Abstract
In this chapter, the authors, operating the criteria of rigid and comfortable national taxation regimes, attempt to evaluate the stimulating impact of country's taxation systems on the dynamics of their macroeconomic growth and country's participation in the world trade. Therefore, the chapter presents the authors' conclusions concerning the efficiency of fiscal instruments for economic growth stimulation and external trade attractiveness increase as applied to the majority of contemporary states. Based on correlation of indices of tax reformations and trends of the modern countries macroeconomic development, the co-authors present their conclusions on the priority importance of the so-called “taxation comfort” in the context of country's positioning in the global rankings. Research proved a taxation effect in countries' macro-economic growth and external attractiveness stimulating, as well as this effect dependence on the level of countries material wellbeing and infrastructural conditions.
TopIntroduction
Taxation regime of a country is among the most efficient and well known instruments of state regulation and state economic stimulation. It can also become the factor of attractiveness for foreign investors, for potential business partners from abroad and also for highly qualified (today often known as “the creative class”) labor force. Cross-country comparison of the current tax rates and of the so-called “taxation comfort” (which metaphorically expresses the (in) convenience of all tax payments and other related formalities) today is actively used by a wide range of international and regional organizations and unions as a feature in overall cross-country comparisons and their consequent ranking. It is also part of various aggregates indicators and indices – global competitiveness, investment attractiveness. Additionally to that, tax rates and taxation comfort assessments are also a significant factor for a variety of forecasts, foresights and strategic plans of various levels, from micro to macro.
There exist a popular idea that today, due to intensive globalization of the world economy and wide universalization of various public-level and business practices (including, inter alia, economic and fiscal regulation), the potential of a taxation regime as a factor of economic development is overestimated since its influence on country’s participation in global trade and country’s capacity of compete globally is rapidly decreasing. All of the above makes the following question topical as many times before: In the 21st century is national taxation system still able to stimulate the economic growth of a country and promote its trade attractiveness abroad?
Taking this aim into account, we set here the following tasks:
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On the basis of the mentioned above correlation, the determine the potential to stimulate the macroeconomic growth in the selected countries and also to estimate their external trade attractiveness from the standpoint of national tax systems according to the international ranking “Doing Business”;
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To describe the tax regime rank in “Doing Business” as a factor stimulating national exports and imports;
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To determine whether the so-called “taxation comfort” (measured through the number of tax payment per year and also time spent on all taxation-related procedures and documents) is indeed able to stimulate country’s macroeconomic growth as compared to the same stimulating impact a tax rate (in the same country) may have;
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To analyze the role of tax rate as a tool in stimulation of national external trade (that is, import and export);
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To text empirically the presence (or absence) of reverse dependence between the level of country’s economic development, its participation in the world trade and the level of its “taxation comfort”.
TopLiterature Overview
The influence of taxation regime on the economic growth dynamics and other macroeconomic indicators of the states today is an extremely topical issue because nowadays national governments tend to reconsider both instruments and strategies related to national competitiveness increase and global repositioning in the structure of global labour distribution.
Historic features of tax policies implementation and of the related national strategies aimed at stimulation of external competitiveness of countries were well outlined by H. Pemberton (2004) while examining the most important elements of the growth policy package, focusing on the array of new taxes introduced after 1960 which sought to raise growth by increasing the government’s control over the economy, encouraging the more productive use of labour, or stimulating investment via changes to the structure of taxation.
Key Terms in this Chapter
Tax Evasion: Is the illegal evasion of taxes by individuals, corporations, and trusts. Tax evasion often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned, or overstating deductions.
Tax Amnesty: Is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability (including interest and penalties) relating to a previous tax period or periods and without fear of criminal prosecution. It typically expires when some authority begins a tax investigation of the past-due tax. In some cases, legislation extending amnesty also imposes harsher penalties on those who are eligible for amnesty but do not take it. Tax amnesty is one of voluntary compliance strategies to increase tax base and tax revenue. Tax amnesty is different from other voluntary compliance strategies in part where tax amnesty usually waives the taxpayers' tax liability.
Economic Growth: Is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms (i.e., inflation-adjusted terms) to eliminate the distorting effect of inflation on the price of goods produced.
Capital Flight: In economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence. Such events could be an increase in taxes on capital or capital holders or the government of the country defaulting on its debt that disturbs investors and causes them to lower their valuation of the assets in that country, or otherwise to lose confidence in its economic strength. This leads to a disappearance of wealth, and is usually accompanied by a sharp drop in the exchange rate of the affected country—depreciation in a variable exchange rate regime, or a forced devaluation in a fixed exchange rate regime.
Tax Reform: Is the process of changing the way taxes are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. Tax reform can include reducing the level of taxation of all people by the government, making the tax system more progressive or less progressive, or simplifying the tax system and making the system more understandable or more accountable.
Tax Mitigation: “Tax aggressive,” “aggressive tax avoidance,” or “tax neutral” schemes generally refer to multi-territory schemes that fall into the grey area between commonplace and well-accepted tax avoidance (such as purchasing municipal bonds in the United States) and evasion, but are widely viewed as unethical, especially if they are involved in profit-shifting from high-tax to low-tax territories and territories recognized as tax havens.
National Competitiveness: The concept “national competitiveness” examines the ability of a national economy to grow. It is measured by a set of factors, policies, and institutions that determine a country's level of productivity.
Tax Reform: Is the process of changing the way taxes are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. Tax reform can include reducing the level of taxation of all people by the government, making the tax system more progressive or less progressive, or simplifying the tax system and making the system more understandable or more accountable.
Wealth: Has been defined as a collection of things limited in supply, transferable, and useful in satisfying human desires. Scarcity is a fundamental factor for wealth. When a desirable or valuable commodity (transferable good or skill) is abundantly available to everyone, the owner of the commodity will possess no potential for wealth. When a valuable or desirable commodity is in scarce supply, the owner of the commodity will possess great potential for wealth.
Tax Avoidance: Is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. Tax sheltering is very similar, although unlike tax avoidance tax sheltering is not necessarily legal.
Social Inequality: Occurs when resources in a given society are distributed unevenly, typically through norms of allocation, that engender specific patterns along lines of socially defined categories of persons. It is the differentiation preference of access of social goods in the society brought about by power, religion, kinship, prestige, race, ethnicity, gender, age, sexual orientation, and class. The social rights include labor market, the source of income, healthcare, and freedom of speech, education, political representation, and participation.