This paper conducts a firm-level analysis of the effect of taxation on corporate investment
patterns in member states of the Association of Southeast Asian Nations (ASEAN). Using
large-scale panel data on nonfinancial firms over the period 1990–2014, and controlling for
macro-structural differences among countries, we find a significant degree of persistence in
firms’ net fixed investments over time, which vary with firm characteristics, such as size, sales,
profitability, leverage, and age. Our analysis brings up interesting empirical results, including
nonlinear patterns of behavior in firms’ capital investment decisions acrosss ASEAN countries.
Concerning the main variable of interest, we find that a moderate level of taxation does not
hinder business investment, but this effect turns negative as higher tax burden raises the user
cost of capital and distorts resource allocations.
With growing academic and policy interest in research and development (R&D) tax incentives,
the question about their effectiveness has become ever more relevant. In the absence of an
exogenous policy reform, the simultaneous determination of companies’ tax positions and
their R&D spending causes an identification problem in evaluating tax incentives. To
overcome this identification challenge, we exploit a U.K. policy reform and use the population
of corporation tax records that provide precise information on the amount of firm-level R&D
expenditure. Using difference-in-differences and other panel regression approaches, we find a
positive and significant impact of tax incentives on R&D spending, and an implied user cost
elasticity estimate of around -1.6. This translates to more than a pound in additional private
R&D for each pound foregone in corporation tax revenue.
International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses Armenia’s Third Review Under the Extended Arrangement, and Request for Waiver and Modification of Performance Criteria (PC). Growth in Armenia is expected to remain subdued as recession in Russia continues and as the base effects of the 2015 one-off factors dissipate. The program performance has been broadly satisfactory. All end-December 2015 PCs, except for the fiscal deficit PC, and all the continuous PCs were met. The fiscal deficit PC was missed by 0.3 percent of GDP. The IMF staff supports completion of the review and the authorities’ request for a purchase in an amount equivalent to SDR 15.65 million.
This paper addresses two fundamental issues in indirect tax design. It first revisits the case for reduced rates on items especially important to the poor, establishing conditions under which even very crudely targeted spending measures better serve their interests. It then explores the welfare costs from cascading taxes, showing that these may actually be lower the wider the set of inputs that are taxed but, more to the point—and contrary to the common notion that “a low rate on a broad base” is always good tax policy—may plausibly be large even at a low nominal tax rate and with few stages of production.
Todd B. Walker, Eric M. Leeper, and Ms. Susan S. Yang
News - or foresight - about future economic fundamentals can create rational expectations equilibria with non-fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react. Using tax policies as a leading example of foresight, simple theory makes transparent the economic behavior and information structures that generate non-fundamental equilibria. Econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes; biases are quantitatively important when two canonical theoretical models are taken as data generating processes. Both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized information flows. Different methods for extracting or hypothesizing the information flows are discussed and shown to be alternative techniques for resolving a non-uniqueness problem endemic to moving average representations.
Mr. Stephan Danninger, Ms. Annette J Kyobe, and Mr. M. Cangiano
This paper analyzes interference and timeliness in the revenue-forecasting process, using new data on revenue-forecasting practices in low-income countries. Interference is defined as the occurrence of a significant deviation from purely technical forecasts. A theoretical model explains forecasting interference through government corruption. The data broadly supports the model, and the results are robust to alternative explanations. The paper also constructs three indices-transparency, formality, and organizational simplicity-that characterize revenue-forecasting practices, and assesses their effectiveness in producing an upfront-that is, timely-budget envelope. More transparent and simple forecasting processes lead to early budget constraints, while formality has no measurable effect.
This paper provides an assessment of the poverty and social impact of replacing Ethiopia's sales tax with a value-added tax (VAT). The results indicate that this reform has not had a major adverse effect on the poorest 40 percent of the population. The VAT is progressive in its incidence, and the higher revenues brought about by the VAT can provide additional funds for poverty-reducing spending, including primary education. At the same time, there is significant scope for making education spending more pro-poor by increasing the access of low-income households to schools.
This Selected Issues paper examines the competitiveness of the Irish manufacturing sector. The paper highlights that in 2001, production cuts and accelerating wage growth arrested the trend improvement in external competitiveness, but the level remains high. The paper presents some medium-term fiscal scenarios. It discusses indicators of financial system soundness based on official data and publications, as well as discussions with the authorities. The paper also examines indicators on the vulnerability and solvency of the financial system and presents a brief description of supervision arrangements.
This 2002 Article IV Consultation highlights that economic growth in Denmark slowed significantly during 2001 as domestic demand weakened and exports were hit by the global economic slowdown. Unemployment remained low and wage growth was somewhat faster than in euro area partner countries. However, price inflation was subdued. Monetary conditions were eased during 2001 as Danish interest rates generally followed those of the European Central Bank downward. The 2002 budget implies a broadly neutral fiscal stance with the surplus projected to remain within the medium-term target of 1.5–2.5 percent of GDP.