The Debate on the Sustainability of Social Spending

The economic and political debate in countries with older industrialization faces a progressive growth of social spending in relation to national products, generated by a concurrence of factors (aging of populations, low productivity in human services, moral hazard), which leads to propose reductions of social spending in favor of other resource allocations. Social expenditures, however, constitute an essential part of the “social pact” which historically united citizens in accepting equalities in political rights and inequalities in the command over resources. The question on the “sustainability” of the choices regarding social policies is open, with regards to the acceptability of economic inequalities and in relation to the ethical themes founded on the recognition of human dignity.Sustainability of social spending

Taxation and incentives to innovate: A principal-agent approach

A principal-agent multitasking model is used to explore the effects of different tax schemes on innovation in a pure knowledge economy. Corporate taxes and labor income taxes can affect both the firm owner's and the employee's incentives to commit to innovative tasks, when the former compensates the latter (a manager, technical or R&D employee) by means of variable pay tied to measures of the company's success. Results point to a complementary role between 'patent box' tax incentives and reductions in the tax rate levied on profit sharing schemes. This complementarity holds, albeit with different relative importance for the two tax incentives, also with non-deductible labor costs, with a stochastic innovation value coupled with a risk-averse agent, and with multiple principals competing for talented agents

The relationship between R&D intensity and profit-sharing schemes: evidence from Germany and the United Kingdom

We study the determinants of the use of profit sharing schemes (PSS) by exploiting two datasets for Germany and the United Kingdom. Our results replicate studies for the U.S. which report a positive correlation between R&D activity and PSS use. For Germany, Granger-causality tests support a causal interpretation. Similarly to U.S.-based studies, we also find that a firm's turnover is strongly associated with PSS use whereas this does not hold for the age of a firm and its organizational characteristics

Motivating innovation in a knowledge economy with tax incentives

In the past decades the role of profit sharing schemes (PSS) as a way to foster innovation in a principal-agent context, and more generally of innovation in economic growth, have been widely acknowledged and studied. However, surprisingly little has been done to analyze the interactions between tax policy, PSS and innovative activity, not least because of severe data limitations. In this study we propose an agent-based model to explore the effects of two distinct tax policies on innovation in a pure knowledge economy: a "patent box" incentive and a tax incentive on compensation earned by agents as PSS. A distinct feature of this paper is that in contrast to the conventional assumption that firms (principals) decide on whether to innovate or not, we propose that this decision is actually taken by their employees (agents). We compare the two tax incentives under several distinct specifications and find that the tax incentive on PSS is more efficient than a "patent box" incentive when the role of capital investments in R&D is negligible. With R&D investments in the form of a capacity constraint, both tax incentives are found to play a role in fostering innovation. In addition we find important effects on the incentives´ relative efficacy due to labor mobility and due to the ability of firms to benefit from knowledge spillovers

Superstars and mediocrities: a solution based on personal income taxation - JRC Working Papers on Taxation and Structural Reforms No 01/2018

The markets for talent often produce large income inequality and therefore raise political attention. While such inequality can be due to superstar dynamics or factor complementarities, Terviö ("Superstars and Mediocrities: Market Failure in The Discovery of Talent", the Review of Economic Studies, 2009) first proposed a market failure that was previously unknown to the literature, pointing to long-term contracts as a solution. I extend the model in Terviö (2009) to include personal income tax policy reforms and demonstrate that tax design can be employed as a solution to the market failure when long-term contracts are unfeasible. With small enough entry payments that novice workers would sustain to compensate employers for the cost of learning, both a progressive tax and a tax incentive on entry wages are found effective. The tax incentive on entry wages, though, can be used even with very large deductible entry payments and with overall negative net entry wages.JRC.B.2 - Fiscal Policy Analysi

Effects of an ad valorem Web Tax in a Cournot-Nash market for digital advertising JRC Working Papers on Taxation and Structural Reforms No 9/2018

We extend the theory of tax incidence under Cournot-Nash oligopolistic competition to study the effects of an ad valorem sales tax on Web services (so-called Web Tax) that are provided free of charge to users, and produce advertising space sold to businesses. Ads are more valuable to advertisers the more users are served by a Web service. Users have ads-neutral preferences and Web companies compete in a Cournot-Nash fashion on the advertising market but enjoy monopolistic power in the service market they serve. We demonstrate that, contrary to standard theoretical results, the equilibrium market price might be reduced by a Web Tax. The conditions for such a decrease depend upon the elasticity of ads demand.JRC.B.2 - Fiscal Policy Analysi

SeaClouds: An Open Reference Architecture for Multi-Cloud Governance

A. Brogi, J. Carrasco, J. Cubo, F. D'Andria, E. Di Nitto, M. Guerriero, D. Pérez, E. Pimentel, J. Soldani. "SeaClouds: An Open Reference Architecture for Multi-Cloud Governance". In B. Tekinerdogan et al. (Eds.): ECSA 2016, LNCS 9839, pp. 334–338, 2016.We present the open reference architecture of the SeaClouds solution. It aims at enabling a seamless adaptive multi-cloud management of complex applications by supporting the distribution, monitoring and reconfiguration of app modules over heterogeneous cloud providers.Universidad de Málaga. Campus de Excelencia Internacional Andalucía Tech

Profit shifting and industrial heterogeneity

Base erosion and profit shifting (BEPS) undermines tax revenues collection and raises public discontent in times when the tax burden has increased significantly for households in most developed economies. In addition, new forms of profit shifting related to intangible investment have emerged rapidly along the traditional use of transfer pricing and debt shifting by multinational companies. In this paper, using worldwide company level data for the period 2004-2013, we demonstrate that the sectoral differences in profit shifting are a serious concern from a welfare and policy perspectives. Sectors performing more profit shifting lower their average cost of capital and are thus able to attract more investment to the detriment of sectors less able to dodge taxes. We develop a multilevel model and provide indirect evidence of the welfare costs caused by profit shifting by estimating the cross-sectoral variance of semi-elasticity of declared profit. We also demonstrate that having a larger share of intangible assets is not per se related to more profit shifting and that it may point instead to cross-sectoral differences. Finally, we detect almost no financial shifting and find that the largest part of profit shifting is done by means of transfer pricing.JRC.B.2 - Fiscal Policy Analysi

The Debate on the Sustainability of Social Spending

The economic and political debate in countries with older industrialization faces a progressive growth of social spending in relation to national products, generated by a concurrence of factors (aging of populations, low productivity in human services, moral hazard), which leads to propose reductions of social spending in favor of other resource allocations. Social expenditures, however, constitute an essential part of the “social pact” which historically united citizens in accepting equalities in political rights and inequalities in the command over resources. The question on the “sustainability” of the choices regarding social policies is open, with regards to the acceptability of economic inequalities and in relation to the ethical themes founded on the recognition of human dignity

Tax progressivity and R&D employment

We study the relationship between tax progressivity and the size of the R&D workforce, using a panel of European countries in 2000-2019. We review the theoretical literature which provides opposing predictions about such a relationship. We then demonstrate that such relationship exists as a "within" effect, it is negative, meaning that a larger tax progressivity is associated with smaller shares of employment in R&D activities, and it remains statistically significant after performing a number of robustness tests. Differently to previous studies based on patenting inventors, we find no effect due to top tax rates on the size of R&D employment