Thiess Buettner, Boryana Madzharova, 27 October 2020

Facing the economic consequences of the Covid-19 pandemic, governments all over the world are considering providing a fiscal stimulus. A potentially powerful instrument to do so is a broad-based consumption tax such as VAT. This column argues that changes in VAT may have some effect in stimulating spending on certain consumer durable goods such as household appliances. However, these effects may be heterogenous across different product types and the timing and perceived credibility of the announcements are also important factors for policymakers to consider.

Silvia Appelt, Matej Bajgar, Chiara Criscuolo, Fernando Galindo-Rueda, 14 October 2020

Tax incentives have become the number one policy tool that governments use to encourage companies to invest in research and development. This column presents the results of a new analysis of firm-level records in 20 OECD countries, which suggests that, overall, R&D tax incentives are effective in boosting business R&D but their effectiveness differs sharply across firms of different sizes and across countries. Tax incentives are also better suited for supporting R&D projects closer to the market while direct government funding – such as through grants and R&D procurement – is more conducive to research that may not immediately result in new goods or services.

Felix Bierbrauer, Pierre C Boyer, Andreas Peichl, 07 October 2020

The design of redistributive tax policies is an evergreen in the public discourse. This column proposes a new approach for the political economy analysis of tax policies based on examining the political support for reforms in contrast to the tax systems themselves. Focusing on monotonic tax reforms, it demonstrates that such reforms are only supported by a majority of the population if the voter with median income is among the beneficiaries. It also yields predictions on how sequences of politically feasible reforms should affect marginal taxes: (1) a shift towards lower marginal tax rates, even negative ones, for below median incomes; (2) pronounced progression for close to median incomes; and (3) a shift to higher and higher marginal tax rates for top earners, unless tax rates in the status quo are already over the top of the Laffer curve.

Roberto Bonfatti, Adam Brzezinski, K. Kıvanç Karaman, Nuno Palma, 27 September 2020

Monetary capacity refers to a state's capacity to circulate money that is accepted by the public, while fiscal capacity refers to its capacity to tax. This column argues that monetary and fiscal capacity and, by extension, markets and states have a symbiotic relationship. The long-run European evidence from antiquity to the modern period corroborates this mutual dependence, with money stocks and tax revenues moving in close synch. History also offers a natural experiment to estimate the causal effect of monetary capacity on fiscal capacity, with New World silver increasing money stocks and in turn tax revenues in a significant and substantial way.

João Guerreiro, Sérgio Rebelo, Pedro Teles, 09 September 2020

Immigration policy has become a hot-button issue in both Europe and the US, with questions concerning optimal policy as well as the welfare state dominating discussions. This column revisits the idea of the immigration surplus, exploring a number of possible scenarios in terms of how policymakers should address the challenge. Correctly configuring fiscal policy so as to capture the benefits of both high- and low-skill immigrant (and native) workers is at the heart of optimal policy design and may help to address the swelling anti-immigrant sentiment that continues to exist in many countries today. 

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