Why Do Countries Subsidize Investment and Not Employment?

The governments of nearly all industrialised countries use subsidies to support the economic development of specific sectors or regions with high rates of unemployment. Conventional economic wisdom would suggest that the most efficient way to support these regions or sectors is to pay employment subsidies. We present evidence showing that capital subsidies are empirically much more important than employment subsidies. We then discuss possible explanations for the dominance of investment subsidies and develop a simple model with unemployment to explain this phenomenon. In our model, unemployment arises due to bargaining between unions and heterogenous firms that differ with respect to their productivity. Union bargaining power raises wage costs and leads to a socially inefficient collapse of low productivity firms and a corresponding job loss. Union-firm bargaining also gives rise to underinvestment. In this framework, it turns out that an investment subsidy dominates an employment subsidy in terms of welfare. The reason is that investment subsidies are a more efficient instrument to alleviate the underinvestment problem and to raise the number of operating firms.

Tax Policy and Entrepreneurship in the Presence of Asymmetric Information in Capital Markets

This paper considers the implications of asymmetric information in capital markets for entrepreneurial entry and tax policy. In many countries, governments subsidize the creation of new firms. One possible justification for these subsidies is that capital markets for the financing of new firms do not function properly. We analyse this issue by assuming that entrepreneurs need outside financing for their projects and know more about the quality of their projects than outside investors. Entrepreneurs have the choice between carrying out their entrepreneurial projects or working as an employee. It turns out that asymmetric information in capital markets leads to too much rather than too little entrepreneurial entry. Therefore, the ptimal tax policy should discourage rather than subsidize entrepreneurial entry. We also nalyse the welfare effects of project screening and show that there is too much screening. Our policy conclusion is that subsidies for the foundation of firms must be based on reasons other than informational asymmetries in capital markets.

Capital Mobility and Tax Competition: A Survey

This paper surveys the literature on the implications of international capital mobility for national tax policies. Our main issue for consideration in this survey is whether taxation of income, specifically capital income will survive, how border crossing investment is taxed relative to domestic investment and whether welfare gains can be achieved through international tax coordination. We develop a a “working horse model” of multinational investment which allows to derive many of the key results from the literature on international taxation in a unified framework. Moreover, we put special emphasis on the problem of tax competition and financial arbitrage.tax competition, capital mobility, tax policy

Steuerliche Probleme von Mitarbeiter-Aktienoptionen

Seit einigen Jahren setzen auch deutsche Unternehmen zunehmend Aktienoptionen als *" Entlohnungsinstrument ein. Wie werden Aktienoptionen gegenwärtig steuerlich behandelt? Besteht im Zuge der Steuerreform ein steuerpolitischer Handlungsbedarf? --

Ist eine große Steuerreform finanzierbar?

Trotz der vielfältigen Änderungen der Einkommen- und Körperschaftsteuer in den letzten Jahren wird die Kritik am bestehenden Steuersystem immer lauter. Welche der zahlreichen Vorschläge zur Reform der Einkommensteuer sind realisierbar? Wie sind die Erfolgsaussichten einer Einkommensteuerreform schon in diesem Jahr einzuschätzen? Ist eine große Steuerreform finanzierbar? --

Das Vollanrechnungsverfahren ist nicht mehr zeitgemäß

An der beschlossenen Unternehmensteuerreform wird vor allem die Einführung des Halbeinkünfteverfahrens bei der Dividendenbesteuerung kritisiert, das an die Stelle des bisherigen Anrechnungsverfahrens tritt. Ist diese Kritik berechtigt? --

Eine beschäftigungsfreundliche Reform der 620-DM-Arbeitsverhältnisse

Gegenwärtig wird eine Abschaffung bzw. Einschränkung der 620-DM-Beschäftigungsverhältnisse diskutiert. Dr. Clemens Fuest und Professor Bernd Huber analysieren die möglichen Auswirkungen für den Arbeitsmarkt und das Sozialsystem und schlagen alternativ eine beschäftigungsfreundliche Reform dieser Beschäftigungsverhältnisse vor. --

Sollte die Gewerbesteuer reformiert werden?

Die Bundesregierung will im Rahmen einer Kommission zur Reform der Kommunalfinanzen auch die Gewerbesteuer überprüfen lassen. Dabei ist in der Kommission mit einer kontroversen Debatte zu rechnen, denn die Vorstellungen der Vertreter von Wirtschaft und Städten und Kommunen liegen weit auseinander. Sollte die Gewerbesteuer reformiert werden? Welche Alternativen bestehen zur Gewerbesteuer? --

Capital gains taxation and house price fluctuations

Recent years have seen large swings in house prices in many countries. Motivated by housing price variations, proposals for taxing capital gains on housing have repeatedly been put forth. The idea seems to be that such taxes would curb the redistribution occurring between those owning houses and those trying to get into the market for owner-occupied housing. Our paper shows that at least in simple settings, a tax on real capital gains on housing will only lead to even bigger price swings and will not be able to redistribute between people appearing on either side of the housing market. Keywords: capital gains tax, housing market, price fluctuations JEL-Classification: H23, H24, R 31. Addresses