Chart of the Week: Budget-friendly, Equitable Growth in France

By IMFBlog

May 15, 2017

Version in Français (French)

One need look no further than the national motto—liberté, égalité, fraternité—to understand that equality is an especially important concept in France. French policies play an important role in combating inequality. This is primarily achieved through a combination of minimum wage policies and an extensive tax and transfer system.

But these traditional equality-enhancing policies may have reached their limits as unemployment has become entrenched and budgets have been severely stretched. So, what are the best policies for a country weighing how to boost growth, lessen inequality, and minimize costs? It is not a zero sum game.

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Can Japan Afford to Cut Its Corporate Tax?

By Ruud de Mooij and Ikuo Saito

(Versions in 日本語)

It is no surprise that, as part of its revised growth strategy presented in June, the Japanese government has announced it will reduce the corporate income tax rate. At more than 35 percent for most businesses, the Japanese rate is one of the highest among the industrialized countries of the Organization for Economic Cooperation and Development (see Chart 1). Moreover, at a time when Japan needs to boost economic growth, the corporate income tax rate is generally seen as the country’s most growth-distortive tax.

japan1

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To Owe or Be Owned—Depends on How You Tax It

Corporate tax codes in the United States, most of Europe, Asia and elsewhere in the world, create a significant bias toward debt finance over equity. The crux of the issue is that interest paid on borrowing can be deducted from the corporate tax bill, while returns paid on equity—dividends and capital gains—cannot. This debt distortion is not new. What is new, however, is that we have come to realize that excessive debt (or leverage) is much more costly than we had. The global financial crisis was a stark lesson about the risks of excessive leverage ratios in financial institutions. Designing a better system will ultimately pay off. And now is the time for change. A recent IMF Staff Discussion Note offers two alternatives that reduce or eliminate the more favorable tax treatment of debt.

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