Peer Pressure: Tax Competition and Developing Economies

By Michael Keen and Jim Brumby

July 11, 2017

Versions in عربي (Arabic), 中文 (Chinese), Français (French),  日本語 (Japanese), Русский (Russian), and Español (Spanish)

A salesman checks an iphone in New Delhi, India: governments compete to attract investors with low corporate tax rates (photo: Adnan Abidi/Reuters/Newscom)

Economists tend to agree on the importance of competition for a sound market economy. So, what’s the problem when it comes to governments competing to attract investors through the tax treatment they provide? The trouble is that by competing with one another and eroding each other’s revenues, countries end up having to rely on other—typically more distortive—sources of financing or reduce much-needed public spending, or both. Continue reading “Peer Pressure: Tax Competition and Developing Economies” »

Chart of the Week: Ireland’s Fight Against Income Inequality

By IMFBlog

June 30, 2017

Shoppers in Dublin, Ireland: the country has high income inequality, before taxes and transfers (photo: Caro Rupert Oberhaeuser/Newscom)

Ireland’s economy continues to recover after a housing market crash in 2008 plunged the country into a deep and severe crisis. The strong social welfare system provided an important cushion against the worst effects of the crisis.

Ireland’s tax-benefit system is one of the most effective in the European Union in redistributing income. The tax system is relatively progressive and funds a robust system of social benefits, a significant share of which is means-tested. Income inequality before taxes and transfers in Ireland is high—37 percent of income is held by the top 10 percent of income earners. Social transfers make up about 70 percent of income for the bottom 20 percent of earners.

Continue reading “Chart of the Week: Ireland’s Fight Against Income Inequality” »

Higher Policy Uncertainty Could Be Bad News for Japan’s Economy

by  Elif C. Arbatli, Steven J. Davis, and Arata Ito

May 30, 2017

Version in  中文 (Chinese), 日本語 (Japanese)

Policy uncertainty remains a challenge in Japan, and can harm the country’s economic performance according to a new IMF study. The good news is that credible plans for taxation, spending and structural reforms, as well as greater clarity about monetary policy can reduce uncertainty. Continue reading “Higher Policy Uncertainty Could Be Bad News for Japan’s Economy” »

Chart of the Week: Seeking Solutions to Growing Inequality

By IMFblog

As finance ministers and central banks gather in Washington this week for the spring meetings of the IMF and World Bank, income inequality will be among the topics of discussion.

While global economic integration has brought enormous benefits in the form of rising living standards, it has also contributed to widening inequality within some countries. In advanced economies, the incomes of the top 1 percent have grown three times faster than those of the rest of the population over the past three decades. Continue reading “Chart of the Week: Seeking Solutions to Growing Inequality” »

Taxing Oil, Gas and Minerals Across Borders Poses Challenges for Developing Nations

By Philip Daniel, Michael Keen, Artur Swistak, and Victor Thuronyi

Versions in Français (French), Português (Portuguese), and Español (Spanish)

Seventy percent of the world’s poorest people live in countries rich in oil, natural gas or minerals, making effective taxation of these extractive industries critical to alleviating poverty and achieving sustained growth. But national borders make that task much harder, opening possibilities for tax avoidance by multinationals and raising tough jurisdictional issues when resource deposits cross frontiers. Continue reading “Taxing Oil, Gas and Minerals Across Borders Poses Challenges for Developing Nations” »

Redesigning Argentina’s Economic Landscape

By Roberto Cardarelli

Versions in Português (Portuguese), and Español (Spanish)

Most people know Argentina as the land of tango, Malbec, and some of the greatest soccer players of all times. But Argentina is also famous for being home to some of the most diverse and extreme landscapes of the world—from subtropical rainforests and Iguazu Falls in the north to the glaciers of Perito Moreno in the south, and from the lowest site in South America (Laguna del Carbón) to the highest elevation in the Americas (Aconcagua mountain).

Continue reading “Redesigning Argentina’s Economic Landscape” »

Tax Treaties: Boost or Bane for Development?

By Jim Brumby and Michael Keen

Tax officials and experts grappled with the issue of tax treaties several weeks ago at the IMF-World Bank Annual Meetings. This arcane subject has now emerged as a new lightning rod in the debate on fairness in international taxation. As citizens demand that corporations pay their fair share of taxes and some governments struggle to raise enough revenues for basic services, tax treaties present difficult issues.

Continue reading “Tax Treaties: Boost or Bane for Development?” »

Fixing the Great Distortion: How to Undo the Tax Bias Toward Debt Finance

By Ruud de Mooij, Michael Keen, and Alexander Tieman

“The Great Distortion.” That’s what The Economist, in its cover story of May 2015¸ called the systematic tax advantage of debt over equity that is found in almost every tax system.

This “debt bias” is now widely recognized as a real risk to economic stability. A new IMF study argues that it needs to feature more prominently on tax reform agendas; it also sets out options for how to do that.

Continue reading “Fixing the Great Distortion: How to Undo the Tax Bias Toward Debt Finance” »

An Argument for Paying Down Public Debt

By Vitor Gaspar and Julio Escolano

What should governments do about high public debt-to-GDP ratios?  This question is getting much-deserved attention. Let’s abstract from macroeconomic (business cycle) considerations and look at the issue purely from an optimal tax smoothing perspective—that is, weighing the cost and benefits of raising taxes to pay down debt. By doing so we decidedly do not engage in the current debate about the contribution that fiscal policy may make to demand management. Continue reading “An Argument for Paying Down Public Debt” »

Seeking Fairness in the Middle East and North Africa: How Taxation Can Help

Pritha MitraBy Pritha Mitra

(Versions in Français and عربي)

Aspirations for greater fairness were at the core of the protests that triggered the Arab Spring almost five years ago—and remain largely unfulfilled today. In our new paper, we show that tax reform can go a long way towards meeting those aspirations.

Taxation is a critical interface between the state and citizens. How much revenue is raised, how the tax burden is distributed, and how taxation is implemented can all powerfully affect both the reality and the perception of economic opportunities—and the degree of trust in government.

Continue reading “Seeking Fairness in the Middle East and North Africa: How Taxation Can Help” »

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