Time-varying fiscal spending multipliers in the UK


We study fiscal spending multipliers of the UK economy using a time-varying parameter factor augmented vector autoregressive (TVP-FAVAR) model. We show that government spending multipliers vary over time and that most of the variation is cyclical: multipliers are typically above one in recessions and below one in expansions. Regarding the drivers of the cyclical variations, our results are consistent with theories emphasizing the role of financial frictions and economic slack. We find no evidence that multipliers are larger at the zero lower bound. Structural factors seem to play a lesser role and multipliers do not exhibit a clear tread. We conclude that policy recommendations based on average multipliers that do not take into account the position of the economy in the cycle are potentially misleading and that the impact of government spending shocks is rather limited in the UK in non-recessionary periods.

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Effective marginal and average tax rates in the 2017 italian taxbenefit system for individuals and households


The personal income tax influences, through marginal and average tax rates, income redistribution, labour supply, and tax evasion. In this paper we present, for the main taxpayer types and income levels the statutory and implicit tax rates generated by the Italian personal income tax‐benefit system components (social contributions, personal income tax, income type deductions, family‐related deductions, family allowance, local surtaxes, and the “80 euro monthly bonus”) along with the effective marginal tax rates deriving from their interaction. These tax rates are computed both for hypothetical taxpayer types (employee, retiree, selfemployed with and without dependent family members) and using a microsimulation model with a representative sample.

The results show that the Italian tax‐benefit system generates a broad range of effective marginal tax rates, with positive and negative values, determining, in some cases, also a “poverty trap” (that is a marginal tax rate higher than 100 percent). The marginal and average tax rates are also sometimes decreasing with growing taxable income, while at a low level of income we have such high tax rates that a disincentive for labour supply may result. With this evidence, a correction of the Italian tax‐benefit system appears desirable both to preserve a more efficient income redistribution as well as labour supply incentives.

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Non-Tax Revenue in the European Union: A Source of Fiscal Risk?


This paper examines the characteristics of government non-tax revenue in the European Union. Nontax revenue includes a large number of diverse income sources, such as fees charged for the provision of public services, income from financial assets and government property, and EU funds. Receipts from sources other than taxes account for slightly more than one-tenth of total revenue, but the fiscal risk stemming from the volatility of non-tax revenue is three times higher than that from the volatility of tax revenue. We present measurements of volatility in non-tax receipts in the Member States that can help identify the uncertainty around annual projections of revenue. Panel data analysis is used to examine whether macroeconomic and fiscal variables can explain the differences in non-tax revenue among Members States. Government spending, tax receipts and the size of financial assets held by government are found to explain close to a third of the cross-sectional variation in non-tax revenue. Granger causality tests are used to examine the direction of causality across Member States between non-tax revenue, tax receipts, and government spending.

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Stock option taxation: a missing piece in european innovation policy?


Venture capital has become a dominant form of innovation finance, used by many high-tech startups. Europe lags the U.S. in both VC activity and the creation of successful startups, and has recently been surpassed by China. Few European countries have rates of VC activity commensurable to their deep finan-cial markets, strong legal institutions and high R&D spending.

This paper points to the tax treatment of employee stock options as an important and neglected explanation. Innovative entrepreneurship is a complex activity that normally requires support structures and collaboration by actors providing financial and human capital to startups. As a response to high uncertainty and transaction costs, VC financiers developed a model where founders and key recruitments are compensated with stock options under complex contracts.

While most countries tax stock options as labor earnings, the U.S. allow them to be taxed at a low capital gains tax rate. This has led to near universal use of stock options in U.S. VC deals, while this remains less common in Europe. There is a strong correlation between favorable tax treatment of employee stock options and VC activity. We discuss the interaction between tax policy and contract theory to show why employee stock options are a suitable solution to agency and incentive problems in this sector. A major advantage of this tax policy is that it narrowly targets entrepreneurial startups without requiring broad tax cuts.

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Charging drivers by the pound: the effects of the UK Vehicle Tax System


Policymakers have been considering vehicle and fuel taxes to reduce transportation greenhouse gas emissions, but there is little evidence on the relative efficacy of these approaches. We examine an annual vehicle registration tax, the Vehicle Excise Duty (VED), which is based on carbon emissions rates. The UK first adopted the system in 2001 and made substantial changes to it in the following years. Using a highly disaggregated dataset of UK monthly registrations and characteristics of new cars, we estimate the effect of the VED on new vehicle registrations and carbon emissions. The VED increased the adoption of low-emissions vehicles and discouraged the purchase of very polluting vehicles, but it had a small effect on aggregate emissions. Using the empirical estimates, we compare the VED with hypothetical taxes that are proportional either to carbon emissions rates or to carbon emissions. The VED reduces total emissions twice as much as the emissions rate tax but by half as much as the emissions tax. Much of the advantage of the emissions tax arises from adjustments in miles driven, rather than the composition of the new car sales.

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