Welfare implications

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3( 2 )

(1 )(1 )

e k

t n f

h h h

    

  

       

   , (3.12)

Immediately, we have the following result:

Proposition 3.1. An increase in international tax planning  reduces (increases) the equilibrium capital tax if _t ( _t), where t 



⁽¹ ⁾ ²h



h⁽¹⁾.

As  increases, the redistribution concern induces the policymaker to raise t.

On the other hand, according to (3.9a), a larger  aggravates the adverse impact of the tax on the capitalists’ welfare, leading them to exert a greater political pressure to reduce t. If  is sufficiently large, then the political effect outweighs the redistribution effect, so that the tax rate decreases with  . Otherwise, the tax rate will increase with  .

3.5 Welfare implications

3.5.1. A unilateral increase in international tax planning

An interesting result in Hong and Smart (2010) is that international tax planning unambiguously improves the welfare of high-tax countries. The intuition underlying their result is as follows. Practical reasons generally restrict the implementation of the optimal tax rule, which requires differential tax rates on the different types of capital.

However, international tax planning provides a desirable differential tax treatment, and thus enhances efficiency. In what follows, we demonstrate that such efficiency improvement due to tax planning does not necessarily occur in the presence of lobbying.

To elaborate on this notion, we totally differentiate (3.8), the social welfare function:

‧

Rearranging (3.13) gives the effect of international tax planning on social welfare as follows:¹⁹ prohibited initially. In this case, (3.14) reduces to

2 2

Hence, we have the following proposition.

Proposition 3.2. Suppose that international tax planning is prohibited initially. A unilateral increase in international tax planning in a high-tax country improves its social welfare, regardless the magnitude of .

As indicated in (3.9a), the marginal adverse effect of t on the capitalists’ welfare depends on  . If the initial  equals zero, then the capitalists’ welfare is independent of t, and thus they will not lobby. In this case, like in Hong and Smart (2010), an increase in  enables the high-tax country to implement a differential tax treatment on the two kinds of capital, and thus enhances efficiency.

However, if the initial international tax planning is not equal to zero, then an increase in  is not necessarily efficiency-enhancing, as shown in the following proposition.

Proposition 3.3. If the initial level of international tax planning is positive, then a

19 See Appendix 3.1 for the derivation of (3.14).

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unilateral increase in international tax planning in a high-tax country may either increase or reduce its social welfare. In particular, social welfare will be reduced (improved) if   _u(  _u) where _u  (1  h) /h .

Proof: See Appendix 3.2.

With a positive  , the political effect emerges. As indicated in (3.9a), a larger

 leads the capitalists to exert a stronger downward pressure on the tax rate.

Combining this result with Lemma 3.1, that shows that the equilibrium tax rate has been set below the efficient level, indicates that the political effect drives t^e further below t^, and reduces social welfare.

In sum, when the initial tax planning is positive, an increase in  brings about two effects: one is a welfare-enhancing effect due to enforcing differential tax treatment, and the other is a welfare-reducing effect arising from lobbying. If  is sufficiently large, then the latter effect will outweigh the former one, so that social welfare decreases with  .

3.5.2. Global reduction of tax planning

Thus far we have discussed the effect of a unilateral change in tax planning in an individual high-tax country. In this subsection, we turn to investigate the effect of the international cooperation on reducing the tax planning. We characterize this scenario by assuming that all countries cooperatively reduce the tax planning by the same magnitude. In order to distinguish the notation from the previous analysis, we denote

ˆ as the global agreement on tax planning. Since ˆ changes simultaneously across countries, the global agreement does not reallocate capital, i.e., k/ˆ 0. By using this fact, we further obtain that the following results: W^k /ˆ n^kt, W^l/ ˆ 0,

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and W^p /  ˆ n t^k . Accordingly, the effect of ˆ on each country’s welfare is expressed as: ²⁰

2 2 2 2

3

(1 ) 2 (1 ) (1 )(1 )

ˆ (1 )(1 )

nk f h h h h

dW d

       

  

  

          

   . (3.16)

We first consider the case where the government is benevolent, which can be characterized by setting  0, and we have the following proposition:

Proposition 3.4. When the government is benevolent, i.e.,  0 , a global cooperation to reduce international tax planning activities (a lower ˆ) improves the welfare of all high-tax countries.

The intuition of Proposition 3.4 is quite straightforward. Without the political effect, a global cooperation to reduce tax planning acts as nothing but to transfer the income from the capitalists to the pensioners.²¹ Since the governments attach a higher weight to the welfare of the pensioners, the international cooperation certainly improves social welfare in all high-tax countries. Proposition 3.4 is close to the result in Slemrod and Wilson (2009), who demonstrate that the elimination of all tax havens increases high-tax countries’ welfare.

The presence of lobbying, however, can reverse the effect of the global cooperation on reducing the tax planning, which is shown in the following proposition.

Proposition 3.5. In the case where 0 and under the condition   (1 h)^1, there exists an interval of  ,



^{ g, g}



^{. If }



^{ g, g}



, then a global cooperation to

20 See Appendix 3.3 for the derivation of (3.16).

21 We can see this from W^k/ˆn^kt ^and W^p/  ˆ n t^{k .}

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depress international tax planning (a reduction in ˆ) reduces the welfare of all high-tax countries.

Proof: See Appendix 3.4.

Proposition 3.5 suggests that the existence of political effect can cause the global cooperation to be undesirable. To see this, we divide the effect of a reduction in ˆ on welfare into two parts: the direct effect ( W ˆ

 

 ) and the indirect effect ( W dt ˆ

t 

    ):

?

ˆ ˆ ˆ

dW W W dt

d  t d

 

 

  

  . (3.17)

As mentioned previously, the direct effect is negative, meaning that a reduction in ˆ is welfare-enhancing, because it transfers the income from the capitalists to the pensioners.

As to the indirect effect, since the lobbying leads to a sub-optimally low tax rate, the term ^W_t is positive. Moreover, according to Proposition 3.1, the term dt ˆ



 can be either positive or negative, depending on the value of . In the case where dt ˆ

 is positive, the indirect effect is also positive; i.e., a reduction in tax planning will reduce the social welfare. When the indirect effect dominates the direct effect, the global cooperation on reducing tax planning will reduce all high-tax countries’ welfare. The intuition is that a reduction in ˆ drives the equilibrium tax further below that the tax rate that maximizes social welfare, and thus reduces the social welfare in all high-tax countries.

On the other hand, in the case where dt ˆ

d is negative, both direct and indirect effects are negative. In other words, the political effect will increase the welfare-improving of the global cooperation.

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在文檔中 資本稅及環境政策之政治經濟分析 - 政大學術集成 (頁 38-43)