Laura Vartia

Tax Policy for Economic Recovery and Growth

This paper identifies tax policy that both speeds recovery from the current economic crisis and contributes to long-run growth. This is a challenge because short-term recovery requires increases in demand while long-term growth requires increases in supply. As short-term tax concessions can be hard to reverse, this implies that policies to alleviate the crisis could compromise long-run growth. The analysis makes use of recent evidence on the impact of tax structure on economic growth to identify which growth-enhancing tax changes can also aid recovery, taking account of the need to protect those on low incomes.

Taxation and Economic Growth

This paper investigates the design of tax structures to promote economic growth. It suggests a “tax and growth” ranking of taxes, confirming results from earlier literature but providing a more detailed disaggregation of taxes. Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. Recurrent taxes on immovable property appear to have the least impact. A revenue neutral growth-oriented tax reform would, therefore, be to shift part of the revenue base from income taxes to less distortive taxes such as recurrent taxes on immovable property or consumption. The paper breaks new ground by using data on industrial sectors and individual firms to show how re-designing taxation within each of the broad tax categories could in some cases ensure sizeable efficiency gains. For example, reduced rates of corporate tax for small firms do not seem to enhance growth, and high top marginal rates of personal income tax can reduce productivity growth by reducing entrepreneurial activity. While the paper focuses on how taxes affect growth, it recognises that practical tax reform requires a balance between the aims of efficiency, equity, simplicity and revenue raising. Fiscalite et croissance economique Ce document examine la meilleure elaboration du systeme fiscal afin de promouvoir la croissance economique. Il suggere une classification des impots selon le modele « fiscalite et croissance », venant etayer des resultats deja connus dans des publications anterieures, mais proposant une ventilation plus detaillee des differents impots. Il s’avere que les impots sur les societes grevent le plus la croissance, suivis par les impots sur le revenu des personnes physiques, et ensuite les impots sur la consommation. Les impots sur l’immobilier semblent les moins nocifs. Une reforme fiscale sans incidence sur les impots et orientee sur la croissance consisterait a transferer une partie de la base imposable des impots sur le revenu sur des impots moins generateurs de distorsion, comme les impots recurrents sur l’immobilier ou ceux sur la consommation. Ce document est innovant dans la mesure ou il utilise des donnees sur les secteurs industriels et les societes individuelles afin de demontrer que le fait d’elaborer une nouvelle fiscalite au sein d’une large categorie d’impots pourrait, dans certains cas, permettre un gain d’efficacite non negligeable. Par exemple, des taux reduits d’impots sur les societes pour les petites entreprises ne semble pas augmenter favoriser la croissance; de meme, des taux marginaux eleves d’impots sur les revenus des personnes physiques peut reduire la courbe de la productivite en reduisant l’activite entrepreneuriale. Alors que ce document est centre sur la maniere dont les impots affectent la croissance, il reconnait qu’une reforme fiscale pragmatique necessite un equilibre entre efficience, equite, simplicite et levee d’impots.

Regulation of Financial Systems and Economic Growth

This paper examines whether regulation that is more conducive to competitive and efficient financial systems has a significant positive impact on sectoral output and productivity growth in a sample of 25 OECD countries. More specifically, following a methodology used by Rajan and Zingales (1998), the paper tests whether industries that depend more heavily on external sources of funding tend to grow faster in countries that have more competition-friendly regulation in markets for banking services and financial instruments. The regulatory indicators are assembled from surveys conducted by the World Bank on regulations in banking and securities markets. They point to substantial variations in the stance of regulation across countries, in particular with respect to the broad rules underpinning securities market transactions. The empirical analysis indicates that financial system regulation matters for output growth both in a statistical and economic sense.

Taxation, Business Environment and FDI Location in OECD Countries

This paper assesses the importance of taxation on foreign direct investment contributing to the literature in two ways. First, it relates bilateral FDI among OECD countries over the 1990s to a new set of estimates of corporate tax wedges that include many relevant aspects of FDI taxation. Second, it controls for a large set of additional policy and non-policy factors that may affect the attractiveness of a country for foreign investors. Furthermore, the empirical approach is novel in that it focuses on a semi-parametric estimation methodology that accounts for a number of unobserved effects possibly impinging on the choice of investment location by multinational enterprises. Consistent with previous findings, the estimation results suggest that corporate taxation has a non-negligible impact on FDI location choices. However, the results suggest that focusing only on taxation in home and host countries and omitting other policies (such as border policies and labour and product market settings) may lead to a serious overestimation of tax elasticities and their relevance for policy.

Capital Inflows, Household Debt and the Boom Bust Cycle in Estonia

From 2000 to 2007, Estonia was one of the fastest growing emerging market economies. A housing boom, fuelled by capital inflows and credit, resulted in skyrocketing house prices and an over-expanded construction sector. However, the currency board limited the Bank of Estonia’s ability to curb credit growth, while the fiscal policy framework amplified the cycle through pro-cyclical spending increases and tax cuts. As credit was mostly financed by cross-border loans from foreign banks, the risks of disruptions to credit flows and financial contagion have increased. Some have already materialised through tightened lending standards and capital outflows. Estonia is now in a severe recession. To restore high and sustainable growth, the country will need to rebalance its resources from non-tradables towards exports. Regaining external competitiveness will be challenging, however, given the fixed exchange rate and recent devaluations in partner countries. Flexibility of the economy will thus be crucial. Over the medium term, policymakers could also strengthen incentives for a better functioning of the housing finance market and gradually remove the pro-cyclical bias of fiscal policy. Entree de capitaux, endettement des menages et alternance expansion-contraction en Estonie Entre 2000 et 2007, l’Estonie a ete l’une des economies de marche emergentes qui ont connu la plus forte croissance. Une rapide progression de l’investissement prive, surtout dans l’immobilier residentiel, a ete alimentee par les entrees de capitaux et par le credit. En consequence, les prix immobiliers se sont envoles et le secteur de la construction s’est surdeveloppe. Le systeme de caisse d’emission a toutefois limite les possibilites d’action qui s’offraient a la Banque d’Estonie pour freiner la croissance rapide du credit. Parce que le credit etait essentiellement finance par les prets transnationaux que consentaient les banques meres etrangeres, les risques d’arret brutal et de contagion financiere se sont aggraves. Certains de ces risques se sont deja concretises par un durcissement des conditions de pret et par des sorties de capitaux. L’Estonie est maintenant en proie a une severe recession. Son PIB reel s’est contracte de 3.6 % en 2008 et de 9.7 % au quatrieme trimestre par rapport a la meme periode de 2007. Pour en revenir a une croissance forte et durable, l’Estonie devra reequilibrer ses ressources en favorisant l’exportation par rapport au secteur non exportateur (en particulier la construction et l’immobilier). Mais il sera difficile de retablir la competitivite exterieure sachant que le taux de change est fixe et que plusieurs pays partenaires ont recemment devalue. La flexibilite de l’economie sera cruciale. A moyen terme, il faudrait aussi renforcer l’incitation a un meilleur fonctionnement du marche du financement du logement.

How do Taxes Affect Investment and Productivity

Cette etude vise a etudier l’effet des politiques de taxation sur les investissements et la productivite des entreprises. Nous utilisons des donnees sectorielles pour un ensemble de pays de l’OCDE et analysons dans quelle mesure l’impact de la taxation differe selon les secteurs. Selon nos resultats, une hausse de l’impot sur les societes ou une baisse des provisions pour amortissement du capital provenant de variations du cout d’usage du capital induisent une baisse de l’investissement des entreprises. Nous analysons les mecanismes de l’impact de la taxation des entreprises sur leur productivite et nous testons si certains secteurs y sont plus sensibles que d’autres. Selon nos estimations, l’impot sur les societes, mais aussi les dernieres tranches de l’impot sur le revenu, ont un impact negatif sur la productivite. En revanche, les avantages fiscaux visant a promouvoir la recherche et developpement semblent avoir un effet benefique sur la productivite. Ces effets sont plus forts dans les secteurs plus rentables, dans les secteurs caracterises par un niveau plus eleve d’activite entrepreneuriale, et dans les secteurs caracterises par un niveau plus eleve de recherche et developpement.

Taxes and Firm Performance: Evidence from the OECD

The eminent contributors (including Altshuler, Creedy, Freebairn, Gravelle, Heady, Kalb, Sorensen and Zodrow) investigate the beneficial directions for medium-term tax reform in the light of global developments and lessons from the latest taxation research. In addressing this issue, they review recent advances in both the theoretical and empirical tax literature and reform evidence from individual countries. Topics covered include the impact of taxes on economic performance; international and corporate taxation; personal tax and welfare systems; environmental taxation; and country-specific tax reform experiences.

La fiscalité et l'environnement des entreprises comme déterminants des investissements directs étrangers

Dans quelle mesure les differences d’imposition des entreprises influent-elles sur les decisions d’investissement des entreprises multinationales (EMN) ? Depuis une dizaine d’annees, on accorde un interet croissant a cette question, parallelement a l’accroissement de la mobilite du capital et a l’internationalisation des entreprises. Les modeles standards portant sur les EMN prevoient que la fiscalite des entreprises peut influencer l’investissement direct etranger (IDE) en creant un effet de ciseaux entre la rentabilite des investissements avant et apres impot. Ce coin fiscal depend cependant de la nature de l’investissement, a savoir s’il est additionnel ou s’il intervient dans le cadre de la creation d’etablissements entierement nouveaux.