Part 1 - AL-Tax

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Chapter 11Which index is a better measure of public finance competitiveness? When onespeaks of competitiveness, one usually thinks of the attractiveness of investing orstarting a business in a particular country. Thus, the corporate income tax is animportant component of reaching that decision. The Index of Economic Freedomgives the corporate income tax a double weighting, 50%, compared to 25% for theother two variables. The Tax Misery Index also includes the corporate income taxbut does not give it any extra weight.But corporate income tax is not the only measure that investors and corporateofficials look at when deciding where to invest. They look at other costs of doingbusiness, such as employee payroll taxes. The Tax Misery Index includes thesetaxes, whereas the Index of Economic Freedom does not. But the Tax Misery Indexalso includes some taxes that do not directly affect a corporation’s cost of doingbusiness, such as the wealth tax and the individual income tax.Perhaps a better index to use would be to include the corporate income tax, theemployer portion of social security taxes, and the VAT. Those are the taxes thatmost directly affect the cost of doing business. The other taxes cause pain, but not toemployers. If the goal is to choose which countries in which to conduct one’s business,perhaps only the taxes that affect the cost of doing business should be includedin the index. But the Tax Misery Index perhaps provides better information forpolicymaking purposes.One area for further research would be to develop an index that includes justthe taxes that corporate employers pay directly. Table 11.11 does that, but only forthe countries that were included in Table 11.1. It includes data for 34 countries, 12Asian economies and 22 developed or transition economies. The midpoint is 17,which is represented by Turkey. The countries ranked 1–17 include only twoAsian countries (China and Turkey). These countries impose the highest tax burdenon employers. The 17 countries in the bottom half impose the lightest tax burden onemployers. This group includes 10 of the 12 Asian economies. Thus, the vast majorityof Asian countries included in the present study – 10 out of 12 – impose lowerthan average tax burdens on corporations.Based on the figures in Table 11.11, it appears that Hong Kong is the best Asianeconomy to do business in, at least in terms of relatively light tax burden. Its scoreof 22.5 places it in a very competitive position. Interestingly enough, China is theworst Asian country to do business in, in terms of tax rates. Its score of 94.5 placesit in second position, behind France. Its corporate income tax is relatively high(33%) and so is its employer share of social security taxes (44.5%). Only France(45%) and Romania (46.75%) have higher social security taxes imposed onemployers.285
International Taxation HandbookTable 11.11Tax misery for employers, 2005 (selected countries)Rank Country Corp. inc. tax Employer soc. sec. tax VAT Misery 2005Above average misery1 France 34.4 45 19.6 99.02 China 33 44.5 17 94.53 Belgium 34 34.5 21 89.54 Brazil 34 28.8 25 87.85 Sweden 28 32.5 25 85.56 Argentina 35 27 21 83.07 Romania 16 46.75 19 81.758 Spain 35 30.6 16 81.69 Czech Republic 26 35 19 80.010 Ukraine 25 37 17.5 79.511 Greece 32 28.1 18 78.112 Austria 25 31.2 20 76.213 Hungary 16 33.5 25 74.514 Italy 37.3 35 20 74.315 Netherlands 31.5 17.6 19 68.116 Russia 24 26 18 68.017 Turkey 30 19.5 18 67.5Below average misery18 USA (New York City) 46 7.7 8.4 62.119 Poland 19 20.0 22 61.020 UK 30 12.8 17.5 60.321 Japan 39.5 14.9 5 59.422 South Korea 29.7 14 10 53.723 Switzerland (Zurich) 33 12.6 7.6 53.224 Indonesia 30 12 10 52.025 Malaysia 28 12 10 50.026 India 37 0 12 49.026 Australia 30 9 10 49.028 Germany 19 13 16 48.029 Ireland 12.5 10.8 21 44.330 Thailand 30 5 7 42.031 Taiwan 25 9.4 5 39.432 Singapore 20 13 5 38.033 Hong Kong 17.5 5 0 22.534 UAE 0 5 0 5.0286
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ContentsAbout the editorsAbout the
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IndexBacchetta, P., 242, 246-8Backw
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IndexMonte Carlo simulations, 46, 5
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IndexTax policies (Cont.)capital-ta
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Part 1 - AL-Tax

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