Taxation, Corruption, and Growth
Philippe Aghion, Ufuk Akcigit, Julia Cagé, William R. Kerr
European Economic Review,
2016
Abstract
We build an endogenous growth model to analyze the relationships between taxation, corruption, and economic growth. Entrepreneurs lie at the center of the model and face disincentive effects from taxation but acquire positive benefits from public infrastructure. Political corruption governs the efficiency with which tax revenues are translated into infrastructure. The model predicts an inverted-U relationship between taxation and growth, with corruption reducing the optimal taxation level. We find evidence consistent with these predictions and the entrepreneurial channel using data from the Longitudinal Business Database of the US Census Bureau. The marginal effect of taxation for growth for a state at the 10th or 25th percentile of corruption is significantly positive; on the other hand, the marginal effects of taxation for growth for a state at the 90th percentile of corruption are much lower across the board. We make progress towards causality through Granger-style tests and by considering periphery counties where effective tax policy is largely driven by bordering states. Finally, we calibrate our model and find that the calibrated taxation rate of 37% is fairly close to the model׳s estimated welfare maximizing taxation rate of 42%. Reducing corruption provides the largest potential impact for welfare gain through its impact on the uses of tax revenues.
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09.06.2016 • 22/2016
The German Economy Benefits from Strong Domestic Demand
In 2016, the moderate upswing of the German economy continues. Incomes grow due to the steady expansion in employment, and the fall in energy prices has propped up the purchasing power of private households. As a consequence, private consumption expands healthily; investment in housing is additionally stimulated by very low interest rates. Exports, however, expand only moderately, as the world economy is rather weak. All in all, the IWH forecasts the German GDP to expand by 1.8% in this year and by 1.6% in 2017.
Oliver Holtemöller
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14.04.2016 • 15/2016
Joint Economic Forecast Spring 2016: Upturn Remains Moderate – Economic Policy Lacks Growth Orientation
Economic research institutes now estimate that gross domestic product will increase by 1.6 percent in 2016, instead of 1.8 percent as forecast in autumn 2015.
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16.03.2016 • 10/2016
German Economy Stays Stable Despite Shaky Environment
The German economy had a good start into the year 2016, in spite of heightened risks for the world economy and political turmoil in Europe. Employment and incomes are expanding, as is internal de-mand, additionally supported by government spending related to the high number of newly arrived refugees. However, sliding sentiment indicates a temporary slow down of the economy during this spring. We assume that the present political tensions inside the European Union can be mitigated in the coming months and that confidence will rise again. All in all, gross domestic product (GDP) is forecast to rise by 1.5% in 2016.
Oliver Holtemöller
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16.12.2015 • 45/2015
German Economy: Strong domestic demand compensates for weak exports
The upturn of the German economy is expected to gain further momentum as a consequence of strong domestic demand. Real gross domestic product is expected to increase by 1.6% in 2016. Consumer prices are expected to rise by 0.9%. Unemployment is expected to rise slightly because it will take time to integrate refugees into the labour market.
Oliver Holtemöller
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10.08.2015 • 30/2015
Germany Benefited Substantially from the Greek Crisis
The balanced budget in Germany is largely the result of lower interest payments due to the European debt crisis. Research from the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association shows that the debt crisis resulted in a reduction in German bund rates of about 300 basis points (BP), yielding interest savings of more than EUR 100 billion (or more than 3% of gross domestic product, GDP) during the period 2010 to 2015. A significant part of this reduction is directly attributable to the Greek crisis. When discussing the costs to the German tax payer of saving Greece, these benefits should not be overlooked, as they tend to be larger than the expenses, even in a scenario where Greece does not repay any of its debts.
Reint E. Gropp
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Monetary Policy under the Microscope: Intra-bank Transmission of Asset Purchase Programs of the ECB
L. Cycon, Michael Koetter
IWH Discussion Papers,
No. 9,
2015
Abstract
With a unique loan portfolio maintained by a top-20 universal bank in Germany, this study tests whether unconventional monetary policy by the European Central Bank (ECB) reduced corporate borrowing costs. We decompose corporate lending rates into refinancing costs, as determined by money markets, and markups that the bank is able to charge its customers in regional markets. This decomposition reveals how banks transmit monetary policy within their organizations. To identify policy effects on loan rate components, we exploit the co-existence of eurozone-wide security purchase programs and regional fiscal policies at the district level. ECB purchase programs reduced refinancing costs significantly, even in an economy not specifically targeted for sovereign debt stress relief, but not loan rates themselves. However, asset purchases mitigated those loan price hikes due to additional credit demand stimulated by regional tax policy and enabled the bank to realize larger economic margins.
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Corporate Taxation and Firm Location in Germany
Götz Zeddies
IWH Discussion Papers,
No. 2,
2015
Abstract
German Fiscal Federalism is characterized by a high degree of fiscal equalization which lowers the efficiency of local tax administration. Currently, a reform of the fiscal equalization scheme is on the political agenda. One option is to grant federal states the right to raise surtaxes on statutory tax rates set by the central government in order to reduce the equalization rate. In such an environment, especially those federal states with lower economic performance would have to raise comparatively high surtaxes. With capital mobility, this could further lower economic performance and thus tax revenues. Although statutory tax rates are so far identical across German federal states, corporate tax burden differs for several reasons. This paper tries to identify the impact of such differences on firm location. As can be shown, effective corporate taxation did seemingly not have a significant impact on firm location across German federal states.
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