“California’s fiscal problems go well beyond the design of its tax system, but its tax system has certainly contributed to these problems.” bemerkt Alan J. Auerbach (2010, S. 1), Professor der Volkswirtschaftslehre und des Rechts and der University of California, Berkeley, 2010.
In diesem Aufsatz werden die Wurzeln, sowie Implikationen, problematisch gestalteter Steuersysteme analysiert, sowie ein allgemeiner Vergleich der Steuersysteme in einzelnen US-amerikanischen Staaten, sowie den USA insgesamt und sämtlichen OECD Staaten, vorgenommen. Die untersuchten Länder weisen den höchsten Grad an zyklischer Volatilität der Steuereinnahmen aus und sind daher besonders interessant für die Thematik dieses Aufsatzes.
Schließlich werden noch unterschiedliche Lösungsvorschläge präsentiert.
It is these countries that seem to display the highest degree of cyclical volatility of tax revenues, and are therefore of interest. Please refer to the appendix for the tables.
Table of Contents
1. Tax Data
2. Evidence for Volatility
3. Cause and Effect of Volatility
4. Solutions
4.1 Reducing progressivity of income taxes
4.2 Rebalancing the tax portfolio
4.3 Modifying corporate income tax
Objectives and Topics
This paper examines the reasons behind the high cyclical volatility of tax revenues observed in countries like the UK and the USA, which rely heavily on progressive income and corporate profits taxes. The primary research objective is to identify the drivers of this volatility and evaluate potential fiscal modifications to stabilize government income in response to GDP fluctuations.
- Analysis of tax structures and their impact on revenue cyclicality.
- Examination of the relationship between economic health and tax base stability.
- Assessment of tax system features like fiscal drag and loopholes.
- Exploration of policy solutions, including tax reform and reserve funds.
Excerpt from the Book
3. Cause and Effect of Volatility
After having established that a strong cyclical volatility of tax revenues is in fact existent in some countries and that it is most pronounced in those countries (and states) that rely heavily on personal income taxes and corporate income taxes, I will now attempt to outline a set of reasons for this problem.
The root of the problem is that the amount of personal income tax and corporate income tax revenue a government receives is strongly dependent on the individual income of citizens and corporate profits. This tax base, more than for any other taxes, is in turn directly linked to the health of the economy. If there is a recession, companies will experience declining profits – some may even suffer losses – and most people in the workforce will watch their incomes freeze, or fall. More often than not, a part of the workforce will even lose their incomes completely, if companies downsize.
The opposite is true for periods of economic expansion. Furthermore, this volatility of income will affect tax revenues even more if capital gains and stock-market related profits are taxed strongly as part of personal income. Financial markets tend to be more volatile than national economies themselves, so if there is a high percentage of wealthy individuals in a state or country that own stocks or investments on which they receive dividends, their income - and thus the tax base - will fluctuate accordingly. This has been the case in California.
Summary of Chapters
1. Tax Data: This chapter provides an overview of corporate and personal income tax rates across G7 and OECD countries, establishing the high reliance on these revenue streams in the US and the UK.
2. Evidence for Volatility: The chapter presents empirical data and charts illustrating the cyclical fluctuations of tax revenues in relation to GDP, highlighting dramatic revenue shifts during economic downturns.
3. Cause and Effect of Volatility: This section investigates the underlying economic reasons for revenue instability, including the sensitivity of tax bases to market cycles, fiscal drag, and the impact of tax loopholes.
4. Solutions: The final chapter proposes strategic responses for governments, focusing on tax system revisions, such as reducing progressivity or rebalancing tax portfolios, and the implementation of reserve funds.
Keywords
Public Economics, Tax Revenue, Cyclical Volatility, Fiscal Policy, Corporate Income Tax, Personal Income Tax, GDP, Fiscal Drag, Budgetary Stability, Revenue Elasticity, Recession, Economic Expansion, Capital Gains, Progressive Taxation, Reserve Funds.
Frequently Asked Questions
What is the fundamental focus of this paper?
The paper explores the causes of cyclical tax revenue volatility in economies that rely heavily on progressive income and corporate taxes, specifically focusing on the US and the UK.
What are the primary thematic areas covered?
The themes include tax structure analysis, the elasticity of tax revenues relative to economic performance, fiscal management challenges, and potential policy solutions for budget stabilization.
What is the central research question?
The research seeks to understand why certain countries experience higher tax revenue volatility and how fiscal policy or tax structures can be modified to better account for these fluctuations in relation to GDP changes.
Which scientific method is applied?
The analysis utilizes a comparative approach, reviewing historical tax data, revenue trends, and existing economic studies to identify correlations between tax system design and revenue instability.
What is examined in the main body?
The main body evaluates tax data across OECD nations, visualizes revenue volatility through various charts, details the causes of such volatility (such as fiscal drag and market-dependent income), and suggests potential remedial policy measures.
Which keywords best characterize the work?
The work is characterized by terms such as Public Economics, Cyclical Volatility, Fiscal Policy, Tax Revenue, and Revenue Elasticity.
How does fiscal drag contribute to the problem?
Fiscal drag causes tax revenues to grow faster than GDP during economic expansions as individuals are pushed into higher tax brackets, which compounds the volatility when the economy eventually declines.
What is the role of "rainy day funds" in this context?
Rainy day funds serve as a fiscal management tool to accumulate surplus revenue during periods of economic growth, which can then be utilized to offset budget shortfalls during recessions.
- Quote paper
- Julian Radlinger (Author), 2011, The Cyclical Volatility of Tax Revenues , Munich, GRIN Verlag, https://www.hausarbeiten.de/document/179490
