Employment subsidies have been widely used in OECD countries to counteract the recent job crisis, but their effectiveness is difficult to assess. This column summarises the findings of a recent study analysing a 2012 Spanish employment subsidy given to firms with fewer than 50 employees that make use of a new type of permanent contract. Consistent with other country studies, it fails to find robust evidence for increased employment growth due to the subsidy scheme.
Elisa Gamberoni, Katerina Gradeva, Sebastian Weber, 03 December 2016
Marco Buti, Helene Bohn-Jespersen, 25 November 2016
The actions taken in 2008-09 by the G20 avoided an outright depression during the financial crisis, but questions remain over its ability to evolve from a short-term crisis response forum to effectively addressing more long-term challenges. This column argues that to ‘win the peace', G20 members as well as G20 Presidencies have to redesign international economic policy coordination, and ensure that the focus is kept on a limited number of deliverables to which all G20 members can agree.
Kai Konrad, Tim Stolper, 22 November 2016
The reasons why a country would comply with international standards of transparency in the face of sizeable returns in the tax haven business are unclear. This column highlights fundamental coordination problems in the fight against offshore secrecy regimes and their implications for optimal policies, and explores whether the fight will be successful or not.
Emmanuele Bobbio, 05 November 2016
Tax evasion imposes substantial costs on economies around the world. Beyond equity concerns, it erodes the tax base, with indirect effects on public investment and service provision. This column uses a model calibrated on the Italian economy to assess the direct and indirect effects of tax evasion on economic growth. Enforcing taxes would force small businesses to innovate, putting pressure on larger businesses and clearing the market of poorly performing small firms. Tackling tax evasion is thus important not only for equity reasons, but also for efficiency.
Martín Gonzalez-Eiras, Dirk Niepelt, 11 October 2016
The US fiscal system underwent a radical transformation in the 1930s. This column proposes a micro-founded general equilibrium model that blends politics and macroeconomics to explain the transformation. It rationalises tax centralisation and intergovernmental grants as the equilibrium response to the Sixteenth Amendment, which introduced federal taxation. The theory can also be used to forecast federal and regional taxes and government spending.
Matthew Weinzierl, 24 September 2016
Tax policy to correct inequality assumes that nobody is entitled to advantages due to luck alone. But the public largely rejects complete equalisation of 'brute luck' inequality. This column argues that there is near universal public support for an alternative, benefit-based theory of taxation. Treating optimal tax policy as an empirical matter may help us to close the gap between theory and reality.
Giacomo De Giorgi, Anders Frederiksen, Luigi Pistaferri, 17 September 2016
Household consumption can be influenced by the consumption behaviour of peers. This column examines why this is the case, and considers some policy implications. The tendency for individuals to under-save (or over-borrow) in an attempt to ‘keep up with the Joneses’ appears to be driven by the average consumption of their peers, rather than by the consumption of conspicuous items. If tax policy fails to consider these peer effects, it risks wrongly estimating the effects of tax reforms that target certain groups.
Philippe Aghion, Ufuk Akcigit, Julia Cagé, William Kerr, 29 August 2016
The relationship between taxation and economic growth is complex, and relies in large part on the efficiency with which taxes are used. This column examines the impact of corruption on this relationship. The boost to welfare from reducing corruption is substantially larger than the marginal gains from optimising the tax rate for an existing level of government efficiency.
Carl Emmerson, 25 July 2016
In this video, Carl Emmerson argues that the amount of trade and the degree of access to the European Single Market will determine future taxation policies. This video is part of the “Econ after Brexit” series organised by CEPR and was recorded on 13 July 2016.
Heiner Schumacher, Iris Kesternich, Michael Kosfeld, Joachim Winter, 06 July 2016
Evidence shows that individuals often do not act in a completely selfish manner, but rather take into account the welfare of other parties when making decisions. But how decision-makers trade off costs and benefits when the costs are dispersed among many individuals is unclear. This column discusses new experimental evidence showing that a large fraction of individuals are ‘insensitive to group size’, attaching similar weights to small and large groups. These findings provide a new explanation for a number of empirical patterns, including political and medical decision-making, lobbying, tax evasion, and charity donations.
Peter Egger, Sergey Nigai, Nora Strecker, 21 May 2016
Increased globalisation since the mid-1990s has eroded some of the tax bases of many economies. At the same time, demand for public goods has risen and governments face the challenge of financing greater public expenditure with lower tax revenues. This column discusses tax policy responses to increasing globalisation, showing that since the mid-1990s governments in OECD countries have increasingly relied on revenues from employee-borne rather than firm-borne taxes. Due to the greater mobility of capital and high-skilled workers, who are able to escape higher taxes more easily, the middle classes have carried much of the additional tax burden.
David Cesarini, Erik Lindqvist, Matthew Notowidigdo, Robert Östling, 24 January 2016
Cash welfare programmes are widely thought to discourage work because unearned income reduces the labour supply even when it does not alter work incentives. This column discusses recent evidence from Swedish lottery players suggesting that this ‘income effect’ is economically significant, but modest in magnitude and surprisingly similar across various demographic groups. Introducing ‘unconditional basic income’ programmes in developed countries may reduce the labour supply across a broad cross-section of the population.
Joshua Aizenman, Yothin Jinjarak, Jungsuk Kim, Donghyun Park, 08 January 2016
Taxation in developing nations has always been difficult, but the Global Crisis has brought further complications. This column examines and compares the tax revenue trends in Asia and Latin America to shed light on some of these issues. Despite their similarities, there is no one-size-fits-all explanation for tax/GDP ratios between the two regions. While progress has been made, the gap between the advanced economies and developing countries offers ample room for improvement. This is particularly important for developing nations as they face growing demand for fiscal spending.
Pablo Fajgelbaum, Eduardo Morales, Juan Carlos Suarez, Owen Zidar, 06 January 2016
Tax policy varies widely across countries and across regions within countries. This column presents evidence suggesting that in the case of the US, harmonising tax rates could lead to significant increases in aggregate economic output. EU policymakers should take note.
Dominika Langenmayr, 13 November 2015
Voluntary disclosure programmes offer tax evaders the opportunity to come clean with reduced penalties. This column uses data from the US and Germany to examine the merits of such programmes. They are found to increase tax evasion, but also to significantly lower administrative costs, leading to a net increase in tax revenues.
Aspen Gorry, Kevin Hassett, Glenn Hubbard, Aparna Mathur, 19 October 2015
As the tabloid press and broadsheet newspapers often report, executive compensation has grown dramatically since the 1980s and continues to rise in most financial centres. This column looks at how compensating executives has changed in recent years, and suggests ways that governments can collect revenue more effectively in response.
Sebastian Galiani, Camila Navajas Ahumada, Marcela Meléndez, 10 August 2015
Informality is widespread in most developing countries. A challenge for governments is to lure informal firms into the formal economy. This column presents evidence from an experiment designed to induce formalisation in Colombia. Assistance through the bureaucratic process and the removal of the fixed costs of formalising increased the likelihood of formalisation. However, this effect did not persist over time, with many firms returning to the informal sector when minimal fixed costs came back into effect.
Ufuk Akcigit, Salome Baslandze, Stefanie Stantcheva, 27 April 2015
Taxing high earners is an issue of growing importance in many nations. One concern is that raising rates will lead high earners to move elsewhere. This column suggests that top-tier inventors are significantly affected by top tax rates when deciding where to live. The loss of these highly skilled agents could entail significant economic costs in terms of lost tax revenues and less overall innovation.
Ricardo Perez-Truglia, Ugo Troiano, 20 March 2015
Although most of the tax compliance literature focuses on tax evasion, a significant portion of the tax gap includes tax delinquencies. This column discusses new research about the enforcement of tax debts, including evidence from a field experiment in the US with nearly 35,000 tax delinquents who collectively owe half a billion dollars in taxes. In addition to financial penalties, this research studies the effectiveness of a common ‘shaming’ penalty in which the names, addresses, and other identifying information of individuals and businesses with delinquent taxes are published online.
Hans Holter, Dirk Krueger, Serhiy Stepanchuk, 20 February 2015
Since the Global Crisis, debt sustainability has received increasing attention. This column argues that the maximum sustainable debt level depends negatively on the progressivity of the tax system. The authors estimate that the US is still relatively far from the peak of its Laffer curve and from its maximally sustainable debt level. However, adopting a flat tax would raise the maximum sustainable debt from 330% to more than 350% of benchmark GDP, whereas adopting Danish-style progressivity would lower it to less than 250%.