The EU should tax in harmony. CEPS Commentary, 3 May 2012

Rather than expending unnecessary negative energy on the blunt and indiscriminate financial transaction tax (FTT), this commentary argues that the EU should give priority to its tax base harmonisation project. Progress on this front would advance several objectives at once: it would make an important step towards more economic union, it would promote the EU as a business location and it would succeed in appropriating tax income to the location where corporate activities are effectively exercised.

Will income inequality cause a middle-income trap in Asia? Bruegel Working Paper 2013/06, 10 October 2013

The Asian economy is expected to realise favourable growth during the first half of this century, but there is no guarantee. There is a discussion about a ‘middle-income trap’, which refers to a country that has realised rapid growth to become a middle-income country but is unable to grow further. A middle-income trap could occur not only if there is a delay in shifting the economy toward a productivity-driven structure, but also if there is a worsening of income distribution.We consider this in line with the theories of development economics and through a quantitative analysis. The relationship between income inequality and the trap can be explained by the Kuznets hypothesis and the basic-needs approach. Our quantitative analysis supports the Kuznets hypothesis, and indicates that,although a low-income country can accelerate its economic growth with the worsening of income distribution as an engine, a middle income country would experience a decreasing growth rate if it fails to narrow the income gap between the top and bottom income groups. The results also show that the basic-needs approach is also applicable in practice, and imply that the improvement of access to secondary education is important. A sensitivity analysis for three Asian upper-middle-income countries(China, Malaysia and Thailand) also shows that the situation related to a middle-income trap is worse than average in China and Malaysia. These two countries, according to the result of the sensitivity analysis, should urgently improve access to secondary education and should implement income redistribution measures to develop high-tech industries, before their demographic dividends expire. Income redistribution includes the narrowing of rural urban income disparities, benefits to low-income individuals, direct income transfers, vouchers or free provision of education and health-care, and so on, but none of these are simple to implement.

Financing the EU Budget: Moving forward or backwards? CEPS Paperback

Often described as complex, opaque and unfair, the EU budget financing system is an ‘unfinished journey’. One of the most critical issues is that EU revenue, drawn from the cashbox of national taxation, remains intangible to the general public. The nature of the EU as a union of states and their nationals makes the visibility of EU revenue unavoidable. The political sustainability of a move that would put the legitimacy of EU revenue at the forefront of public discussion will depend on the EU institutions and member states’ ability to demonstrate that EU funds can achieve results that are truly beyond member states’ reach. In this, his third, CEPS book on the EU budget, Gabriele Cipriani assesses the current system of financing the EU budget against the criteria of simplicity, transparency, equity and democratic accountability and offers two possible options for reforming the EU revenue system. He finds that the value-added tax (VAT) is a natural choice for funding the EU budget, through a dedicated EU VAT rate as part of the national VAT and designed as such in fiscal receipts, whose use as a means for raising EU citizens’ awareness could be encouraged already in the current arrangements.

Efficient taxation of multi-national enterprises in the European Union. Bruges European Economic Policy (BEEP) Briefing 5/2003

Current arrangements for multi-national company taxation in EU are plagued by severe conceptual and administrative problems, leading to high compliance costs, considerable uncertainty and ample room for abuse. Integration is amplifying these difficulties. There are two possible approaches in designing an efficient trans-border corporate tax system for the European Union. The first is to consolidate the EU-wide operations of MNEs, using an agreed common base as the reference variable, and then to apportion this total tax base using some presumptive indicators of activity in each tax jurisdiction – hence, implicitly, of the likely benefits stemming from each location. The apportionment formula should respect requisites of neutrality between productive factors and forms of corporate financing. A radically different approach is also available that offers considerable advantages in terms of efficiency, simplicity and decentralisation, including full administrative autonomy of national tax authorities. It entails abandoning corporate income as the relevant tax base and taxing at a moderate rate some agreed measure of business activity such as company value added, sales or employment. These are the variables usually considered in formula apportionment, but they would apply directly without having first to go through the complications of EU-wide consolidation based on a common-base definition. Reference to a broad base, with no exemptions or deductions, would allow to set low statutory rates.