Change-over within little scope: On the decision neutrality of recent tax reform proposals

Political economy aspects make progressive income taxation and taxation of capital income imperative in practise. International tax competition and profit shifting, in turn, put pressure on corporate and capital taxes. Hence, the scope for a politically feasible change-over to a status of improved taxation is little. We provide an extended dynamic general equilibrium model and analyze politically feasible recent reform proposals referring neutrality. We then propose an alternative tax reform that, in contrast to these proposals, guarantees even growth neutrality, without necessarily jeopardizing political feasibility.Dynamic general equilibrium models; taxation; tax reform; decision neutrality; ACE; dual income tax

Smoking and Social Interaction

We study the social interaction of non-smokers and smokers as a sequential game, incorporating insights from social psychology and experimental economics into an economic model. Social norms affect human behavior such that non-smokers do not ask smokers to stop smoking and stay with them, even though disutility from smoking exceeds utility from social interaction. Overall, smoking is unduly often accepted when accommodating smoking is the social norm. The introduction of smoking and non-smoking areas does not overcome this specific inefficiency. We conclude that smoking bans may represent a required (second-best) policy.smoking policy, social norms, guilt aversion, deviant behavior, social interaction

A General Microsimulation Model for the EU VAT with a specific Application to Germany

The sales taxes in the EU|and in several other countries|are practiced as value-added tax of the consumption type with invoice method. Literature on microsimula- tion models (MSM) for this type of VAT is rare, though the importance of VAT has continuously increased. We discuss the issues of VAT-MSM in detail and develop a basic general VAT-MSM, applicable to the EU member states (and beyond). To illustrate the functioning of the general model, we apply it in detail to the specific case of Germany. We provide comprehensive estimation results for the distributional and fiscal effects of the German VAT. Finally, we simulate the effects of a small VAT reform in 2010, comparing static and behavioral response simulations

Globalization, Economic Freedom and Human Rights

Using the KOF Index of Globalization and two indices of economic freedom, we empirically analyze whether globalization and economic liberalization affect governments’ respect for human rights using a panel of 106 countries over the 1981-2004 period. According to our results, physical integrity rights significantly and robustly increase with globalization and economic freedom, while empowerment rights are not robustly affected. Due to the lack of consensus about the appropriate level of empowerment rights as compared to the outright rejection of any violation of physical integrity rights, the global community is presumably less effective in promoting empowerment rights.human rights, globalization, economic freedom, liberalization

LAND REFORMS AND ECONOMIC DEVELOPMENT

We examine the nexus between land transfers and human capital formation. A sequence of land redistributions enables the beneficiaries to educate their children and thus to escape from poverty. A successful land reform allows the transition of a society from an agriculture-based state of poverty to a human capital-based developed economy. We find that a temporary state of inequality among the poor is unavoidable. Finally, we discuss the political economy of land reform, whether access to land markets should be allowed for beneficiaries of land reforms, and property rights issue

The relative tax burden of medium-sized corporations in Germany

Statistical offices do not provide sufficiently disaggregated tax statistics for calculating the relative tax burden of SMEs. We estimate the respective average and median tax burden of small, medium-sized and big corporations in Germany for the period 1998 to 2007 using enterprises micro panel data by applying OLS and quantile regression techniques. We find that the average tax burden levied on profit over the ten years was about 24%, and thus lower than forward-looking techniques suggest. The majority of small corporations did bear a significantly lower burden than the residual bigger corporations. We also provide evidence that medium-sized corporations faced a significantly higher median tax burden than big corporation. This implies an inverse U-shaped trajectory of median tax burden with respect to size of enterprise. Presumably big corporations are internationally operating and hence have more opportunities to manipulate the tax base. Hence, medium-sized corporations seem to have been disadvantaged to big corporations within the German corporation tax. Finally, the size of tax relief provided by the “Tax Reform 2000” was correlated positively with size of enterprise. This size-dependent tax burden identifies a so far neglected type of tax distortion. Future tax reforms hence also have to address size neutrality.Steuerlastmessung; KMU; Steuerreform; Umsatzneutralität

Das Übergangsmodell der Einfachsteuer: Eine Effiziente Unternehmensbesteuerung?

We investigate the neutrality features of an ACE tax reform proposal suggested for the company tax reform in Germany. As a pure ACE tax system is not feasible in practice, certain elements have been changed in the proposal: the traditional income tax of non-corporations remains progressive; there is a flat tax rate for corporations, but there is also a tax levied on distributed profits. Similar to S-corporations in the USA, both non-corporations and corporations (if feasible) have the option to be either taxed at the personal level of the owners within the income tax or at the company level within the profit tax (so far corporate tax). In both cases, the companies have a claim on a operating expenditure for equity cost (ACE). To analyze the proposal we extend the neoclassical model by allowing for financial assets of companies. The proposal causes that investors distinguish two rates of discounting. Therefore, as we want to determine the optimal level of investment endogenously, we cannot maximize the market value of the company. The problem can be solved by maximizing the end value of the investments. We show that the proposed tax system guarantees financial, investment, legal form, and depreciation neutrality. Intertemporal or growth neutrality, however, is only generated financing investments by retaining profits

Das Übergangsmodell der Einfachsteuer: Eine Effiziente Unternehmensbesteuerung?

We investigate the neutrality features of an ACE tax reform proposal suggested for the company tax reform in Germany. As a pure ACE tax system is not feasible in practice, certain elements have been changed in the proposal: the traditional income tax of non-corporations remains progressive; there is a flat tax rate for corporations, but there is also a tax levied on distributed profits. Similar to S-corporations in the USA, both non-corporations and corporations (if feasible) have the option to be either taxed at the personal level of the owners within the income tax or at the company level within the profit tax (so far corporate tax). In both cases, the companies have a claim on a operating expenditure for equity cost (ACE). To analyze the proposal we extend the neoclassical model by allowing for financial assets of companies. The proposal causes that investors distinguish two rates of discounting. Therefore, as we want to determine the optimal level of investment endogenously, we cannot maximize the market value of the company. The problem can be solved by maximizing the end value of the investments. We show that the proposed tax system guarantees financial, investment, legal form, and depreciation neutrality. Intertemporal or growth neutrality, however, is only generated financing investments by retaining profits

Die relative Steuerlast mittelständischer Kapitalgesellschaften

Statistical offices do not provide sufficiently disaggregated tax statistics for calculating the relative tax burden of SMEs. We estimate the respective average and median tax burden of small, medium-sized and big corporations in Germany for the period 1998 to 2007 using enterprises micro panel data by applying OLS and quantile regression techniques. We find that the average tax burden levied on profit over the ten years was about 24%, and thus lower than forward-looking techniques suggest. The majority of small corporations did bear a significantly lower burden than the residual bigger corporations. We also provide evidence that medium-sized corporations faced a significantly higher median tax burden than big corporation. This implies an inverse U-shaped trajectory of median tax burden with respect to size of enterprise. Presumably big corporations are internationally operating and hence have more opportunities to manipulate the tax base. Hence, medium-sized corporations seem to have been disadvantaged to big corporations within the German corporation tax. Finally, the size of tax relief provided by the “Tax Reform 2000” was correlated positively with size of enterprise. This size-dependent tax burden identifies a so far neglected type of tax distortion. Future tax reforms hence also have to address size neutrality

Die relative Steuerlast mittelständischer Kapitalgesellschaften

Statistical offices do not provide sufficiently disaggregated tax statistics for calculating the relative tax burden of SMEs. We estimate the respective average and median tax burden of small, medium-sized and big corporations in Germany for the period 1998 to 2007 using enterprises micro panel data by applying OLS and quantile regression techniques. We find that the average tax burden levied on profit over the ten years was about 24%, and thus lower than forward-looking techniques suggest. The majority of small corporations did bear a significantly lower burden than the residual bigger corporations. We also provide evidence that medium-sized corporations faced a significantly higher median tax burden than big corporation. This implies an inverse U-shaped trajectory of median tax burden with respect to size of enterprise. Presumably big corporations are internationally operating and hence have more opportunities to manipulate the tax base. Hence, medium-sized corporations seem to have been disadvantaged to big corporations within the German corporation tax. Finally, the size of tax relief provided by the “Tax Reform 2000” was correlated positively with size of enterprise. This size-dependent tax burden identifies a so far neglected type of tax distortion. Future tax reforms hence also have to address size neutrality