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

Siemers, Lars-H. R. and Zöller, Daniel (2011): Change-over within little scope: On the decision neutrality of recent tax reform proposals.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Dynamic general equilibrium models; taxation; tax reform; decision neutrality; ACE; dual income tax
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models

References

Alesina, Alberto and Dani Rodrik, Distributive Politics and Economic Growth, Quarterly Journal of Economics, February 1994, 109 (1), 465-490.

Atkinson, A. B. and J. E. Stiglitz, The Design of Tax Structure: Direct versus Indirect Taxation, Journal of Public Economics, 1976, 6 (1-2), 55-75.

Auerbach, Alan J. and David F. Bradford, Generalized Cash-Flow Taxation, Journal of Public Economics, 2004, 88, 957-980.

Becker, Johannes and Clemens Fuest, Optimal Tax Policy When Firms Are Internationally Mobile, Working Paper 09/07, Oxford University Centre For Business Taxation, June 2009.

Boadway, Robin and Neil Bruce, A General Proposition on the Design of a Neutral Business Tax, Journal of Public Economics, 1984, 24 (2), 231-239.

Bond, Stephen R. and Michael P. Devereux, On the design of a neutral business tax under uncertainty, Journal of Public Economics, 1995, 58 (1), 57-71.

Chamley, Christophe, Optimal taxation of Capital Income in General Equilibrium with Infinite Lives, Econometrica, 1986, 54 (3), 607-622.

Cnossen, S., Taxing Capital Income in the Nordic Countries: A Model for the European Union?, in S. Cnossen, ed., Taxing Capital Income in the European Union - Issues and Options for Reform, Oxford: Oxford University Press, 2000.

Devereux, Michael P. and Peter Birch Soerensen, The Corporate Income Tax: International Trends and Options for Fundamental Reform, EPRU Analyse 2005/24, Economic Policy Research Unit (EPRU), Department of Economics, University of Copenhagen , October 2005.

Devereux, Michael P., Rachel Griffith, and Alexander Klemm, Corporate Income Tax Reforms and International Tax Competition, Economic Policy, 2002, 35, 449-495.

Diamond, P. and J. Mirrlees, Optimal Taxation and Public Production 1: Production Efficiency and 2: Tax Rules, The American Economic Review, 1971, 61 (1 and 3), 8-27 and 261-278.

Fisher, Irving, The Theory of Interest - As Determined by Impatience to Spend Income and Opportunity to Invest it, MacMillan, New York, 1930.

Gerard, Marcel, Belgium moves to Dual Allowance for Corporate Equity, European Taxation, 2006, 4, 156-162.

German Council of Economic Experts, Reform der Einkommens- und Unternehmensbesteuerung durch die Duale Einkommensteuer, Sachverständigenrat, Wiesbaden, 2006.

Hadley, George and Murray C. Kemp, Variational Methods in Economics, 2nd ed., North-Holland, Amsterdam, London, 1973.

Hall, Robert E. and Alvin Rabushka, The Flat Tax, 2nd ed., Hoover Institution Press, Stanford, 1995.

Haufler, Andreas, Taxation in a Global Economy, Cambridge, U.K.: Cambridge University Press, 2001.

Haufler, Andreas and Guttorm Schjelderup, Corporate Tax Systems and Cross Country Profit Shifting, Oxford Economic Papers, April 2000, 52 (2), 306-325.

Heidelberger Steuerkreis and RWI Essen, Zinsbereinigte Gewinnsteuer - Ein Vorschlag zur Reform der Unternehmensbesteuerung in Deutschland, Essen, Heidelberg, 2006.

Hines, James R. Jr. and Eric M. Rice, Fiscal Paradise: Foreign Tax Havens and American Business, Quarterly Journal of Economics, February 1994, 109 (1), 149-182.

Institute for Fiscal Studies, Equity for Companies: A Corporation Tax for the 1990s, Institute for Fiscal Studies, London, 1991.

Johansson, Sven-E., Income Taxes and Investment Decisions, The Swedish Journal of Economics, 1969, 71, 104-110.

Judd, Kenneth L., Redistributive Taxation in a Simple Perfect Foresight Model, Journal of Public Economics, 1985, 28, 59-83.

Keen, Michael and John King, The Croatian Profit Tax: An ACE in Practice, in Manfred Rose, ed., Integriertes Steuer- und Sozialsystem, Heidelberg: Physica-Verlag, 2003, pp. 323-342.

Keuschnigg, Christian, Eine Unternehmenssteuerreform für mehr Wachstum in der Schweiz, Avenir Suisse, Zurich, 2004.

Keuschnigg, Christian and Martin D. Dietz, A Growth Oriented Dual Income Tax, International Tax and Public Finance, April 2007, 14 (2), 191-221.

Klemm, Alexander, Allowances for Corporate Equity in Practice, CESifo Economic Studies, 2007, 53 (2), 229-262.

McGuire, Therese J., Interstate Differentials, Tax Competition, and Tax Policy, National Tax Journal, September 1986, 39 (3), 375-384.

McLure, Charles, Tax Competition: Is What's Good for the Private Goose Also Good for the Public Gander, National Tax Journal, September 1986, 39 (3), 341-348.

Modigliani, Franco and Merton Miller, The Cost of Capital, Corporation Finance and the Theory of Investment, The American Economic Review, June 1958, 48 (3), 261-297.

Nielsen, S. B. and P. B. Srensen, On the Optimality of the Nordic System of Dual Income Taxation, Journal of Public Economics, February 1997, 63 (3), 311-329.

Persson, Torsten and Guido Tabellini, Is Inequality Harmful for Growth?, The American Economic Review, June 1994, 84 (3), 600-621.

Rose, Manfred, Die Einfachsteuer: Das Gesetz, in Manfred Rose, ed., Reform der Einkommensbesteuerung in Deutschland, Verlag Recht und Wirtschaft, Heidelberg, 2002.

Rose, Manfred, The `Simple Tax': A Fair, Decision-neutral and Simple System of Taxing Income, in Friedrich von Hayek Institute, ed., Austrian Economics Today II: Reforms for a Competitive Economy, Wien 2005, pp. 143-164.

Rose, Manfred and Rolf Wiswesser, Tax Reform in Transition Economies: Experiences from the Croatian Tax Reform Process of the 1990s, in Peter Birch Soerensen, ed., Public Finance in a Changing World, Palgrave MacMillan 1998, pp. 257-278.

Samuelson, Paul A., Tax Deductibility of Economic Depreciation to Insure Invariant Valuations, Journal of Political Economy, 1964, 72, 604-606.

Siemers, Lars-H. and Daniel Zöller, Das Übergangsmodell zur Heidelberger Einfachsteuer: Eine effiziente Unternehmensbesteuerung?, MPRA Paper 757, Ludwig- Maximilians-Universität München, 2006.

Sinn, Hans-Werner, Capital Income Taxation and Resource Allocation, Vol. 35 of Studies in Mathematical and Managerial Economics, Amsterdam et al.: Elsevier, North- Holland, 1987.

Sinn, Hans-Werner, The Policy of Tax-Cut-cum-Base-Broadening: Implications for International Capital Movements, in M. Neumann and K. Roskamps, eds., Public Finance and Performance of Enterprises, Wayne State University Press, Detroit, 1989, pp. 153-176.

Sinn, Hans-Werner, Tax Harmonization and Tax Competition in Europe, European Economic Review, 1990, 34 (2-3), 489-504.

Sinn, Hans-Werner, The Vanishing Harberger Triangle, Journal of Public Economics, 1991, 45 (3), 271-300.

Sinn, Hans-Werner, Ist Deutschland noch zu retten?, Berlin: Econ Verlag, 2003.

Soerensen, Peter B., From the Global Income Tax to the Dual Income Tax - Recent tax reforms in the Nordic countries, International Tax and Public Finance, February 1994, 1 (1), 57-79.

Soerensen, Peter B., Neutral Taxation of Shareholder Income, International Tax and Public Finance, November 2005, 12 (6), 777-801.

Soerensen, Peter B., Can Capital Income Taxes Survive? And Should They?, CESifo Economic Studies, 2007, 53 (2), 172-228.

Spengel, C. and W. Wiegard, Dual Income Tax: A Pragmatic Reform Alternative for Germany, CESifo DICE Report, 2004, 2 (3), 15-22.

Stiglitz, Joseph E., Taxation, Corporate Financial Policy and the Cost of Capital, Journal of Public Economics, 1973, 2 (1), 1-34.

Varian, Hal R., Redistrubutive Taxation as Social Insurance, Journal of Public Economics, August 1980, 14 (1), 49-68.

Weichenrieder, Alfons J., (Why) Do we need Corporate Taxation?, CESifo Working Paper No. 1495, 2005.

Wenger, Ekkehard, Gleichmäßigkeit der Besteuerung von Arbeits- und Vermögenseinkünften," Finanzarchiv, 1983, 41, 207-252.

Wildasin, David E., Interstate Tax Competition: A Comment, National Tax Journal, September 1986, 39 (3), 353-356.