International Corporate Tax Rate Comparisons and Policy Implications

[Excerpt] This report focuses on the global issues relating to tax rate differentials between the United States and other countries. It provides tax rate comparisons; discusses policy implications, including the effect of a corporate rate cut on revenue, output, and national welfare; and discusses the outlook for and consequences of a revenue neutral corporate tax reform

Markets for Government of Canada Securities in the 1990s: Liquidity and Cross-CountryComparisons

In this article, the author reviews the factors behind the recent evolution of liquidity in the market for Government of Canada (GoC) securities. He finds that liquidity has been supported by changes in the structure of the market, notably the introduction and increasing size of benchmark bond issues. He also notes that while the GoC bond market has generally benefited from changes in market structure, liquidity in the treasury bill market has decreased since the mid-1990s, largely because of the declining supply of these securities. This article also presents some comparisons of liquidity in the government securities markets of other industrialized countries and finds that liquidity in the Canadian market appears to compare favourably with all but the large U.S. Treasury market.

Bank of Canada Workshop on Derivatives Markets in Canada and Beyond

At this 2006 workshop hosted by the Bank of Canada, an international group of market participants, regulators, and policy-makers gathered to assess recent developments in the derivatives market. Among the topics discussed were the recent prodigious growth in risk-transfer instruments, including credit derivatives and inflation-linked derivatives, as well as the accompanying challenges and benefits. Overall, the development of derivatives markets was seen as providing broad economic benefits, including more complete financial markets, improved market liquidity, and increased capacity of the financial system to effectively price and bear risk. Yet concern was also voiced that market participants do not fully understand the risks that arise in trading credit derivatives.

Tax Havens: International Tax Avoidance and Evasion

Addressing tax evasion and avoidance through use of tax havens has been the subject of a number of proposals in Congress and by the President. Actions by the Organization for Economic Cooperation and Development (OECD) and the G-20 industrialized nations also have addressed this issue. In the 111th Congress, the HIRE Act (P.L. 111-147) included several anti-evasion provisions, and P.L. 111-226 included foreign tax credit provisions directed at perceived abuses by U.S. multinationals. Numerous legislative proposals to address both individual tax evasion and corporate tax avoidance have been advanced. Multinational firms can artificially shift profits from high-tax to low-tax jurisdictions using a variety of techniques, such as shifting debt to high-tax jurisdictions. Because tax on the income of foreign subsidiaries (except for certain passive income) is deferred until income is repatriated (paid to the U.S. parent as a dividend), this income can avoid current U.S. taxes, perhaps indefinitely. The taxation of passive income (called Subpart F income) has been reduced, perhaps significantly, through the use of hybrid entities that are treated differently in different jurisdictions. The use of hybrid entities was greatly expanded by a new regulation (termed check-the-box) introduced in the late 1990s that had unintended consequences for foreign firms. In addition, earnings from income that is taxed often can be shielded by foreign tax credits on other income. On average, very little tax is paid on the foreign source income of U.S. firms. Ample evidence of a significant amount of profit shifting exists, but the revenue cost estimates vary substantially. Evidence also indicates a significant increase in corporate profit shifting over the past several years. Recent estimates suggest losses that may approach, or even exceed, $100 billion per year. Individuals can evade taxes on passive income, such as interest, dividends, and capital gains, by not reporting income earned abroad. In addition, because interest paid to foreign recipients is not taxed, individuals can evade taxes on U.S. source income by setting up shell corporations and trusts in foreign haven countries to channel funds into foreign jurisdictions. There is no general third-party reporting of income as is the case for ordinary passive income earned domestically; the Internal Revenue Service (IRS) relies on qualified intermediaries (QIs). In the past, these institutions certified nationality without revealing the beneficial owners. Estimates of the cost of individual evasion have ranged from$40 billion to $70 billion. The Foreign Account Tax Compliance Act (FATCA; included in the HIRE Act, P.L. 111-147) introduced required information reporting by foreign financial intermediaries and withholding of tax if information is not provided. These provisions became effective only recently, and their consequences are not yet known. Most provisions to address profit shifting by multinational firms would involve changing the tax law: repealing or limiting deferral, limiting the ability of the foreign tax credit to offset income, addressing check-the-box, or even formula apportionment. President Obama’s proposals include a proposal to disallow overall deductions and foreign tax credits for deferred income, along with a number of other restrictions. Changes in the law or anti-abuse provisions have also been introduced in broader tax reform proposals. Provisions to address individual evasion include increased information reporting and provisions to increase enforcement, such as shifting the burden of proof to the taxpayer, increased penalties, and increased resources. Individual tax evasion is the main target of the HIRE Act, the proposed Stop Tax Haven Abuse Act, and some other proposals

Measuring income related inequality in health and health care: the partial concentration index with direct and indirect standardisation.

The partial concentration index measures income related inequality in health (or health care) after removing the effects of standardising variables which affect health (or health care), are correlated with income but not amenable to policy. When the marginal effects of income are independent of the standardising variables, direct standardisation yields consistent estimates of the partial concentration index. Indirect standardisation underestimates the partial concentration index whenever the standardising variables are correlated with income, irrespective of the signs of the correlation of standardising variables and income with each other and with health. A generalised version of the partial concentration index is proposed for cases where the marginal effect of income depends on the standardising variables. Direct standardisation again yields a consistent estimate but indirect standardisation does not. It is also shown that the direct standardisation procedure can be applied to individual or grouped data and that the conclusions about the merits of direct and indirect standardisation hold for grouped data.Concentration index, inequality, direct standardisation.

The practice of discounting in economic evaluations of healthcare interventions

Objectives: Discounting of costs in health-related economic evaluation is generally regarded as uncontroversial, but there is disagreement about discounting health benefits. We sought to explore the current recommendations and practice in health economic evaluations with regard to discounting of costs and benefits. Methods: Recommendations for best practice on discounting for health effects as set out by government agencies, regulatory bodies, learned journals, and leading health economics texts were surveyed. A review of a sample of primary literature on health economic evaluations was undertaken to ascertain the actual current practice on discounting health effects and costs. Results: All of the official sources recommended a positive discount rate for both health effects and costs, and most recommended a specific rate (range, 1% to 8%). The most frequently specified rates were 3% and 5%. A total of 147 studies were reviewed; most of these used a discount rate for health of either 0% (n = 50) or 5% (n = 67). Over 90% of studies used the same discount rate for both health and cost. While 28% used a zero rate for both health and cost, in 64% a nonzero rate was used for both. Studies where the health measure was in natural clinical units (direct) were significantly more likely to have a zero discount rate. Conclusion: The finding that 28% of studies did not discount costs or benefits is surprising and concerning. A lower likelihood of discounting for benefits when they are in natural units may indicate confusion regarding the rationale for discounting health effects

Income related inequalities in self assessed health in Britain: 1979-1995

Study objective: To measure and decompose income related inequalities in self assessed health in England, Scotland, and Wales, 1979-1995. Design: The relation between individual health and a non-linear transformation of equivalised income, allowing for sex, age, country, and year effects, was estimated by multiple regression. The share of health attributable to transformed income and the Gini coefficient for transformed income were calculated. Inequality in health was measured by the partial concentration index, which is the product of the. Gini coefficient and the share of health attributable to transformed income. Participants and setting: Representative annual samples of the adult population living in private households in Great Britain 1979-1995. The total analysed sample was 299 968 people. Main results: Pro-rich health inequality was largest in Wales and smallest in England over the period because the effect of increased income on health was greatest in Wales and least in England. In all three countries, pro-rich health inequality increased throughout the period. In the early 1980s this was primarily attributable to increases in income inequality. Thereafter the increased share of health attributable to income was the principal cause. Conclusions: Reductions in pro-rich health inequality can be achieved by reducing income inequality, reducing the effect of income on health, or both

Measuring the Circle: Emerging Trends in Philanthropy for First Nations

The Circle had the opportunity to undertake a multi-part research project to gain a more robust understanding of non-governmental funding to Aboriginal beneficiaries and causes in Canada over the past few years. The year-long knowledge gathering process included three inter-related activities: (a) mining Canada Revenue Agency data to map the Aboriginal funding economy in Canada from 2005 to 2011; (b) a set of Key Informant interviews with representatives from a sample of grantmakers surfaced through the mapping activity; and (c) a series of case studies to showcase some leading funders in the Aboriginal funding sphere or initiatives dedicated to building community capacity as well as supporting Aboriginal beneficiaries and causes. This report contains the key findings from the three-part research initiative

The Market Impact of Forward-Looking Policy Statements: Transparency vs. Predictability

Central banks continuously strive to improve how they communicate to financial markets and the public in order to increase transparency. For this reason, many central banks have begun to include guidance on the policy rate in the form of forward-looking statements in their communications. This article examines the debate over the usefulness of providing such statements from both theoretical and empirical standpoints. The evidence presented here suggests that the use of forward-looking statements in Bank of Canada communications has made the Bank more predictable, but not necessarily more transparent.