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Gerrit B. Koester, Increases, reductions and reform intensity in the main taxes in:

Gerrit B. Koester

The political economy of tax reforms, page 52 - 55

An empirical analysis of new German data

1. Edition 2009, ISBN print: 978-3-8329-4131-4, ISBN online: 978-3-8452-1609-6 https://doi.org/10.5771/9783845216096

Series: Neue Studien zur Politischen Ökonomie, vol. 5

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52 0 50 100 150 200 250 300 350 400 450 500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The legislative process: Adoption of new regulations TIMING OF TAX REFORMS 1965-2004 0 100 200 300 400 500 600 700 800 900 1000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Changes of the tax burden: Implementation of new regulations Number of regulations Number of regulations Own calculations based on: Federal Ministry of Finance (2004)/tax laws. Figure 20: Timing of new regulations A vast majority of new regulations is coming into effect at the beginning of the year. Our data show that 84.9% of all new regulations come into force in January. The only other month with a substantial number of regulations coming into effect is July (5.8% of all regulations) - the beginning of the second half of the year. 1.4 Increases, reductions and reform intensity in the main taxes So far we have analyzed the overall pattern of reform. But which taxes are most important for tax reforms? Here we analyze the distribution of reductions and increases by kind of tax. If we split up cumulated tax burden reductions by kind of tax, we find that wage and income taxes dominated the fiscal effects of tax reductions (with a share of 84%) while corporate profit taxes accounted for only 5%, VAT for 4%, local trade taxes for 3%, and net wealth taxes for 2% of all fiscal effects of tax reforms (see Figure 21). 53 Reductionsi IncreasesI % of fiscal effects of all tax tax reforms (1964-2004) % of fiscal effects of all tax tax reforms (1964-2004) REFORM PATTERNS - REDUCTIONS AND INCREASES BY KIND OF TAX Own calculations based on: Federal Ministry of Finance (2004). OTHERS; 2% WAGE AND INCOME; 84% VAT; 4% WEALTH; 2% LOCAL TRADE; 3% CORPORATE PROFIT; 5% MINERAL OIL; 13% OTHERS; 10% WAGE AND INCOME; 49% TOBACCO; 4% CORPORATE PROFIT; 3% VAT; 21% Figure 21: Importance of main taxes for tax reductions and tax increases With respect to increases, wage and income taxes accounted for 49% of fiscal effects of reforms, and VAT accounted for 21%. Mineral oil taxes played an important role as well (with 13%), while tobacco taxes accounted for only 4%. Finally, fiscal effects of corporate profit tax increases accounted for 3% of all increases. Taken together, we find that wage and income taxes were represented strongly over proportionally in tax reductions (as they accounted only for around 40% of the total tax revenues but for 84% of the fiscal effects of tax reductions in the period analyzed), while especially the VAT was strongly underrepresented in tax reductions. 54 -2,5 -2 -1,5 -1 -0,5 0 0,5 1 1,5 2 LO C AL T R AD E C O R P O R A TE P R O FI T R E A L ES TA TE A N D A C Q U IS IT IO N T A X N E T W E AL TH T A X V AT IN H E R IT A N C E T AX W A G E A N D IN C O M E TO B AC C O M IN E R A L O IL REFORM PATTERN BY KIND OF TAX 1965-2004 Cumulated fiscal effects of increases/average annual revenue (1964-2004) Own calculations based on: Federal Ministry of Finance (2004). Cumulated fiscal effects of reductions/average annual revenue (1964-2004) Figure 22: Importance of reductions and increases in main taxes If we take a closer look at the importance of increases and reductions by kind of tax (see Figure 22), we find that increases dominated in mineral oil taxes, tobacco taxes, VAT, the inheritance tax, and the real estate and real estate acquisition tax while reductions were more important than increases in the wage and income taxes, the wealth tax, the corporate profit, and the local trade taxes.74 If we add up the absolute extent of reductions and increases and compare this number to the average annual revenues from 1964 to 2004, we have an indicator for the reform intensity in the main taxes (see Figure 23). Based on this indicator we find that the absolute sum of all fiscal effects of reforms in wage and income taxes from 1964 to 2004 accounted for nearly three times the average revenue of the wage and income taxes. The next highest reform intensity can be observed in the net wealth tax, but this is strongly affected by the abolishment of the wealth tax in 1997. Mineral oil taxes, corporate taxes, and other consumption taxes show a reform intensity of in between 1 and 1.5, while the reform intensity in the value-added tax 74 It has to be noted that this is distorted by the fact that rate changes of the local trade tax – which take place regularly via multipliers set individually by each municipality – are not included in our data-set on the fiscal effects of tax reforms. 55 (where we observed barely any reductions) accounts for only 0.8. In our data the local trade tax shows the lowest reform intensity with 0.44.75 Local trade Corporate VAT Wealth tax Wage and income Mineral oil Tobacco 0 0,5 1 1,5 2 2,5 3 3,5 0,00% 2,00% 4,00% 6,00% 8,00% 10,00% 12,00% Reform intensity (absolute sum of increases and reductions 1965-2004/ avg. annual tax revenue) Tax revenues /GDP (Avg. 1964-2004) = Total changes (increases and reductions) /GDP REFORM INTENSITY IN DIFFERENT KINDS OF TAXES Own calculations based on: Federal Ministry of Finance (2004). Figure 23: Tax reforms intensity in main taxes 1.5 Summary of findings What are our main insights based on the new data on tax reforms from 1964 to 2004? First we found that the number of tax reductions dominated total new regulations. The overall extent of tax reductions was as well larger than the overall extent of tax increases, leading to a reduction of the tax burden by on average 0.13% of GDP per year. Most of the new tax regulations were small. Regulations with fiscal effects lower than 0.1% of GDP – accounted for 89% of all reforms. An analysis of the timing of tax reforms showed that tax burden increases and tax burden reductions took often place simultaneously. Tax laws were passed especially in March, June and December of each year and the vast majority of tax reforms became effective in January. 75 See footnote 74.

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Zusammenfassung

Was bestimmt die Steuerpolitik? Welche Ziele verfolgen die Bundesregierungen bei Steuerreformen? Haben Steuererhöhungen und Steuersenkungen einen Einfluss auf die Wahlergebnisse? Auf der Basis eines neuen Datensatzes zu den fiskalischen Effekten von Steuerreformen im Zeitraum von 1964 bis 2004 zeigt das Werk Muster der Steuerpolitik auf und testet zentrale ökonomische Hypothesen. Dabei zeigt sich, dass normative ökonomische Ansätze kaum einen Erklärungsbeitrag für die zu beobachtende Steuerpolitik leisten können.

Ausgehend von wichtigen polit-ökonomischen Theorien zeigt der Autor, dass die Mehrheitskonstellationen im Bundesrat einen wichtigen Einfluss auf die Steuerpolitik haben, allerdings genau umgekehrt wie von der Blockade-Hypothese behauptet: Steuerreformen sind gemessen an ihren Fiskaleffekten bei gegenläufigen Mehrheiten in Bundestag und Bundesrat häufiger und umfangreicher. Des Weiteren gibt es keine Hinweise darauf, dass die parteipolitische Zusammensetzung der Bundesregierung einen wichtigen Einfluss auf Steuerreformen hat. Wahltaktische Terminierungen von Steuerreformen spielen aber sehr wohl eine wichtige Rolle. Eine Auswertung des Zusammenhangs von Steuerreformen und Wahlergebnissen zeigt allerdings, dass die Versuche der Bundesregierungen, ihre Wiederwahlwahrscheinlichkeit durch Steuersenkungen kurz vor der Wahl zu erhöhen, wenig erfolgreich sind: Nicht nur die Jahre unmittelbar vor den Wahlterminen, sondern die Steuerpolitik in der gesamten Legislaturperiode hat einen Einfluss auf die Bundestagswahlergebnisse der regierenden Parteien.