Progressive Taxes and Firm Births

Tax reform proposals in the spirit of the "flat tax" model typically aim to reduce three parameters: the average tax burden, the progressivity of the tax schedule, and the complexity of the tax code. We explore the implications of changes in these three parameters for entrepreneurial activity, measured by counts of firm births. The Swiss fiscal system offers sufficient intra-national variation in tax codes to allow us to estimate such effects with considerable precision. We find that high average taxes and complicated tax codes depress firm birth rates, while tax progressivity per se promotes firm births. The latter result supports the existence of an insurance effect from progressive corporate income taxes for risk averse entrepreneurs. However, implied elasticities with respect to the level and complexity of corporate taxes are an order of magnitude larger than elasticities with respect to the progressivity of tax schedules.

Alleged Tax Competition: The Mysterious Death of Inheritance Taxes in Switzerland

Interjurisdictional competition over mobile tax bases is an easily understood mechanism, but actual tax-base elasticities are difficult to estimate. Political pressure for reducing tax rates could therefore be based on erroneous estimates of the mobility of tax bases. We show that tax competition provided the overwhelmingly dominant argument in the policy debates leading to a succession of reforms of bequest taxation by Swiss cantons. Yet, we find only very weak statistical evidence of a relationship between tax burdens on bequests and the concerned tax base of wealthy elderly individuals. Moreover, inheritance tax revenues are found to increase in inheritance tax rates even in the long run, and actual tax rates lie well below the revenue-maximising levels throughout. The alleged pressures of tax competition did not seem in reality to exist.

Linking Global Youth Tobacco Survey (GYTS) data to the WHO Framework Convention on Tobacco Control (FCTC): the case for the Seychelles

Tobacco control has been recognized as a main public health concern in Seychelles for the past two decades. Tobacco advertising, sponsoring and promotion has been banned for years, tobacco products are submitted to high taxes, high-profile awareness programs are organized regularly, and several other control measures have been implemented. The Republic of Seychelles was the first country to ratify the WHO Framework Convention on Tobacco Control (FCTC) in the African region. Three population-based surveys have been conducted in adults in Seychelles and results showed a substantial decrease in the prevalence of smoking among adults between 1989 and 2004. A first survey in adolescents was conducted in Seychelles in 2002 (the Global Youth Tobacco Survey, GYTS) in a representative sample of 1321 girls and boys aged 13-15 years. The results show that approximately half of students had tried smoking and a quarter of both boys and girls had smoked at least one cigarette during the past 30 days. Although "current smoking" is defined differently in adolescents (>or=1 cigarette during the past 30 days) and in adults (>or=1 cigarette per day), which precludes direct comparison, the high smoking prevalence in youth in Seychelles likely predicts an increasing prevalence of tobacco use in the next adult generation, particularly in women. GYTS 2002 also provides important data on a wide range of specific individual and societal factors influencing tobacco use. Hence, GYTS can be a powerful tool for monitoring the situation of tobacco use in adolescents, for highlighting the need for new policy and programs, and for evaluating the impact of current and future programs.

Three Essays on the Formation and Impact of Economic Policy

Introduction In my thesis I argue that economic policy is all about economics and politics. Consequently, analysing and understanding economic policy ideally has at least two parts. The economics part, which is centered around the expected impact of a specific policy on the real economy both in terms of efficiency and equity. The insights of this part point into which direction the fine-tuning of economic policies should go. However, fine-tuning of economic policies will be most likely subject to political constraints. That is why, in the politics part, a much better understanding can be gained by taking into account how the incentives of politicians and special interest groups as well as the role played by different institutional features affect the formation of economic policies. The first part and chapter of my thesis concentrates on the efficiency-related impact of economic policies: how does corporate income taxation in general, and corporate income tax progressivity in specific, affect the creation of new firms? Reduced progressivity and flat-rate taxes are in vogue. By 2009, 22 countries are operating flat-rate income tax systems, as do 7 US states and 14 Swiss cantons (for corporate income only). Tax reform proposals in the spirit of the "flat tax" model typically aim to reduce three parameters: the average tax burden, the progressivity of the tax schedule, and the complexity of the tax code. In joint work, Marius Brülhart and I explore the implications of changes in these three parameters on entrepreneurial activity, measured by counts of firm births in a panel of Swiss municipalities. Our results show that lower average tax rates and reduced complexity of the tax code promote firm births. Controlling for these effects, reduced progressivity inhibits firm births. Our reading of these results is that tax progressivity has an insurance effect that facilitates entrepreneurial risk taking. The positive effects of lower tax levels and reduced complexity are estimated to be significantly stronger than the negative effect of reduced progressivity. To the extent that firm births reflect desirable entrepreneurial dynamism, it is not the flattening of tax schedules that is key to successful tax reforms, but the lowering of average tax burdens and the simplification of tax codes. Flatness per se is of secondary importance and even appears to be detrimental to firm births. The second part of my thesis, which corresponds to the second and third chapter, concentrates on how economic policies are formed. By the nature of the analysis, these two chapters draw on a broader literature than the first chapter. Both economists and political scientists have done extensive research on how economic policies are formed. Thereby, researchers in both disciplines have recognised the importance of special interest groups trying to influence policy-making through various channels. In general, economists base their analysis on a formal and microeconomically founded approach, while abstracting from institutional details. In contrast, political scientists' frameworks are generally richer in terms of institutional features but lack the theoretical rigour of economists' approaches. I start from the economist's point of view. However, I try to borrow as much as possible from the findings of political science to gain a better understanding of how economic policies are formed in reality. In the second chapter, I take a theoretical approach and focus on the institutional policy framework to explore how interactions between different political institutions affect the outcome of trade policy in presence of special interest groups' lobbying. Standard political economy theory treats the government as a single institutional actor which sets tariffs by trading off social welfare against contributions from special interest groups seeking industry-specific protection from imports. However, these models lack important (institutional) features of reality. That is why, in my model, I split up the government into a legislative and executive branch which can both be lobbied by special interest groups. Furthermore, the legislative has the option to delegate its trade policy authority to the executive. I allow the executive to compensate the legislative in exchange for delegation. Despite ample anecdotal evidence, bargaining over delegation of trade policy authority has not yet been formally modelled in the literature. I show that delegation has an impact on policy formation in that it leads to lower equilibrium tariffs compared to a standard model without delegation. I also show that delegation will only take place if the lobby is not strong enough to prevent it. Furthermore, the option to delegate increases the bargaining power of the legislative at the expense of the lobbies. Therefore, the findings of this model can shed a light on why the U.S. Congress often practices delegation to the executive. In the final chapter of my thesis, my coauthor, Antonio Fidalgo, and I take a narrower approach and focus on the individual politician level of policy-making to explore how connections to private firms and networks within parliament affect individual politicians' decision-making. Theories in the spirit of the model of the second chapter show how campaign contributions from lobbies to politicians can influence economic policies. There exists an abundant empirical literature that analyses ties between firms and politicians based on campaign contributions. However, the evidence on the impact of campaign contributions is mixed, at best. In our paper, we analyse an alternative channel of influence in the shape of personal connections between politicians and firms through board membership. We identify a direct effect of board membership on individual politicians' voting behaviour and an indirect leverage effect when politicians with board connections influence non-connected peers. We assess the importance of these two effects using a vote in the Swiss parliament on a government bailout of the national airline, Swissair, in 2001, which serves as a natural experiment. We find that both the direct effect of connections to firms and the indirect leverage effect had a strong and positive impact on the probability that a politician supported the government bailout.

Fructose toxicity: is the science ready for public health actions?

PURPOSE OF REVIEW: The assumption that fructose may be toxic and involved in the pathogenesis of noncommunicable diseases such as obesity, diabetes mellitus, dyslipidemia, and even cancer has resulted in the call for public health action, such as introducing taxes on sweetened beverages. This review evaluates the scientific basis for such action. RECENT FINDINGS: Although some studies hint towards some potential adverse effects of excessive fructose consumption especially when combined with excess energy intake, the results from clinical trials do not support a significant detrimental effect of fructose on metabolic health when consumed as part of a weight-maintaining diet in amounts consistent with the average-estimated fructose consumption in Western countries. However, definitive studies are missing. SUMMARY: Public health policies to eliminate or limit fructose in the diet should be considered premature. Instead, efforts should be made to promote a healthy lifestyle that includes physical activity and nutritious foods while avoiding intake of excess calories until solid evidence to support action against fructose is available. Public health is almost certainly to benefit more from policies that are aimed at promoting what is known to be good than from policies that are prohibiting what is not (yet) known to be bad.

Tax simulation in the SHP

This paper describes a simulation package designed to estimate the annual income taxes paid by respondents of the Swiss Household Panel (SHP). In Switzerland, the 26 cantons have their own tax system. Additionally, tax levels vary between the over 2000 municipalities and over time. The simulation package takes account of this complexity by building on existing tables on tax levels which are provided by the Swiss Federal Tax Administration Office. Because these are limited to a few types of households and only 812 municipalities, they have to be extended to cover all households and municipalities. A further drawback of these tables is that they neglect several deductions. The tax simulation package fills this gap by taking additionally account of deductions for children, double-earner couples, third pillar and support for dependent persons according to cantonal legislation. The resulting variable on direct taxes not only serves to calculate household income net of taxes, but can also be a variable for analysis by its own account.

Do Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials?

Recent theoretical work in economic geography has shown that agglomeration forces can mitigate 'race-to-the-bottom' tax competition, by partly or fully offsetting firms' sensitivity to tax differentials. We test this proposition using data on firm births across Swiss municipalities. We find that corporate taxes deter firm births less in more spatially concentrated sectors. Firms in sectors with an agglomeration intensity in the top quintile are less than half as responsive to differences in corporate tax burdens as firms in sectors with an agglomeration intensity in the bottom quintile. Hence, agglomeration economies do appear to attenuate the impact of tax differentials on firms' location choices.

Opinions on smoking policies in Switzerland

Purpose: to assess the opinions regarding smoking ban policies in Switzerland. Methods: cross sectional study on 2,601 women and 2,398 men, aged 35-75 years, living in Lausanne, Switzerland. Nine questions on smoking policies (restrictions, advertising, taxes and prevention) were applied. Results: 95% of responders supported policies that would help smokers to quit, 92% supported no selling of tobacco to subjects aged less than 16 years, 87% a smoking ban in public places and 86% a national campaign against smoking. A further 77% supported a total ban on tobacco advertising, 74% the reimbursement of nicotine replacement therapies and 70% increasing the price of cigarettes. Conversely, a lower support was found for a total ban of tobacco sales (35%) or the promotion of light cigarettes (22%). Multivariate analysis showed that women, lower educational level, older age, being physically active or non-smoker were associated with tougher policies against tobacco, whereas current drinking or smoking and higher educational level were associated with lower levels of support. Conclusion: opinions regarding smoking poli ci es vary considerably according to the policy type considered and also the characteristics of the subjects. Those findings provide interesting data regarding which anti-smoking policies would be more acceptable by the lay public, as well as the subjects who might oppose them.

Ruin and related quantities in some advanced insurance risk models

Risk theory has been a very active research area over the last decades. The main objectives of the theory are to find adequate stochastic processes which can model the surplus of a (non-life) insurance company and to analyze the risk related quantities such as ruin time, ruin probability, expected discounted penalty function and expected discounted dividend/tax payments. The study of these ruin related quantities provides crucial information for actuaries and decision makers. This thesis consists of the study of four different insurance risk models which are essentially related. The ruin and related quantities are investigated by using different techniques, resulting in explicit or asymptotic expressions for the ruin time, the ruin probability, the expected discounted penalty function and the expected discounted tax payments. - La recherche en théorie du risque a été très dynamique au cours des dernières décennies. D'un point de vue théorique, les principaux objectifs sont de trouver des processus stochastiques adéquats permettant de modéliser le surplus d'une compagnie d'assurance non vie et d'analyser les mesures de risque, notamment le temps de ruine, la probabilité de ruine, l'espérance de la valeur actuelle de la fonction de pénalité et l'espérance de la valeur actuelle des dividendes et taxes. L'étude de ces mesures associées à la ruine fournit des informations cruciales pour les actuaires et les décideurs. Cette thèse consiste en l'étude des quatre différents modèles de risque d'assurance qui sont essentiellement liés. La ruine et les mesures qui y sont associées sont examinées à l'aide de différentes techniques, ce qui permet d'induire des expressions explicites ou asymptotiques du temps de ruine, de la probabilité de ruine, de l'espérance de la valeur actuelle de la fonction de pénalité et l'espérance de la valeur actuelle des dividendes et taxes.