Giampaolo Arachi

The Effect of Taxes on Corporate Financing Decisions: Evidence from a Panel of Italian Firms

This paper provides additional evidence on the relationship between corporate taxes and debt using panel data on Italian companies. The panel covers 1054 companies for the years 1982–1994.The paper follows the Graham-Shevlin methodology for calculating company specific marginal tax rates (MTR) relying on the non-linearity of corporate tax schedules resulting from company losses and the ensuing tax provisions (carry-forward and backward rules). In the period covered by the panel there were in Italy two taxes on corporate income (IRPEG and ILOR), with different loss carry-forward rules, whose statutory tax rates and tax bases changed several times. For these reasons the simulated MTRs display both cross-sectional and time-series variation.The paper tests whether taxes encourage the use of debt by analysing incremental financing decisions. In order to cope with the endogeneity of the MTR the paper considers two different specifications. The first uses the lagged value of the simulated MTR. The second employs the estimate of before-financing MTR proposed by Graham et al. (1998). Significant cross-sectional tax effects are identified under both specifications whereas time-series variation cannot be identified if due account is taken of firm-fixed tax effects.The paper also investigates whether personal taxes affect corporate financing decisions. The MTR may either overstate or understate the fiscal benefit of debt financing according to whether, at the personal level, interest income is taxed at a rate that is higher or lower than the tax rate on returns from common stocks. Differences in the dividend-payout ratio across companies and several reforms in interest, dividend and capital gains taxation provide sufficient cross-section and time-series variations to identify the effect of personal taxes on debt usage.

Designing Intergovernmental Fiscal Relations: Some Insights from the Recent Italian Reform

During the last decade, the Italian system of intergovernmental fiscal relations has been involved in a radical process of reform that is still under way. The reform has assigned Regions new taxing powers and has introduced a new system of interregional transfers. This paper provides a review of the recent reform and offers some tentative answers to the issues still open, relying on a series of simulations and projections. A number of conclusions have been reached. First, when the long-run performance of the new financing systems is investigated, regional resources may no longer be adequate to meet future health needs. Second, the incentives for active tax policies seem either to prove too weak or even to cause undesirable results. Finally, the complete devolution to the Regions of some significant public expenditure functions risks strengthening the polarisation of financial flows between the Northern and Southern Regions in the long run.

Adjusting Capital Income Taxation: Some Lessons from the Italian Experience

Italy is the first country to have experimented with both accruals and retrospective capital gains along the lines suggested by Vickrey (1939) and Meade (1978). This paper describes the Italian experience highlighting its peculiar features and the lessons that can be learned by other countries wishing to pursue these approaches. It illustrates the mechanics of the adjustments to the ralisation based capital gains tax and how far they diverge from the original proposals. The paper also draws attention to the administrative and political difficulties encountered in implementing the reform. These factors ultimately resulted in a repeal of retrospective taxation, and, in due course, may also entail the abolition of taxation on an accrual basis. The paper highlights the crucial role that financial intermediaries can play in lowering compliance costs under a proportional tax system and the effects on tax revenues.

Efficient Tax Competition with Factor Mobility and Trade: A Note

This note shows that residence- and source-based taxes on capital income are not sufficient to sustain an efficient Nash equilibrium when several goods are internationally traded, apart from two special cases. With several traded commodities, domestic fiscal policies affect foreign welfare not only through changes in the world interest rate but also through changes in the equilibrium relative prices of traded commodities. In order to guarantee the existence of an efficient Nash equilibrium in the general case, additional tax instruments are required. In particular, destination-based taxes on traded commodities are needed to enable the government to control the relative commodity prices faced by domestic consumers. In addition, in order to shield domestic producers from changes in world prices, the government must levy either origin-based commodity taxes or taxes on the immobile factors.

La riforma del finanziamento delle regioni italiane: problemi e proposte

La riforma del finanziamento delle regioni italiane: problemi e proposte (di Giampaolo Arachi, Alberto Zanardi) - ABSTRACT: This paper deals with the effects of the reform of Italian Regions’ financing system which is under realization in 1999. The reform is based on the substitution of central government grants with a tax sharing system and on the introduction of a new equalization grants mechanism. Equalization rants are aimed to correct fiscal imbalances across Regions and to uarantee the provision of health services at standard level in every Region. The paper highlights the critical points of the reform. On one hand, the new financing system does not guarantee to the Regions the resources needed to meet the growth of health services demand, due to population ageing. On the other hand, the reform does not provide any equalization mechanism for the tax revenues yielded by the autonomous fiscal effort performed by single Regions.

Is it possible to make tax evaders pay more by shifting taxation from income to consumption

One of the arguments advanced in favour of a tax shift from income to consumptiontaxation is that, with tax evasion, such a shift would increase the tax paid by evaders.Given that evasion is concentrated in specific sectors, individuals operating in such sectors,who evade all or most of their earnings, could spend only a share of their income ingoods for which consumption taxes can be evaded. In this paper we show that, under therealistic assumption that the income and the consumption tax (the VAT or a sales tax) arejointly evaded, such argument cannot survive a more accurate analysis. As a consequence ofthe tax shift from the income to the consumption tax, prices will adjust to restore the original situation, with no effect on real quantities.

Does Redistribution Provide a Rationale for Source- and Origin-Based Taxes in Small Open Economies?

This paper investigates whether the pursuit of redistributional objectives may provide a rationale for source- and origin-based taxation in small open economies. The analysis is developed in a simple two-class economy where consumers are classified according to the type of labour they supply. Source-based taxes on capital income and commodity origin-based taxes result in a differential burden on the two types of labour. When labour income is taxed with a linear schedule, the government can exploit the differential incidence of source- and origin-based taxes to improve income allocation. By contrast, if a non-linear tax is levied on labour income, source and origin-based taxes cannot directly improve income distribution as the two types of labour have different marginal tax rates. However, they can improve social welfare by relaxing the self-selection constraints that bind the nonlinear tax.