Åsa Hansson

The Wealth Tax and Entrepreneurial Activity

Entrepreneurship is often credited with generating important positive economic externalities, such as promoting innovation, discovering new markets and serving as a mechanism for knowledge spill-over. Governments increasingly view encouragement of entrepreneurship as an important policy objective. Economists have found taxation as an important determinant of entrepreneurship, particularly income tax and capital gains tax. One form of taxation that has not been considered so far is the wealth tax. The wealth tax is likely to influence entrepreneurship negatively by affecting the pool of capital available for start-up businesses as well as reducing the net return to successful entrepreneurs. This article illustrates the impact of wealth tax on entrepreneurship using a simple model of the choice between becoming an entrepreneur or an employee. Actual data are then used to investigate whether the wealth tax indeed has a measurable effect on self-employment in Organisation for Economic Cooperation and Development (OECD) countries. A differences-in-differences type estimator using the abolition of the wealth tax as a ‘natural experi-ment’ points to a consistent pattern of perceptible, but small impact.

Integration and the Structure of Public Spending

The voluminous tax competition literature suggests that increased economic integration leads to reduced tax rates and suboptimal levels of government spending as countries compete for mobile factors of production. Integration may influence not only the size of the government but also the structure of public spending. Comprehensive studies analyzing the effect of integration on the overall structure of government spending are rare, however. This article fills this void by providing an empirical analysis of the effects of economic integration on the overall structure of public spending in a number of Organisation for Economic Co-operation and Development countries using panel data on the different government spending components for the period 1970 to 2002. The authors find that integration negatively influences government consumption and investment but that there is no empirical evidence that transfers are positively or negatively affected by integration, as suggested by the compensation and efficiency views, respectively.

FDI, taxes and agglomeration economies in the EU15

This article provides an empirical analysis of the impact of tax differentials and agglomeration economies on Foreign Direct Investment (FDI). The article departs from most previous work on FDI and tax competition in a number of ways. First, it incorporates several measures of agglomeration in order to investigate whether agglomeration economies mitigate the downward spiral in tax rates. As the strength of agglomeration economies may vary with the degree of integration, we use a panel of bilateral FDI flows for a highly integrated region including countries with similar economic structure – the EU15 – from 1986 to 2004. Second, the empirical analysis explicitly deals with the problem of selection bias by using the Heckman sample selection approach. Also, by focusing on the EU15, we are able to provide additional information on the determinants of FDI between similar, higher-income countries. The empirical analysis provides some evidence of corporate marginal effective tax rates having an impact on FDI. This result, however, is sensitive to the inclusion of agglomeration economies. In particular, we find both Marshall types of technological externalities and overall concentration of economic activity to have an influence on FDI flows and, moreover, mitigating the negative impact of taxes.

Peaking of Fiscal Sizes of Government

Abstract Transfers, spending, and tax revenue peaked as percentages of the gross national product (GNP) in most OECD countries during 1972–1992. The evidence suggests that a number of countries pushed transfers close to or perhaps beyond sustainable limits imposed by the Laffer curve. Namely: (i) stylized calculations of Laffer limits suggest peak fiscal sizes in the range of observed peaks in the countries with the greatest peak sizes; and (ii) the countries with the greatest peak sizes had the greatest declines in fiscal sizes from peaks until 1992.

In This World Nothing Is Certain but Death and Taxes: Financing the Elderly

This chapter discusses possible ways to finance the increased demand for resources from the elderly through the tax system. Maintaining the benefits at today’s level will require either increased tax burden on those working or an expanded tax base. As a country with one on the world’s highest tax burdens, Sweden has little or no room to raise additional tax revenues through increased tax rates without causing substantial welfare costs. There is, however, some room to raise additional tax revenues by increasing the number of hours worked in the economy. This will likely not be enough however and alternative ways need to be sought and found in order to finance the increased demand from the elderly.

Free Factor Mobility and Fiscal Competition: Can the National Welfare State Survive in a "United Europe"?

Even if there is no empirical evidence that integration has lead to shrinking welfare states, thus far, there can be little doubt that increased factor mobility not only within the European Union but globally will impose an increasing challenge to generous welfare states that redistribute from richer to poorer and from younger to older in the future. In order to guarantee an acceptable living standard for society’s most vulnerable, coordination of tax and transfer policies will become increasingly necessary. This will be a great challenge as the benefits and costs of coordination are unevenly distributed across the member states and, even if coordination is politically successful, the economic gains from regional coordination may still be limited because of global competition. 3.

Do Swedish Multinationals Pay Less in Taxes than Domestic Firms

In recent years, there has been growing concern that multinational enterprises (MNEs) engage in strategic tax planning in order to shift profits to low-tax jurisdictions. This common perception is generally confirmed by empirical evidence, which is foremost provided for countries with high corporate taxes and relatively complex tax systems. We investigate whether multinational firms in a country with a comparatively more competitive tax system undertake profit shifting. We do this by using detailed census data from corporate income statements and balance sheets filed by Swedish manufacturing firms between 1997 and 2007. Many previous studies have used tax-rate differences to identify profit shifting. These studies, however, run the risk of overestimating the amount of tax shifting as this method entangles tax-planning activities with the effect a lower corporate tax rate has on resulting profits. We avoid this by comparing MNEs with domestic firms unable to benefit from other tax jurisdictions. In particular, we identify systematic differences in tax payments, earnings (before interest and taxes), and equity ratios between multinational and comparable domestic firms based on propensity score matching. In addition, we examine the tax behavioral impact of acquiring multinational status using difference-in-differences estimations and/or propensity-score matching. Our results reveal that the extent to which multinational firms’ have lower tax payments than their domestic counterparts depends on their production characteristics and foreign market outreach. In particular, we find evidence indicating that firms operating in few foreign markets and firms that become multinational engage in profit shifting from Sweden. (Less)