Friday, July 22, 2005

Two research (economic) papers dealing with taxation

Recently, I ran across two papers dealing with interesting tax issues (they have a lot of math, so if you do not like it stay away!). The first discusses eventual incentive effects of information exchange and revenue sharing in the effective taxation of cross-border capital flows when asymmetric countries cannot discriminate between residents and nonresidents (which is the case in Europe). The central conclusion (and quite suprising) is that in this case both countries—small (low tax) and large (high tax) prefer simple information exchange (under which all revenue arising from information sharing accrues to the residence country) to simple withholding (under which al revenue from the withholding tax is retained by the source country). The second paper deals with the quasi-philosophical question whether we need Corporate Taxation after all? and .... do we?

MICHAEL KEEN (International Monetary Fund), JENNY E. LIGTHART (Tilburg University) have recently published Revenue Sharing and Information Exchange under Non-Discriminatory Taxation, CentER Discussion Paper No. 2005-69
Here is the abstract: The international exchange of tax information, and its merits compared to withholding taxes, is the central topic in current debates in international tax policy. The purpose of this paper is to characterize and compare the tax regimes that emerge with and without information exchange, under the assumption that countries are unable to differentiate between the taxes they apply to residents and non-residents. It focuses in particular on the role of asymmetries in country size (capturing a key feature of tax havens) and on the impact and potential desirability of schemes to share the revenue raised by withholding (as under the new EU savings tax arrangements) or (more innovatively) as a consequence of information exchange. It is shown that (irrespective of country size difference) Pareto efficiency requires that all revenue collected from nonresidents be transferred to the residence country which would require taking the EU practice even further from the norm, but is currently the norm in relation to information exchange. A withholding scheme with revenue fully reallocated in this way Pareto dominates information sharing, whatever the allocation under the latter. Comparing schemes in which there is no revenue sharing, however, shows that information exchange Pareto dominates simple withholding.

Alfons Weichenrieder (University of Frankfurt and CESifo - Center for Economic Studies and Ifo Institute for Economic Research)) published recently, (Why) Do we need Corporate Taxation? , CESifo Working Paper Series No. 1495

Here is the abstract: According to the author, Tax rates on corporate income have considerably come down in the process of tax competition and further pressures are evident. Against this background, the paper discusses possible benefits of corporate income taxation that may be at risk. In particular, the paper surveys the empirical evidence for a backstop function of the corporate income tax that allows preserving individual taxes. In fact, the author concludes that the importance of the corporate tax as a backstop for labor taxation largely depends on the functioning of alternative measures to avoid income shifting. Nevertheless, more empirical analysis in this area would be very welcome.


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