This paper analyzes the e¤ectiveness of the tax and transfer systems in the European Union and the US to act as an automatic stabilizer in the current economic crisis. We …nd that automatic stabilizers absorb 38 per cent of a proportional income shock in the EU, compared to 32 per cent in the US. In the case of an unemployment shock 48 per cent of the shock are absorbed in the EU, compared to 34 per cent in the US.

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. Non Technical SummaryDo higher corporate taxes reduce wages? While this question has been discussed extensively in economics, compelling empirical evidence is still scarce. In this discussion paper, we exploit the specific institutional setting of the German local business tax -the most important German profit tax -to provide new answers to this old question. Explicitly, we use annual changes in the local business tax rates set by 11,441 German municipalities to show that a one euro increase in a firm's annual tax liabilities yields a decrease of the annual wage bill of 50 to 75 cents. This means that raising one euro of corporate tax revenue reduces local wages by up to three quarters of the revenue raised. We only find a negative effect on wages if firms are under a collective bargaining agreement.If workers are not represented by a trade union, the local business tax has no effect on the wage. The reason for this finding: workers which are represented by a trade union receive higher wages and have more to lose if corporate taxes increase. Consequently, high and medium-skilled workers experience relatively higher wage losses than low-skilled workers if corporate tax rates increase.In the public and political debates, arguments in favor of (higher) corporate taxes are often based on redistributive motives: allegedly rich firm owners are supposed to contribute to financing public goods and social safety nets by paying their fair share of taxes. Opponents of high corporate taxes often claim that eventually the tax burden is (fully) shifted to labor, being immobile in an international context. Our findings shed new light on this debate and show that the shifting of the corporate tax burden is more complex. First, if workers receive relatively high wages -e.g. through collective bargaining agreements -, they are likely to suffer from higher corporate taxes through wage decreases.If wages are low, employees do not have much to lose. Second, the analysis suggests that local corporate taxation might offer a possibility to prevent firm owners from shifting large(r) shares of the tax burden to workers. If labor is regionally mobile, competitive wages are determined within the regional or even the national labor market and should hardly respond to the tax changes in a small jurisdiction. Das Wichtigste in Kürze AbstractBecause of endogeneity problems very few studies have been able to identify the incidence of corporate taxes on wages. We circumvent these problems by us...

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. Non Technical SummaryDo higher corporate taxes reduce wages? While this question has been discussed extensively in economics, compelling empirical evidence is still scarce. In this discussion paper, we exploit the specific institutional setting of the German local business tax -the most important German profit tax -to provide new answers to this old question. Explicitly, we use annual changes in the local business tax rates set by 11,441 German municipalities to show that a one euro increase in a firm's annual tax liabilities yields a decrease of the annual wage bill of 50 to 75 cents. This means that raising one euro of corporate tax revenue reduces local wages by up to three quarters of the revenue raised. We only find a negative effect on wages if firms are under a collective bargaining agreement.If workers are not represented by a trade union, the local business tax has no effect on the wage. The reason for this finding: workers which are represented by a trade union receive higher wages and have more to lose if corporate taxes increase. Consequently, high and medium-skilled workers experience relatively higher wage losses than low-skilled workers if corporate tax rates increase.In the public and political debates, arguments in favor of (higher) corporate taxes are often based on redistributive motives: allegedly rich firm owners are supposed to contribute to financing public goods and social safety nets by paying their fair share of taxes. Opponents of high corporate taxes often claim that eventually the tax burden is (fully) shifted to labor, being immobile in an international context. Our findings shed new light on this debate and show that the shifting of the corporate tax burden is more complex. First, if workers receive relatively high wages -e.g. through collective bargaining agreements -, they are likely to suffer from higher corporate taxes through wage decreases.If wages are low, employees do not have much to lose. Second, the analysis suggests that local corporate taxation might offer a possibility to prevent firm owners from shifting large(r) shares of the tax burden to workers. If labor is regionally mobile, competitive wages are determined within the regional or even the national labor market and should hardly respond to the tax changes in a small jurisdiction. Das Wichtigste in Kürze AbstractBecause of endogeneity problems very few studies have been able to identify the incidence of corporate taxes on wages. We circumvent these problems by us...

Introduction 2 International Capital Income Taxation and Tax Competition 2.1 How should foreign investment income be taxed? 2.2 Tax competition and double taxation agreements 2.3 The role of public goods provision 2.4 Tax competition with multinational firms and portfolio investment 2.5 Transfer prices and international income shifting 2.6 The financial structure of firms 3 Tax Coordination 3.1 Fiscal externalities and the welfare effects of tax coordination 3.2 An example: Tax competition and the underprovision of public goods 3.3 Residence-based capital income taxation 3.4 Distortionary labour taxes 3.5 Tax competition and optimal redistributive income taxation v

A large part of border crossing investment takes the form of international mergers and acquisitions. In this article, we ask how optimal repatriation tax systems look like in a world where investment involves a change of ownership, instead of a reallocation of real capital. We find that the standard results of international taxation do not carry over to the case of international mergers and acquisitions. The deduction system is no longer optimal from a national perspective and the foreign tax credit system fails to ensure global optimality. The tax exemption system is optimal if ownership advantage is a public good within the multinational firm. However, the cross-border cash-flow tax system dominates the exemption system in terms of optimality properties. Copyright (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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