Research Phase 6 Taxes and behaviour: banks, environments & incentives
1 Carbon Tax
Carbon Taxation in Europe: Expanding the EU carbon price
David A. Weisbach
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.
2 Top Earner Migration
Taxation and International Migration of Top Earners: Evidence from the Foreigner Tax Scheme in Denmark
Henrik Jacobsen Kleven, Camille Landais, Emmanuel Saez & Esben Schultz
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.
3 R&D and Patents
The Impact of Corporate Taxes on R&D and Patent Holdings
Tom Karkinsky & Nadine Riedel
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.
4 Bank Tax
New Bank Taxes: Why and What Will Be The Effect?
Michael P. Devereux
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.
1 Carbon Tax
Carbon Taxation in Europe: Expanding the EU carbon price
David A. Weisbach
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.
2 Top Earner Migration
Taxation and International Migration of Top Earners: Evidence from the Foreigner Tax Scheme in Denmark
Henrik Jacobsen Kleven, Camille Landais, Emmanuel Saez & Esben Schultz
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.
3 R&D and Patents
The Impact of Corporate Taxes on R&D and Patent Holdings
Tom Karkinsky & Nadine Riedel
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.
4 Bank Tax
New Bank Taxes: Why and What Will Be The Effect?
Michael P. Devereux
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.
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