Taxation

Rasmus Wiese, Richard Jong-A-Pin, Jakob de Haan, 26 March 2018

Empirical research concludes that austerity measures that target spending are more likely to succeed than those that target taxation. This column argues that this result arises from a methodological flaw that assumes all countries have equal variability in their budget balance. Correcting for this in data from 20 OECD countries suggests that spending-based and revenue-based adjustments have been equally successful.

Tony Atkinson, Peter Backus, John Micklewright, 24 March 2018

Many governments seek to encourage charitable giving, both in life and upon death, via favourable treatment in the tax code. This column uses new data from the UK to examine how estate size and the inheritance tax threshold influence the decision to make a bequest to charity. The likelihood of including a bequest in a will rises modestly over the bottom half of the estate size distribution, and more rapidly over the upper tail. The results also suggest that the inheritance tax leads to an increase in charitable intent.

Orsetta Causa, Mikkel Hermansen, 23 March 2018

Growing wealth inequality has become a key concern for economists, and tackling it requires a deep understanding of how tax and transfer systems affect the income distribution. Using OECD data, this column argues that taxes and transfers are less effective at reducing inequality today than they were in the mid-1990s. This drop in effectiveness has largely been driven by declining cash transfers, with a smaller, more heterogeneous role for personal income taxes.

Assaf Razin, Efraim Sadka, 18 December 2017

The ongoing advance of globalisation has created a genuine need for international tax reforms. This column explores potential reforms and their likely effects, using a model with flexible prices. Residence-based income taxation is shown to have welfare advantages over source-based taxation, though at the cost of a larger trade deficit. Non-transitory border taxes are shown to be ineffective at reducing this deficit.

Sijbren Cnossen, Arjan Lejour, Maarten van ’t Riet, 24 November 2017

Some US multinationals have displayed a willingness to relinquish their American nationality and move their headquarters abroad. Such ‘inversions’ generally aim to avoid and minimise taxes. This column argues that the new Trump tax plan is likely to halt tax inversions by US multinationals. However, the plan will increase treaty shopping, incentivising multinationals to redirect dividends through third-party countries with generous tax treaties.

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