Taxation

Francis Bloch, Gabrielle Demange, 17 December 2020

Tax avoidance by multinational firms presents a substantial challenge to policymakers and to international organisations. This column explores two possible policy regimes that could be introduced to target global firms focused on digital services: separate accounting and formula apportionment. The results of the study suggest that the separate accounting approach could be optimal, inducing lower efficiency costs and larger fiscal revenues. Such a policy regime would also make country-by-country reporting compulsory and reliable, which would induce additional outside benefits.

Adrien Matray, 05 December 2020

Academic research has so far had little to say on the impact of an increase in payout taxes on firm behaviour and the allocation of capital across firms. Using French administrative tax files that cover the universe of firms, this column tracks firm outcomes over the period 2008–2017 and estimates the effect of a steep increase in the dividend tax rate in 2013. It finds that the tax reform led to increased investment and cash holding, improved allocation of capital, and no discernible reduction in investment even among equity-dependent firms.

Thilo Albers, Morten Jerven, Marvin Suesse, 22 November 2020

Why do large differences in tax revenues between states exist and persist? This column introduces a comprehensive new dataset of tax and revenue collection for all African polities from 1900 to 2015 to answer this central question. The results confirm the importance of democratic institutions and political stability, while de-emphasising the role of resource revenues. Overall, states in Africa have been able to build institutions for the collection of ‘hard’ taxes when the preconditions were favourable, especially when access to external finance was limited. These insights add important nuance to established theories of state-building in developing countries.

Antoine Bozio, Bertrand Garbinti, Jonathan Goupille-Lebret, Malka Guillot, Thomas Piketty, 18 November 2020

How much can redistribution policies account for long-run changes in inequality? This column reveals that the reduction of inequality implied by redistribution is significant in France and the US and increased throughout the entire 20th century, but pre-tax income inequality appears to be the main factor accounting for the differential levels and trends in the two countries. These findings suggest that policy discussions on inequality should pay more attention to policies affecting pre-tax inequality and should not focus exclusively on redistribution.

Spencer Bastani, Daniel Waldenström, 09 November 2020

How should capital be taxed in advanced economies? This column presents a survey of the recent literature on optimal capital taxation and empirical studies on the distortionary effects of capital taxes. It provides specific analyses for taxes on wealth, property, inheritance, personal capital income, and corporate profits. Its overall conclusion is that capital taxation is part of an optimal tax system, but not all capital taxes strike a balance between optimality and administrative feasibility.

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