Taxation

Ana Venâncio, Victor Barros, Clara Raposo, 29 March 2020

Corporate tax is often seen as a constraint to entrepreneurial activity. This column uses evidence from a tax reform in Portugal to study the relationship between corporate taxes and the behaviour of entrepreneurs. Lower corporate taxes improve both the quantity and quality of entrepreneurial activity, inducing larger and more productive firms to the market, which are more likely to survive in the long term. The study suggests that, on average, the entrepreneurs who were able to take advantage of the reform are mostly male, relatively older, and well-educated individuals.

Lucrezia Reichlin, Dirk Schoenmaker, 26 March 2020

Fiscal and monetary policy coordination is not working in the euro area. This column argues that in order to rebalance the weight of both during major crises, the asymmetry between decision making at the ECB (by majority voting) and the ESM (by unanimity or qualified majority) must be harmonised. This is urgent since the ESM is the only instrument available to provide the common fiscal capacity needed to fight the COVID-19 pandemic.

Thomas Drechsel, Sebnem Kalemli-Ozcan, 24 March 2020

Strong policy interventions are required to support the economy during the COVID-19 pandemic. This column provides estimates on the costs and effects of a negative lump-sum tax for US SMEs based on firms’ payrolls. A policy covering the payroll for all firms with fewer than 500 employees for three months could benefit 61 million workers in the US at a cost of 3% of GDP.

Aida Caldera, Alessandro Maravalle, Lukasz Rawdanowicz, Ana Sanchez Chico, 23 March 2020

Global economic growth is expected to remain weak and significant downside risks persist. As room for conventional monetary policy is limited or exhausted, policymakers will need to rely increasingly on fiscal policy to stabilise the economy during the next economic downturn. This column presents new OECD estimates which suggest that automatic stabilisers on average offset 60% of a specific shock to market income across 23 OECD economies. However, there are marked differences across OECD countries leaving scope to make automatic stabilisers more effective.

Jordi Galí, 17 March 2020

The measures many countries are taking to contain the spread of coronavirus, while necessary, are bound to have a direct impact on the economy. This column argues that rather than raising taxes and/or increasing government debt to finance the necessary fiscal programmes, the time has come for ‘helicopter money’ – direct, unrepayable funding by the central bank of the additional fiscal transfers deemed necessary.

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