The remedy may be worse than the disease; a critical account of The Code of Conduct

The Code of Conduct for business taxation may, diametrically opposed to its intention, aggravate tax competition between EU Member States. The reason is that it induces, by restricting harmful tax practices, cuts in generic tax rates that may reduce tax revenue even further. If one presupposes a benevolent utility maximising government, then this worsens the underprovision of public goods. We show within a standard tax competition framework that this scenario is more likely to unfold with a higher upper bound for nondistortionary taxes, a higher responsiveness of mobile capital to tax rate differentials, and a smaller endowment of internationally mobile capital.

Agglomeration economies in the Netherlands

In this paper we measure the strength of agglomeration economies on the basis of Dutch regional data. The drift to the city has been going on for hundreds of years. As a result, most economic activity is concentrated in small geographical areas. The advantages of proximity of people and firms go under the name 'agglomeration economies'. We regress regional labour productivity on a set of agglomeration indices, and find evidence for a productivity effect of concentration of production with a malus for industrial variety. Thus, the evidence supports Marschall-Arrow-Romer economies. The evidence does not support, however, Jacobs economies, nor variants of the Creative Class Hypothesis.

How mobile is capital within the European Union?

The key result of the tax competition literature is that governments set inefficiently low tax rates on income from internationally mobile production factors. Therefore, there is a case for coordination of EU capital income taxes, provided that capital is mobile within the EU. We measure how the international allocation of capital depends on taxation by examining the relation between FDI positions and effective corporate income tax rates. An EU country typically increases its FDI position in another EU country by approximately four percent if the latter decreases its effective corporate income tax rate by one percentage point relative to the EU mean. This conditionally support the recent efforts of the EU to coordinate capital income taxation. The benefits or costs of tax coordination ultimately depend, however, on whether one views the government as a social welfare maximising agent or tax revenue maximising leviathan.

Capital income taxation in Europe; trends and trade-offs

The EU capital market integrates. Portfolios become more international, cross border mergers are the order of the day, and never before has there been so much foreign direct investment. This links national tax systems. Residents pay foreign capital income tax, foreigners pay domestic capital income tax, and no member state can afford to overlook the danger of capital flight. What is the appropriate policy response? To do nothing? To coordinate tax systems at the European level? The data do not unequivocally support the tax-race-to-the-bottom hypothesis. On the one hand, member states decrease their statutory capital income tax rates. On the other, they broaden their capital income tax bases. Thus, fear for an economy-wide undertaxation of capital income -the main tenet of tax competition theory- is as yet ungrounded. Nevertheless, tax coordination may be beneficial. It resolves relative undertaxation of particular kinds of capital, forces convergence of capital income tax rates, and creates order in the costly European tax maze. Unfortunately, it simultaneously infringes upon the sovereignty of member states, and sidelines the disciplining force that tax competition exerts on government spending. This study assesses the most important proposals for capital income tax coordination against a background of the recent trends in capital income taxation and the trade offs between distinct policy objectives. It is a guide to the debate that is easy to read, yet firmly grounded in empirical evidence and economic theory.

Hoe wordt Nederland Miss Europe?

De Nederlandse welvaartsstaat is niet voldoende toegesneden op de toekomst. De vergrijzing jaagt de kosten van de oudedagsvoorziening en de zorg op, waardoor de spanning tussen jong en oud groeit. Tegelijkertijd dreigen economische integratie en technologische ontwikkeling de positie van laaggeschoolden op de arbeidsmarkt te verslechteren (Nahuis en De Groot, 2003). Verder is de verzorgingsstaat onvoldoende aangepast aan de toegenomen heterogeniteit in de samenleving en werken instituties langdurige inactiviteit in de hand. Er moet daarom verder worden hervormd in de Nederlandse verzorgingsstaat. Maar hoe

Cooperation in a modified version of the finitely repeated prisoners' dilemma game

In this paper we consider a series of finitely repeated prisoners' dilemma games in which the payoff the players receive in a period depends on how they have played the game in the past. We show that this modification of the finitely repeated prisoners' dilemma game makes cooperation a feasible equilibrium configuration in the beginning of play

Equal rules or equal opportunities? Demystifying level playing field

Pleas for a level playing field, for instance in international trade, are often not well-founded. This is because it is not exactly clear what a 'level playing field' means. But even if it would be clear what the plea would imply, a level playing field is not always desirable from an economic perspective. To clarify the meaning of 'a level playing field' we introduce two specifications of the concept. First, a rules-based level playing field, which means that all firms in a market are treated the same in equal circumstances with regard to legislation, taxes, subsidies etcetera. Second, an outcome-based level playing field, which means that all firms in a market have the same expected profit. This means that, in case firms are heterogeneous, the government compensates the disadvantaged firms (for instance with subsidies). The first conclusion in the report is that a rules-based level playing field is desirable, although there are reasons to deviate from this assumption. The second conclusion is that it is never desirable to pursue a fully outcome-based level playing field, but that it may be desirable to level the playing field to a certain extent in the case of market failure. In case of market failure it is preferable to use symmetric rules (equal for all firms), in stead of asymmetric rules (favouring some firms). The report introduces a framework with questions that can help policymakers analyse level playing field issues. The framework makes clear that in general one cannot tell�whether a plea for a 'level playing field' is justified or not. It is necessary to focus on the policy issues hidden behind the plea, i.e. policy issues concerning market failure, dynamic efficiency, redistribution of income and differences in preferences between countries.