reasons for high entry costs in the labour market in Serbia is the existence of the mandatory minimum base for social security contributions (SSC). Our paper is the first one to provide empirical evidence about the incentive and distributional effects of the abolishment of the mandatory minimum SSC base. Using the tax and benefit micro-simulation model for Serbia (SRMOD), which is based on EUROMOD platform, we found that this policy reform would reduce effective average tax rates by more than it would reduce effective marginal tax rate. This implies a larger participation response than hours-of-work response. A decrease in both of these indicators is most pronounced for lower income groups. At the same time, the reform would trigger positive distributional effects since the number of individuals in low-income groups, whose disposable income would increase after the reform by more than 2%, is ranging from 3.3% to 5.8%. However, the impact of the reform on the overall level of inequality, measured by the Gini coefficient, would be small.

The Challenges of Fiscal Consolidation and Debt Reduction in the Caribbean

This paper examines debt dynamics in the Caribbean and discusses policy options for reducing the high debt levels. Based on empirical studies of factors underlying global large debt reduction episodes, important policy lessons are drawn for the Caribbean. The analysis shows that major debt reductions are associated with strong growth and decisive and lasting fiscal consolidation efforts. Since growth in the current environment is virtually nonexistent, significant fiscal consolidation is inevitable in the region. Better control of the public wage bill, increasing public sector efficiency and tackling transfers are the obvious targets to reduce spending. On the revenue side, there is ample room to reduce tax expenditures, eliminate distortions while broadening the tax base. Fiscal consolidation needs to be complemented by a comprehensive debt reduction strategy including tax policy reforms and structural reforms to boost competiveness.

The Challenges of Fiscal Consolidation and Debt Reduction in the Caribbean

This paper examines debt dynamics in the Caribbean and discusses policy options for reducing the high debt levels. Based on empirical studies of factors underlying global large debt reduction episodes, important policy lessons are drawn for the Caribbean. The analysis shows that major debt reductions are associated with strong growth and decisive and lasting fiscal consolidation efforts. Since growth in the current environment is virtually nonexistent, significant fiscal consolidation is inevitable in the region. Better control of the public wage bill, increasing public sector efficiency and tackling transfers are the obvious targets to reduce spending. On the revenue side, there is ample room to reduce tax expenditures, eliminate distortions while broadening the tax base. Fiscal consolidation needs to be complemented by a comprehensive debt reduction strategy including tax policy reforms and structural reforms to boost competiveness.

Impact of Tax Reduction Policy on Banking Sector in Pakistan

This study analyzes the impact of tax policy reforms on the profits of banking sector. The empirical results of unit root and Augmented Dickey Fuller (ADF) test reveal that the data series of tax is positively skewed whereas data series of profitability is negatively skewed. The kurtosis value indicates that all the series are platykurtic. From the value of ADF statistics, it is evident that all the variables are non-stationery at log level and are stationary at their first difference. Granger Causality Test shows that profitability of banking does not granger because tax but tax granger cause profitability of banking which depicts that the change in tax rate affects the profitability of banking industries. The study finds that reduction in corporate income tax rates for banking sector has produced positive impact in shape of increased banking sector profits and assets during the period under review.

Trade liberalization and tax reform strategies: The case of the Korean oil industry

The decline in government revenues due to tariff reductions has become a major concern for most developing countries, including Korea. This paper focuses on the Korean oil industry to examine which post-trade liberalization tax reform strategy is optimal, depending on the government's priority between social welfare and government revenue. We find that the important factors for choosing an optimal tax reform policy are price elasticity of demand and market competition. Based on a price-inelastic demand and the low competitive market for Korea's oil industry, if the goal of a tax reform policy is to increase social welfare, the recommended strategy is to raise the consumption tax by a scale of less than the sum of tariff cuts times the crude oil price and oil import tax cuts. This strategy would also reduce inflation, but it could be detrimental to government revenue. However, if the policy's goal is the preservation of government revenue, the recommended strategy is to raise the consumption tax by a scale equal to the sum of tariff cuts times the crude oil price at the pre-tax reform and oil import tax cuts. This strategy does not change either government revenue or social welfare.

Effective Tax Policy Reform through Strategic Stakeholder Communication: Lessons from Australia

This article analyses the role of stakeholders in tax policy reform with reference to the Australian experience in introducing a resource rent tax that replaced the existing royalty based system. It concludes that effective communication with key stakeholders can enable policymakers to undertake successful tax reform agendas in a democratic society.

Progressivity of Value Added Tax in Developing Countries: Empirical Evidence from Bangladesh

Designing and implementing a value added tax (VAT) in developing countries has been seen as one of the most vital tax policy reforms in the recent decades. The authors look at the issues surrounding the progressivity of VAT being higher for the lower-income groups and provide some policy recommendations that could help design a better VAT system in Bangladesh.

Enabling Post-GFC Mineral Tax Policy Reform throughStrategic Stakeholder Communication

This paper analyses the role of stakeholders in tax policy reform with reference to the Australian experience in attempting to introduce a resource rent tax by replacing the existing royalty based system. By discussing why some groups of stakeholders are more powerful than others and why democratic governments are required to develop policy in consultation with their stakeholders, this paper proposes some ways by which governments can effectively manage stakeholders, particularly by building a winning coalition through strategic stakeholder communication.

Tax Evasion, Minimum Wage Non-Compliance and Informality

We study the impact of tax and minimum wage reforms on the incidence of informality. To gauge the incidence of informality, we use measures of the extent of tax evasion, the extent of minimum wage non-compliance, and the size of the informal workforce. Our approach allows us to examine (i) the distinction between determinants of firm-level reported wage distribution and actual wage distribution, (ii) the complementarity of tax and minimum wage enforcement, (iii) the impact that a minimum wage reform has on tax and minimum wage compliance, and (iv) the impact that a tax policy reform has on tax and minimum wage compliance. We conclude with the design of optimal minimum wage and tax policies (even in the complete absence of minimum wage enforcement). We do so based on two objectives derived from popular concerns associated with an unchecked expansion of informality: tax revenue maximization, and poverty alleviation among workers.

A Differential Redistributive Analysis of Bilinear Dual-Income-Tax Reforms

We analyze differential redistributive effects of bilinear tax reforms that are applied to dual income taxes or, more generally, to two different one-dimensional taxes. To do so we analyze the one-dimensional income tax case, and then we introduce a partial order, based on the Lorenz dominance criterion, which induces a lattice structure within the set of bilinear tax reforms whenever certain conditions on the tax reform policies and the dual income distribution hold. We illustrate this result empirically in the case of the Spanish dual personal income tax. We also analyze voting preferences and revenue elasticities, and we discuss the robustness of our theoretical predictions when some assumptions of the model are weakened.

Introduction: Tax policy reform New Zealand style

Introduction: Tax policy reform New Zealand style

TAX FIGHT LOOMS

PRESIDENT Barack Obama’s plan to raise hundreds of billions of dollars through increased taxes on business to slow a ballooning deficit is colliding with his effort to spur the economy and boost employment by promoting U.S. exports, industry leaders say. Rolled out as part of the fiscal 2011 budget proposal are a series of new taxes, reinstated taxes, and a significant reduction of multinational corporations’ ability to defer taxes on overseas earnings. It is feared that such tax policy reform will impede economic growth and make it harder to create jobs and lower America’s near double-digit unemployment rate. The proposed changes to the U.S. tax code bump up against Obama’s recently announced initiative to double exports in five years, a jump that would push U.S. overseas sales to $3 trillion annually and, the White House says, create 2 million new jobs. But chemical industry executives contend that Obama’s budget would discourage job creation by ...