Table 1. Statutory tax rates on capital income.

Transcription

1 Table 1. Statutory tax rates on capital income. Tax rate on retained corporate income (%) 1 Top personal tax rate on interest income (%) Change Change Small Countries (<20 mill.) Denmark Finland Norway Sweden Belgium Netherlands Luxembourg Ireland 50(10) 28(10) Portugal Austria Switzerland Australia Average for small countries Larger countries (>40 mill.) Spain Italy France Germany UK USA Japan Average for larger countries Including local taxes. 2. Many countries have special savings incentives with lower tax rates. These are not reflected in the table. 3. For manufacturing corporations in Ireland a low 10% corporate income tax applies (as indicated in brackets). If this rate is used in computing the average for small countries the figures would be 45.8, 30.4 and respectively. Sources: The figures for 1985 were taken from the Ruding Report (1992), tables 8.5 and 8.6. The figures from 1998 and 1999 were taken from Andersson (1999).

2 Table 2. Average effective tax rates on labour and capital income Total effective tax rate on labour income (%) 1 Effective tax rate on capital income (%) Nordic countries Denmark Finland Norway Sweden Average Continental Europe Austria Belgium France Germany Italy Netherlands Spain Average Anglo Saxon countries Australia Canada United Kingdom United States Average Japan Average for all countries The total effective tax rate on labour income (t) is given by the formula t=(t l +t c )/(1+t l ), where t l = effective direct tax rate on labour income and t c = effective tax rate on consumption. Source: The estimates of effective tax rates on labour income, capital income and consumption are based on the methodology developed by Mendoza, Razin and Tesar (1994); the figures were taken from Daveri and Tabellini (1999) and Volkerink and de Haan (1999).

3 Table 3. Benchmark calibration of the TAXCOM model Nordic countries 1 Continental UK Western Europe US Europe 2 Wage share of GDP (α) Capital income share of GDP (β) Pure profit share of GDP (1 α β) Foreign ownership share (δ) Social weight given to factor income relative to transfer income (1-aσ) Wage elasticity of labour supply (1/ε) Interest elasticity of capital supply (1/ϕ) Elasticity of factor productivity w.r.t. infrastructure spending (µ 1 ) Elasticity of substitution between union and non-union assets (ζ) Degree of home bias 4 (ψ/(1-ψ)) 75/25 75/25 75/25 75/25 75/25 Share of world population 5 (s) Scale parameter affecting total factor productivity (µ 2 ) Model equilibrium with tax competition 6 Tax rate on labour income (%) 54.5 (55.8) 51.9 (53.0) 37.5 (35.6) 49.8 (52.5) 30.6 (31.1) Tax rate on capital income (%) 41.0 (42.2) 32.0 (28.1) 41.0 (45.3) 33.8 (34.22) 40.2 (41.1) Ratio of GNP to GDP (97.0) 99.9 (99.5) (99.5) 99.9 (98.7) (100.4) Transfers in percent of GDP Infrastructure spending in percent of GDP Public consumption in percent of GDP Note: The Greek letters refer to the parameters introduced in the appendix. 1. Denmark, Finland, Norway and Sweden. 2. Defined here as Austria, Belgium, France, Germany, Italy, Netherlands and Spain. 3. The magnitude 1-aσ may also be interpreted as the median level of individual wealth relative to the mean wealth level. 4. A degree of home bias equal to 75/25 means that union (non-union) residents will invest 75% (25%) of their capital within th e union and the remaining 25% (75%) in the rest of the world if the after-tax rate of return is the same in the two regions. 5. The Nordic region is divided into 4 equally large countries each comprising 1% of world population. Continental Europe is divided into 7 countries each including 6% of world population. 6. The figures in brackets are empirical estimates. The average effective tax rates were calculated on the basis of the data for in Table 2.

4 Table 4. Effects of a minimum capital income tax rate Tax competition Regional coordination (no policy response from the US) Regional coordination (optimal policy response from the US) Global coordination Policy variables Western Europe US Western Europe US Western Europe US Western Europe US Tax rate on capital income and profits (%) Labour income tax (%) Transfers Infrastructure spending Other variables Capital stock per capita Employment GDP per capita Ratio of GNP to GDP Welfare gain from coordination (% of GDP) Source: Simulations with the TAXCOM model, based on the benchmark calibration in columns 4 and 5 in Table 3.

5 Table 5. Asymmetries and the distribution of the gains from regional tax coordination Nordic countries Tax competition Regional coordination Continental Europe UK Nordic countries Continental Europe UK t 2 t 2 t 2 t 2 W t 2 W t 2 W All union countries symmetric : Differences in population : 1 + differences in preference for redistribution : 2 + differences in pure profit share : 3 + differences in total factor productivity : 4 + differences in labour supply elasticity differences in foreign ownership share = asymmetric equilibrium in Table Note: W WD[ UDWH RQ ODERXU LQFRPH 2 WD[ UDWH RQ FDSLWDO LQFRPH DQG SURILWV : ZHOIDUH JDLQ IURP FRRUGLQDWLRQ LQ SHUFent of GDP. The differences in parameter values across regions are equal to those stated in Table All union countries have identical parameter values equal to the population-weighted averages of the parameters for the union countries stated in the fourth column in Table 3. Parameter values for the US are identical to those reported in Table 3. Source: Simulations with the TAXCOM model.

6 Table 6. Effects of a regional minimum capital tax rate: sensitivity analysis. Tax competition Regional coordination between symmetric union countries Labour income tax (%) Capital income tax (%) Labour income tax (%) Capital income tax (%) Welfare gain from coordination (% of GDP) Benchmark scenario Sensitivity to factor supply elasticities Zero interest elasticity of capital supply Low wage elasticity of labour supply Higher productivity effect of infrastructure Sensitivity to profits and foreign ownership Zero pure profits share Zero foreign ownership share Sensitivity to capital mobility Low capital mobility between union and rest of the world Perfect capital mobility between union and rest of the world Sensitivity to other factors Stronger preference for redistribution Lower weight of the union in the world economy Note: The figures in the table refer to the symmetric countries forming a tax union. The rest of the world is assumed to undertake an optimal policy response to coordination within the union. 1. The wage elasticity of labour supply is Elasticity of factor productivity w.r.t. infrastructure (µ 1)= Wage share of GDP=0.7; capital income share= Elasticity of substitution between union and non-union assets=1. 5. Elasticity of substitution between union and non-union assets. 6. Social weight given to factor income=60%. 7. Union population=40% of world population. Source: Simulations with the TAXCOM model.

7 Table 7. Effects of regional tax coordination on the distribution of welfare in a union country 1 Welfare gain from introducing a Quintile Share of total wealth (%) regional minimum capital tax rate Notes: Fiscal policies are decided by a policy maker representing the 3rd quintile (the median voter), implying that the social weight given to factor income relative to transfer income is equal to 14/20=0.7 within the tax union. The other parameter values are equal to those stated in columns 4 and 5 in Table Estimated on the basis of the distribution of factor incomes in Denmark (data provided by Statistics Denmark) 2. Welfare gain for residents in the representative union country. The welfare gain is measured in percent of the quintile s disposable income under tax competition. Source: Simulations with the TAXCOM model.

8 Other union countries Trade flows Interest and profits Imperfectly mobile capital Rest of the world Trade flows Interest and profits Perfectly mobile capital Trade flows Interest and profits Imperfectly mobile capital INDIVIDUAL UNION COUNTRY Labour, capital and land Firms Households Wages, interest and net profits Taxes on profits Infrastructure Public consumption Transfers Taxes on wages and interest Government Figure 1. Structure of the TAXCOM model