EU law demands that the allocation of factors and goods within the European Union shall not be distorted by taxes. Efforts to formally harmonize corporate tax regimes in Europe have, however, stalled in recent years. What is more, the source principle has prevailed over residence based taxation which is seen to be more in line with EU law. Tax induced distortions of cross-border investment decisions are supposed to be the consequence. Based on country-specific effective average tax rates from 1998 to 2009, this article shows that there is, however, non-coordinated convergence of tax burdens within the EU. Thus, distortions of cross-border investment decisions are limited and decreasing even without formal harmonization.
Company taxes and taxes on highly skilled labour both influence the attractiveness of a particular region as a location for investment. We measure the effective tax burden on capital investment and on highly qualified labour in 33 locations across Europe and the United States. We then correlate both types of tax burden in order to study the different tax policy strategies applied in different countries. We find that effective tax rates on companies and on highly skilled employees are closely correlated for a number of countries. Ireland and most new EU Member States impose relatively lower taxes on capital investment than on highly skilled manpower. Conversely, in the US, companies are taxed heavily but the effective tax rate on highly skilled employees is moderate. Copyright Institute for Fiscal Studies, 2006.
Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08124.pdf
Non-technical summaryThe structure of public support to corporate R&D has been rapidly changing over the last decade. Government R&D policies are increasingly oriented towards market signals and competition in order to minimise the potential distortions in the R&D decisions of firms. This led several countries introduce tax-based R&D incentives in addition to project-specific direct subsidies. A recent development in funding R&D therefore is the shift towards a higher share of indirect funding through tax incentives rather than direct subsidies.Significant tax incentives for R&D in most of the OECD member states have been introduced or modified within the past decades. Countries apply several forms of R&D tax incentives which all reduce taxes at the level of the company. First, a common form of incentive is to reduce the company's taxable base by allowing extra amounts to be deducted over current R&D expenses from the taxable income (deduction), or by accelerated depreciation of assets. Second, there are tax credits which reduce the tax due and are determined based on the amount of R&D expenses. Third, special tax rates or even zero-tax rates are granted to firms under certain conditions, e.g. for young innovative corporations. A fourth form of R&D tax incentives is to reduce wage taxes for R&D personnel and thus reduce employment costs.The B-Index by Warda (2001) is a frequently used indicator that compares the different forms of R&D tax incentives across countries. This indicator is well accepted but it has some shortcomings when it comes to tax incentives with limitations or companies with losses or poor profitability of companies. In this paper, we analyse R&D tax incentives in a more detailed way, in a multi-period setting and under economic assumptions which reflect a more realistic setting. We measure the incentive's impact on the firm's total tax payments (effective tax burden) and the R&D cost by means of the simulation model European Tax Analyzer. Using different economic settings and model firms, we run sensitivity analyses and get by that a more detailed view on the effects from R&D tax incentives.The results show that R&D tax incentives in the EU-27 member states have a significant impact on the effective corporate tax burden. Countries with highest tax subsidies are Portugal, Spain, and the Czech Republic. The level of tax subsidies does not depend so...
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.