Rising health spending, new medical technology and the Baumol effect

This paper estimates the Baumol effect in health spending, using a panel data set of OECD countries. Health expenditure as a share of GDP rises in most OECD countries. One of the possible causes is the so-called Baumol effect, which may arise if labour productivity in health care grows more slowly than in the overall economy. If in addition demand for health care is inelastic, then the share of health spending in GDP will rise over time. We do indeed find that one percentage growth in economy-wide labour productivity is associated with about 0.5 percent growth in real health spending. This implies that economy-wide productivity growth leads to higher real health spending.

An iterative procedure to obtain inverse response functions for thick-target correction of measured charged-particle spectra

A new method for correcting charged-particle spectra for thick target effects is described. Starting with a trial function, inverse response functions are found by an iterative procedure. The variances corresponding to the measured spectrum are treated similiarly and in parallel. Oscillations of the solution are avoided by rebinning the data to finer bins during a correction iteration and back to the original or wider binning after each iteration. This thick-target correction method has been used for data obtained with the MEDLEY facility at the The Svedberg Laboratory, Uppsala, Sweden, and is here presented in detail and demonstrated for two test cases.Comment: 14 pages, 8 figures, submitted to NIM

Switch on the competition; causes, consequences and policy implications of consumer switching costs

The success or failure of reforms aimed at liberalising markets depends to an important degree on consumer behaviour. If consumers do not base their choices on differences in prices and quality, competition between firms may be weak and the benefits of liberalisation to consumers may be small. One possible reason why consumers may respond only weakly to differences in price and quality is high costs of switching to another firm. This report presents a framework for analysing markets with switching costs and applies the framework in two empirical case studies. The first case study analyses the residential energy market, the second focuses on the market for social health insurance. In both markets, there are indications that switching costs are substantial. The report discusses policy options for reducing switching costs and for alleviating the consequences of switching costs.

Tax Exempt Property and the Cities: Striking a Balance

All states grant a property tax exemption to certain non-profit organizations. Tax-exempt property further erodes many cities’ tax bases. Connecticut has recently adopted legislation in an attempt to solve this problem. This legislation, proposed by Professor Richard D. Pomp, provides municipalities with state subsidies for property taxes lost due to tax-exempt hospitals and colleges. This article is the reprinted testimony of Professor Pomp before the Connecticut State Finance Committee. Professor Pomp outlines the proliferation of tax-exempt property in Connecticut, which contributes to forgone revenue for major cities. Tax-exempt property not only results in diminished tax revenue, but also imposes additional costs on cities. Professor Pomp further explains that tax-exempt organizations provide no greater net economic impact than businesses that pay the property tax. Professor Pomp analyzes three relevant questions that must be asked when considering alternatives to the current system. He concludes by proposing seven alternative options: (1) municipal permission before any taxable property can be purchased by a tax-exempt organization, (2) phase in the exemption whenever taxable property is bought by a tax-exempt organization, (3) phase out the exemption after a certain period, (4) limit the number of acres qualifying for the exemption, (5) set a dollar limit on the amount of property that can be exempt, (6) impose a user charge, or (7) state payments to jurisdictions containing tax-exempt property in excess of the state average

Myth vs. Reality: Airbnb and Its Voluntary Tax Collection Efforts

In this report, Professor Pomp debunks the claims presented in several reports commissioned by the American Hotel and Lodging Association (Hotel Association). Despite hotel profits reaching all time highs, the Hotel Association has continued to attack Airbnb. Part I serves as an introduction to Airbnb and its solution to an administrative challenge confronted by tax jurisdictions. Airbnb operates a platform that links guests looking for short-term rental opportunities with hosts offering such services. There are potentially millions of hosts who are unaware that they are subject to municipal taxes on short-term rentals. Municipalities lack the resources required to track down all these hosts. Airbnb has entered into more than 200 voluntary collection agreements (VCAs) with municipalities to collect taxes on behalf of these hosts. Part II details the Hotel Association’s attacks on Airbnb’s VCAs. In 2017, a report commissioned by the Hotel Association accused Airbnb of undermining tax fairness, transparency, and the rule of law. The Hotel Association repeated many of these claims in a 2018 press release: “Tax Day: Hoteliers Call for More Transparency and Oversight in Taxing Airbnb.” In 2019, it presented another press release emphasizing a new, and equally misleading, report by the author of the 2017 report. Part III attacks the falsehoods promoted by the 2017 report and 2018 press release. Tax jurisdictions face a sizable administrative dilemma: millions of hosts, untrained in tax accounting and law, are potentially unaware of the tax consequences of short-term renting. Furthermore, the hosts are likely not prepared to confront tax liability on profits they have already spent. Airbnb has helped to ameliorate this problem by entering into VCAs with municipalities. Contrary to the Hotel Association’s claims, Airbnb supports taxes on short-term rentals. And it is untrue that Airbnb does not pay its fair share of taxes; the VCAs cover municipal hotel taxes that Airbnb does not owe. These VCAs are groundbreaking, not “atypical;” there is not anything relevant to compare them to. Despite the Hotel Association’s assertions, the content of the VCAs is publicly available. Many jurisdictions have openly announced when they have entered into these agreements, and municipalities provide information regarding their VCAs to those interested. Airbnb also has a web page that lists the states and municipalities in which it collects and remits taxes. Although the Hotel Association suggests that public officials have been duped into entering these agreements, the article provides numerous quotes from public officials praising Airbnb for its tax collection efforts. The 2017 report misleads by comparing VCAs to Voluntary Disclosure Agreements (VDAs). VDAs are fundamentally different from VCAs. They allow a business the opportunity to pay some of its owed taxes from prior years, and in return a municipality will ignore penalties and forgive a portion of the taxes owed. In contrast, the VCAs cover taxes owed by the hosts, not taxes owed by Airbnb. Airbnb is not a hotel, thus it is not liable for those taxes. The Hotel Association’s comparison is misleading: VCAs are not a mechanism for Airbnb to pay back taxes (it owes none). Rather, VCAs guarantee the payment of future taxes by hosts to municipalities. The claim that Airbnb has secured tax amnesty through these VCAs is fueled by the false assumption that Airbnb owed taxes to begin with. Airbnb does not disclose the names and addresses of hosts. Airbnb has a legitimate interest in protecting the privacy and security of the hosts. And this information is not relevant to the collection of taxes, so the Hotel Association’s suggestion that the lack of disclosure could lead to something resembling the Volkswagen Dieselgate scandal is pure paranoia. Part IV addresses the myths emphasized by the 2019 report and press release. The report argues that Wayfair renders Airbnb liable under lodging and sales taxes. The outcome of Wayfair is irrelevant; Airbnb has not made arguments premised on its physical presence relative to the states. Rather, it has argued that those taxes never applied to Airbnb in the first place. Platform statutes, passed in response to Wayfair, do not eliminate the need for VCAs. VCAs fill the gaps between platform legislation and the collection of hotel taxes. Furthermore, the landscape of platform legislation is chaotic. Municipalities benefit from VCAs while the scope of platform statutes is gradually teased out through litigation and legislative change. And contrary to the report’s suggestions, Airbnb already files returns as required under the IRC. Part V, in reaction to the Hotel Association’s distorted picture of Airbnb, emphasizes some of Airbnb’s innovations outside the realm of tax collection. Airbnb uses a scoring system which utilizes artificial intelligence and predictive analytics to flag suspicious activity. All hosts are screened against watch lists, and U.S. residents are submitted to background checks. Airbnb has a Trust and Safety team, composed of a diverse selection of experts, including response agents who are on call 24/7. Airbnb offers the hosts insurance, safety workshops, and free smoke and carbon monoxide detectors. Part VI concludes by reaffirming that the VCAs cover taxes owed by the hosts, not taxes owed by Airbnb. Thus, the Hotel Association’s claim that Airbnb does not pay its fair share of taxes is vacuous. The appendix contains more statements from public officials praising Airbnb for its innovative VCAs

The United States Interest Equalization Tax

The United States Interest Equalization tax is a one-time tax levied on certain foreign securities, proposed by President Kennedy in order to reduce the balance-of-payments deficit by restricting portfolio investment. Although the tax was enacted in 1964 as a short-term measure, it was continually extended and amended. This article explores the contours of the tax. Prior to the tax, many foreign debt issues were attracting large amounts of capital due to their high interest rates. The IET attempts to equalize the yield of foreign debt issues with domestic debt issues by imposing a tax on the foreign issues and thus diminish the attractiveness of the foreign issues. The IET’s success in reducing foreign investment resulted in six extensions of the tax and it is now set to expire on July 1, 1974. Current international monetary condition may necessitate yet another extension of the tax. The IET functions by levying a tax on the acquisition by a United States person of a foreign issuer or foreign obligor based on the actual value of the security acquired. The tax rate on stock acquisitions is 11.25% of the stock’s actual value, while the rate on debt obligations is a function of the period remaining until maturity and is intended to equal the present value of the difference between European interest rates and the United States interest rate. The term “acquisition” includes any purchase, transfer, distribution, exchange, or any other transaction by virtue of which ownership is obtained. The IET also specifies that certain transactions, even though outside the definition of acquisition, will be considered taxable under the IET. This Article explores the rates on debt obligations, the various exemptions from the tax that exist where United States balance-of-payments is not adversely affected, as well as the elective provisions that the IET legislation contains to allow United States persons to be treated as a foreign issuer or obligor