Heterogeneity in effective VAT rates across native and migrant households in France, Germany and Spain
JRC Working Papers on Taxation and Structural Reforms No 09/2020
Authors: Michael Christl, Andrea Papini and Alberto Tumino
This paper contributes to the literature on the distributional properties of VAT analysing who bears higher VAT payments between native and migrant household in France, Germany and Spain. The question is of interest both from a distributional and fiscal perspective, fitting the ongoing debate of the net fiscal impact of immigration. Using data from the 2010 EU HBS and a simple VAT calculator we show the existence of gaps in effective VAT rates between native and migrant households in France and in Spain, while no significant gap is observed in Germany. Our results also confirm the existing evidence on the regressivity of VAT with respect to income. These findings suggest that the fairness consequences of VAT reforms should be carefully assessed and advocate for the importance of considering indirect taxation when assessing the fiscal cost of migration.
Bilateral Tax Competition and Regional Spillovers in Tax Treaty Formation
JRC Working Papers on Taxation and Structural Reforms No 07/2020
Authors: Kunka Petkova, Andrzej Stasio and Martin Zagler
Tax treaties are often seen as a means to mitigate fierce tax competition. We challenge this view by arguing that taxes on passive income reduce effective average tax rates, and induce neighbouring countries to react by reducing bilateral tax rates. As opposed to traditional tax competition, where every foreign investor would benefit from lower tax rates, we show that countries also engage in cutting tax rates for investors from a particular country, leaving taxes for everyone else unaffected. We call this bilateral tax competition, and we test these predictions empirically. We focus on the four treaty withholding tax rates on passive income – portfolio dividends, participation dividends, interest, and royalties – and collect these rates for 3,000 tax treaties and amending protocols signed between 1930 and 2012. We find a positive relationship in the negotiated withholding tax rates of a destination country’s tax treaty and destination country competitors’ past tax treaties with the same source country. This relationship is strongest for the tax rates on interest and royalties, and varies from an average elasticity between 0.19 and 0.36 with both source and destination country being an OECD member, and an average elasticity up to 0.64 when both countries are tax havens.
Households’ income and the cushioning effect of fiscal policy measures during the Great Lockdown
JRC Working Papers on Taxation and Structural Reforms No 07/2020
Authors: Vanda Almeida, Salvador Barrios, Michael Christl, Silvia De Poli, Alberto Tumino and Wouter van der Wielen
We analyse the impact of the COVID-19 crisis on EU households´ income and assess the cushioning effect of discretionary policy measures taken by the EU Member States. Our assessment is based on the European Commission Spring 2020 forecasts and counterfactual scenarios under a no policychange assumption. Our analysis suggests that over the course of 2020, on average, households’ disposable income in the EU would fall by -5.9% due to the COVID-19 crisis without discretionary policy measures, and by -3.6% with policy intervention, pointing to a significant cushioning effect of these measures in protecting households against income losses. Furthermore, our results confirm that the impact of the COVID-19 crisis is likely to be highly regressive, with the poorest households´ being the most severely hit. However, discretionary policy measures are expected to contain the regressive effects of the recession, resulting in a quite homogeneous impact along the income distribution. Poverty, as measured by the at risk of poverty (AROP) rate, would increase significantly, even in presence of policy measures (+1.7pp), although this result depend on whether we anchor the poverty line to its pre-crisis level. When not doing so, the impact of the COVID crisis on poverty becomes very close to the one observed in the aftermath of the financial crisis (i.e. +0.1pp) once policy measures are considered. Given the sheer size of the COVID shock, we might consider that the anchored poverty line may provide a more reliable assessment of the impact of the Great lockdown on poverty, however. Policy interventions are therefore seen as instrumental in cushioning against the impact of the crisis on inequality and poverty. Finally, our results suggest that the social impact of the Great Lockdown is likely to be much larger than the one experienced during the 2008/2009 financial crisis, at least for what concerns the immediate impact of the crisis.
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