Taxation

Isabel Z. Martínez, Michael Siegenthaler, Emmanuel Saez, 22 August 2018

Macroeconomists tend to assume that people work more when their wages are temporarily higher, and that this is a key driver of employment fluctuations This column examines how income tax holidays in Swiss cantons, which exempted earnings from income taxation for one or two years, affected the labour supply of Swiss workers.  People did not work more during the tax holiday, but the self-employed and high earners shifted earnings into the tax holiday years. The findings suggest that intertemporal labour supply responses are too small to be a key determinant in why recessions lead to large drops in employment.

Era Dabla-Norris, Ruud de Mooij, 07 August 2018

A key problem in tax research is that quantitative information is often only available for tax rates, not tax bases. This column introduces a new IMF database on tax reforms published, which uses text-mining techniques to infer multiple dimensions of tax reforms enacted in 23 advanced and emerging economies over the last four decades. The database, which covers both direct and indirect taxes, can help address well-known methodological pitfalls in existing tax research and offers opportunities for novel analysis of tax policy.

Haichao Fan, Yu Liu, Nancy Qian, Jaya Wen, 29 July 2018

Enforcement of VAT requires accurate records of firm transactions that can be traced to both parties. This column describes how the Chinese government’s digitisation of the country’s VAT process increased enforcement, which in turn increased overall tax revenues in the short run. However, the increased enforcement caused firms to contract in the medium run, reducing the long-run gains in tax revenues.

Thomas Tørsløv, Ludvig Wier, Gabriel Zucman, 23 July 2018

Between 1985 and 2018, the global average statutory corporate tax rate fell by more than half. This column uses new macroeconomic data to argue that profit shifting is a key driver of this decline. Close to 40% of multinational profits were artificially shifted to tax havens in 2015, and this massive tax avoidance – and the failure to curb it – are in effect leading more and more countries to give up on taxing multinational companies. 

Assaf Razin, Efraim Sadka, 08 July 2018

Financial globalisation triggers tax competition among countries and the possibility of a ‘race to the bottom'. This can chip away at the domestic tax base, and the reallocation of international capital is likely to result in the downscaling of the scope and size of redistribution under the welfare state. This column argues, however, that even a reduced welfare state can still act as a device to compensate the losers from financial globalisation losers in a Pareto-improving way. 

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