The current pricing mechanism for carbon in the EU, the EU emissions trading system, only covers 40 percent of emissions. Carbon taxation currently plays no role. The Commission has recently proposed to revise the energy tax system in the EU to include a carbon tax component. This paper evaluates the Commission proposal and considers the possible expansion of the EU carbon pricing base either by expanding emissions trading to cover more sectors or by enacting a carbon tax. It concludes that there are strong arguments for expanding the carbon pricing base, as suggested by the Commission. Nevertheless, expanding the base should done through a unified system, such as expanding the coverage of the emissions trading system or enacting an economy-wide carbon tax rather than through having side-by-side taxes and trading, as in the Commission proposal.
This paper analyzes the effects of income taxation on the international migration oftop earners using the Danish preferential foreigner tax scheme. This scheme, introduced in 1991, allows immigrants with high earnings (above 103,000 Euros per year as of 2009) to be taxed at a rate of 25% for a duration of three years instead of the regular progressive schedule with a top marginal tax rate of 59%. Using population wide Danish administrative tax data, we show that the scheme doubled the number of highly paid foreigners in Denmark relative to slightly less paid ineligible foreigners, which translates into a very large elasticity of migration with respect to the net-of-tax rate in excess of one.
There is bunching of earnings at the scheme eligibility threshold, evidence of a significant but quantitatively very small response along the intensive earnings margin (work effort or earnings manipulation through tax avoidance). There is also evidence of sharp bunching of durations of stay at the three year duration limit which translates into a significant but quantitatively small intensive duration response. In the end, the migration elasticity is much more larger than the conventional within country elasticity of earnings with respect to the net-of-tax rate. Hence, preferential tax schemes for highly paid workers could generate very harmful competition across European countries and severely limit the ability of European governments to use progressive taxation.
This paper complements a small but growing literature on the effect of corporate taxes on R&D investment and patent holdings. We provide evidence that patenting strategies are exploited as a device to transfer income to low-tax jurisdictions. Using data on the population of corporate patent applications to the European Patent Office, we show that the location of R&D investment and patent ownership is geographically separated in a non-negligible number of cases. Moreover, our results suggest that this geographical split is partly motivated by tax considerations. We find that countries which levy low patent income taxes attract ownership of foreign-invented patents, especially those patents that have a high quality and earnings potential. Analogously, inventor countries with high patent income tax rates observe ownership relocations of high-quality patents from their borders. Moreover, our results suggest that the probability for a patent to be owned by a party in a tax haven country signi cantly decreases if the inventor country has implemented controlled foreign company laws.
This paper analyses several options for the introduction of new taxes on the financial sector. It sets out possible objectives for such taxes, and in particular analyses the Financial Activities Tax (FAT) and the Financial Services Contribution (FSC). It compares the properties of the various forms of the FAT in terms of the revenue-raising potential while minimising distortions. The FSC may instead be seen as a mechanism to correct negative externalities created by the financial sector. To analyse this, the paper considers the origins of the recent financial crisis, and then considers the likely effects of the introduction of the FSC alongside existing regulations.