In September 2008, the UK government announced a surprise stimulus policy in response to a dramatic fall in the housing market: a property transaction tax on houses sold in a certain price range was temporarily eliminated. This column reports research showing that this stimulus boosted transaction volumes by 20% and increased consumer spending by an amount equal to the forgone tax revenue. Cutting transaction taxes during economic downturns can thus be an effective way to stimulate both the housing market and the broader economy.
Quantifying who benefits from corporate tax cuts requires estimates of the effects of taxes on the local economy and on the location decisions of firms and workers. This research analyses every change in state business taxes in the United States since 1980 to show that the largest beneficiaries from a tax cut are the owners of firms (40%), with landowners and workers splitting the remaining (60%) of the economic gains. Where the benefits of corporate tax cuts fall ultimately depends on the relative mobility of firms and workers – and many factors other than tax rates influence their choice of location.
This paper shows that taxes affect the international location decisions of the best “superstar” inventors. Higher tax rates lead to a significantly lower share of superstar inventors remaining in their home country and a lower share of foreign superstar inventors who move to the country. This may have significant fiscal and innovation costs for a country that should be taken into account when setting tax policy.
Tax collectors in developing countries collect far less tax revenue as a share of gross domestic product than tax collectors in higher income countries. In many of these developing countries, tax officials have discretion in assessing, enforcing, and auditing taxes. In addition, they earn relatively low wages with fewer rewards for good performance, allowing for the possibility of collusion with taxpayers. In the case of property taxes, officials may accept payments in exchange for leaving properties off the tax rolls, granting inappropriate exemptions, or assessing properties at a lower rate, all of which lead to lower revenues for the state.