Tax Reform Options Research Articles

The Tax Attractiveness of EU Locations for Corporate Investments: A Stocktaking of Past Developments and Recent Reforms

Abstract In this paper, we illustrate the tax attractiveness of EU countries as investment locations over time in terms of effective average tax rates and evaluate potential tax reform options. Our quantitative assessment of recent tax policies suggests that corporate tax rate cuts, notional interest deductions and R&D incentives significantly reduce the effective average tax rate. When government budgets are constrained, however, tax incentives with a direct link to investment activities, such as accelerated depreciation and R&D incentives, are most suitable to stimulate private investment. Even after the introduction of the global minimum tax, these measures remain a viable tool to stimulate investments.

Economic Analysis of the Tax System: The Example of Azerbaijan

This paper presents an economic analysis of the tax system in Azerbaijan, focusing on its structure, efficiency, and impact on economic growth and development. The study aims to provide insights into the strengths and weaknesses of the tax system, identify potential areas for improvement, and offer policy recommendations for optimizing its effectiveness. Based on the findings of the analysis, several policy recommendations are proposed to enhance the efficiency and effectiveness of the tax system in Azerbaijan. These recommendations include streamlining tax administration processes, improving tax compliance through simplified regulations and electronic filing systems, promoting a more balanced tax burden across sectors, and exploring options for tax reform to incentivize investment and foster economic growth. In conclusion, this economic analysis provides a comprehensive evaluation of the tax system in Azerbaijan, highlighting its strengths and weaknesses. By offering policy recommendations, the study aims to contribute to ongoing discussions on tax reform and optimization, ultimately supporting the country's goals of sustainable economic development and prosperity.

Taxation and growth: Why does it matter and how can it be analysed?

AbstractThe growth impact of tax reforms is probably one of the most controversial issues in economic policy discussions, reflecting deep beliefs in the way economic agents are expected to react to policy changes. The optimal tax theory literature provides a wide array of arguments to identify the mechanisms through which tax reforms might influence growth, depending on the tax category considered and the circumstances under which tax reforms are implemented. The empirical literature has relied on the use of cross-country growth regressions and provided general results leading to normative conclusions on the desirability of specific tax reform options. However, recent research has shown that this approach yields inconclusive results, notably due to identification and endogeneity issues, and the difficulty to account for the true determinants of governments' actions. The dynamic scoring approach combining microsimulation and macro models proves more useful in this respect, especially in order to draw policy recommendations while accounting for the second-round effects of tax reforms. I illustrate these arguments by analysing the growth impact of a hypothetical change from the current flat personal income tax (PIT) rates to progressive taxes in Central and Eastern European (CEE) countries. I find that the estimated impact of such a reform would be rather small but positive when using the dynamic scoring method, while the less-reliable traditional growth regressions would suggest adverse growth effects.

Reforming State Taxes on Property

Alternative details of tax reform options to replace the current conveyance duty on property transfers, the narrow base land tax, and arguably also stamp duty on property insurance, with an annual property tax in an approximate revenue neutral reform package are described and evaluated. A comprehensive tax base and flat rate replacement land tax offers maximum gains in efficiency and simplicity. But, viewed against the taxes to be replaced it has important tax redistribution effects. Less redistributive options include longer term systems and transition options. Longer term system replacement options include: different taxes for commercial, resident rental, and owner occupied property; improved property rather than land value for the tax base; and a progressive rate rather than a flat rate. Transition adjustment path options include: credit for recent paid conveyance duty; gradual phase down of conveyance duty rate and phase up of replacement property tax. Provision for liquidity constrained owners to carry forward the replacement annual property tax is supported.

Addressing the Debt-Equity Bias within a Common Consolidated Corporate Tax Base (CCCTB) – Possibilities, Impact on Effective Tax Rates and Revenue Neutrality

Corporate tax systems encourage the use of debt rather than equity finance. This corporate debt bias is a matter of concern in light of its implications for macrofinancial stability. In October 2016, the European Commission addressed the issue in its relaunched proposal of a Common (Consolidated) Corporate Tax Base (CC(C)TB). Various reform options to alleviate the debt bias and increase financing neutrality of tax systems exist. Whether such reforms are indeed effective from the point of view of EU Member States depends on how they interact with the specific local tax codes. Based on the well-established indicators of the effective tax burden of companies according to the Devereux/Griffith methodology, this paper analyses the impact of four fundamental tax reform options on financing neutrality in each EU Member State. The results show that all fundamental tax reform options largely establish financing neutrality in the EU Member States but considerably differ in their consequences for corporate investment.

Tax Reform Options to Generate Revenues While Reducing Inequality

Tax Reform Options to Generate Revenues While Reducing Inequality

Pruning the Money-Tree to Ensure Sustainable Growth: Facilitating Sustainable Development Through Market-Based Instruments

There is growing global recognition that market-based instruments (MBI), such as environmentally-related taxes, levies and user-charges, are viable tools for facilitating environmental management and, ultimately, sustainable development. These instruments seek to correct market failure to value, or accurately value, environmental goods and services that consequently lead to environmental concerns being accorded insufficient consideration in everyday market activities. South Africa has introduced various MBI, largely in the form of environmentally-related taxes pertaining to mining, agriculture, electricity supply, water supply, waste water discharge and various products such as fuel and plastic shopping bags. The primary rationale underlying the introduction of these instruments has been revenue generation. Government has, however, acknowledged that MBI have potential to achieve other objectives, namely to mould human behaviour, encourage more efficient resource use and improve actual environmental outcomes.In an effort to facilitate further debate on the issue, the National Treasury recently published a draft policy paper titled A Framework for Considering Market-Based Instruments to Support Environmental Fiscal Reform in South Africa. The Draft Policy Paper reflects a significant shift in fiscal policy and provides four broad tax reform options that could contribute towards meeting both fiscal and environmental objectives, namely: reforming existing environmentally-related taxes and charges in the transport and solid waste sectors; introducing new environmentally-related taxes in the electricity and waste water sectors; reforming legal aspects of non-environmentally-related taxes with perverse environmental incentives and creating incentives to improve environmental outcomes. This article briefly considers each of the above options set out in the Draft Policy Paper by focusing on the following questions: Why has there been a shift toward the use of MBI to achieve environmental outcomes? To what extent are they used currently in South Africa? What are the options for extending their use in South Africa? What are the prerequisites for their successful implementation?

Assessment of the fiscal effect of the tax reform options until 2019: the case of Russia

Assessment of the fiscal effect of the tax reform options until 2019: the case of Russia

Tax Reform for Growth, Equity, and Revenue

This article examines the fiscal outlook and tax reform options in the United States. The major conclusions include the following: the United States faces a substantial fiscal shortfall in the medium- and long term; both spending cuts and tax increases should contribute to the solution; tax increases need not do significant harm to economic growth; and there are sensible ways to both reform tax structure and raise revenues, including the redesign of tax expenditures, the creation of a value-added tax or a carbon tax, or an increase in the gasoline tax.

Tax Reform for Growth, Equity, and Revenue

This paper examines the fiscal outlook and tax reform options in the United States. The major conclusions include: the United States faces a substantial fiscal shortfall in the medium and long-term; both spending cuts and tax increases should contribute to the solution; tax increases need not do significant harm to economic growth; and there are sensible ways to both reform tax structure and raise revenues, including tax expenditure reform, the creation of a value added tax, the creation of a carbon tax, or an increase in the gasoline tax.

Statement for Inclusion in the Hearing Record of: Hearing on Tax Reform Options: International Issues Held September 8, 2011 Before U.S. Senate Finance Committee - Congress Should (1) Replace the Current Deferral Regime for the Taxation of Foreign Income with an Imputation System Accompanied by a Lower Corporate Rate, and (2) Reject Proposals for Enactment of a Territorial System

While there are no easy solutions in international taxation, an imputation system offers many benefits over the current deferral system or a territorial system. One of the major benefits of an imputation system is that it will eliminate the bias in favor of foreign investment in low tax jurisdictions over U.S. investment and will eliminate the “lockout” effect. Another benefit is that an imputation system would preserve the U.S. tax base. Under the current deferral system, the U.S. loses billions of dollars in tax revenue, and this would also be true with a territorial system. With more tax revenue coming in every year under an imputation system, the U.S. would be able to significantly lower the corporate tax rate for all corporations. A reduction in the corporate tax rate would lead to an increase in investment in the U.S. by both domestic-controlled and foreign-controlled businesses. By enacting an imputation system, U.S. multinational corporations would no longer have an incentive to abuse the transfer pricing rules by deflecting (1) U.S. income to foreign subsidiaries, and (2) foreign expense to U.S. parents. Such abuses are significant in the current deferral system, would be even greater with a territorial system, and would be eliminated with an imputation system. The case for the adoption of an imputation system in conjunction with a lowering of the corporate rate is so strong that the Senate Finance Committee and the House Ways and Means Committee should hold hearings specifically focused on the pros and cons of adopting an imputation system.

Would a Flat‐Rate Tax Stimulate Entrepreneurship in Germany? A Behavioural Microsimulation Analysis Allowing for Risk*

AbstractWhen potential income tax reforms are debated, the suspected impact on entrepreneurship is often used as an argument in favour of or against a certain policy. Quantitative ex‐ante evaluations of the effect of certain tax reform options on entrepreneurship are very rare, however. This paper estimates the ex‐ante effects of the German tax reform 2000 and of two hypothetical flat‐rate tax scenarios on entries into and exits out of self‐employment based on a structural microsimulation model with econometrically estimated transition rates under risk. The simulation results indicate that flatter tax systems do not encourage people to choose self‐employment, but rather discourage them from doing so. This is explained by the reduction of entrepreneurs' income risk through progressive taxation.

The BBLR Approach to Tax Reform in Emerging Countries

Fiscal experts have for years proposed a holy trinity of tax reform options for developing countries: broader bases, lower rates, and better administration. The review in this paper of fifty years of experience suggests that what might be called the BBLR approach - broader bases and lower rates - to tax structure reform holds up fairly well. Nonetheless, some qualifications to the basic BBLR approach are suggested and the continuing fundamental importance of understanding and improving tax administration is stressed.

Would a Flat Tax Stimulate Entrepreneurship in Germany?: A Behavioural Microsimulation Analysis Allowing for Risk

When possible income tax reforms are debated, the suspected impact on entrepreneurship is often used as an argument in favour or against a certain policy. Quantitative ex-ante evaluations of the effect of certain tax reform options on entrepreneurship based on microeconometric research have not been provided by the literature, however. This paper estimates the ex-ante effects of the German tax reform 2000 and of two hypothetical flat tax scenarios on entries into and exits out of self-employment in Germany. For the estimation I apply a microsimulation model which is based on the tax-benefit model STSM and on structural microeconometric models of transitions into and out of self-employment. These structural models include an estimated parameter of risk aversion. The simulation results indicate that flatter tax systems do not encourage, but rather discourage people from choosing self-employment. This is explained by the reduction of entrepreneurs' income risk through progressive taxation.

Public Opinion and the Push to Repeal the Estate Tax

We examine the recent battle for federal estate tax repeal in order better to understand the role of public opinion in enacting legislation, particularly regarding low salience issues. Our analyses of the polling data show how the contours of public opinion were strategically used in the policy debate. When the issue was framed as a matter of fairness, misperceptions of self-interest and principled beliefs about fairness combined to yield apparently overwhelming support for repeal. However, when it was instead framed as a matter of priority, majorities supported estate tax reform options over repeal Interest groups used the findings about public opinion in coalition-building and campaigns that changed the public image of repeal from extreme to mainstream. In sum, public opinion polls supporting repeal provided "running room" for politicians to vote for repeal.

Book Reviews : Trish FULTON, Jinyan LI and Dianqing XU, China's Tax Reform Options. Singapore, New Jersey, London, and Hong Kong: World Scientific 1998. 467 pp., with tables. ISBN: 9-8102-3447-3 (hc). Price: US$47.00

Book Reviews : Trish FULTON, Jinyan LI and Dianqing XU, China's Tax Reform Options. Singapore, New Jersey, London, and Hong Kong: World Scientific 1998. 467 pp., with tables. ISBN: 9-8102-3447-3 (hc). Price: US$47.00

Uncertain parameter values and the choice among policy options

We use a tax policy example to show how debate on the value of an elasticity parameter translates into a debate about policy choices. To construct this example, suppose that the choice among four particular tax reform options is based on a single measure of efficiency gain. For each reform, we show how the size of this gain depends upon the elasticity of saving with respect to the net rate of return. Moreover, within quite narrow and reasonable bounds for the elasticity parameter, we find regions in which each of three different tax reforms turns out to dominate the others.