24 September Questions

1) Why may relative income tax rates between countries give only a partial picture of the international competitiveness of theses countries? What else would need to be taken in account?
The relative income tax rates between countries are not the only point of competitiveness. Other things are very important to be taken into account. If the country is undeveloped, earners will not be interested in moving to that certain country. As well as the stability of the taxes is an important facts, if the tax is low but has had a history of swings up and down its not very attractive. Also into consideration needs to be the laws of the certain country. These might affect the earners choices. Countries without tax are called Tax-Havens Kuwait is one of the 12 in the world. Although some of those countries do have strict laws for their citizens to be involved in the countries economy.

2) Does making taxes more steeply progressive necessarily act as a disincentive to output? Explain
Making taxes more steeply progressive is not necessarily a great idea, since the higher the tax is on the high earners the more likely they are to leave the country and find one where they will receive more income. “The 50 per cent tax rate on people earning more than £150,000 a year, combined with increases in national insurance, has undoubtedly made the UK less attractive to high earners. Many of these people will be highly skilled and they are usually very mobile.”- Mark Giddens

3) What factors are likely to determine the relative size of the income and substitution effect of tax changes?
Disposable income is of course determined by the amount of taxation and as well on the amount someone earns per year. Italy has the highest rates for high earners and they only get to keep about 54.1% of their raw income, Netherlands is right behind with only 54.7% of the income received by the earners.

4) How progressive are income taxes in the UK compared with other countries? Give Examples.
In the UK a high earner with an income of £122,000 only takes home 60.9% of this income. On the other hand high earners in Russia get to keep about 87% of their income. The UK income taxes are very progressive compared to countries like Japan or Dubai. Dubai has no income tax so there is not progression depending on the salary. Although Japan a worker earning £25,000 gets to take home 90.8% of his income, on the other hand someone earning $200,000 in Japan gets to keep 72% of his income. In the UK an average worker with $25,000 income takes home $20,799 and someone earning $200,000 takes home only $121,819.

5) What externalities (positive and negative) might result from steeply progressive income tax rates?
From steeply progressive income tax there might be a few consequences. The positive ones would be that low income workers would stay since they would receive lots of their own salary. Although on the other hand high earners which are fewer although much wealthier would start leaving since they will keep a much smaller amount of their money.

6) What determines the international elasticity of supply of labour?
The international elasticity of supply of labour is determined by the ability to travel mainly, as well as the ability to receive a job in a different country. Taxes are a huge part of this as well for everyone since e.g. an average worker in Russia receives 3 times as much salary as an average worker in Germany.

7) What is the Laffer curve? How will the shape of the Laffer curve be affected by the international mobility of labour and international tax rates?
The Laffer curve is a theoretical representation of the relationship between governments revenue raised by its taxation. The higher the progressiveness of taxation the flatter the curve will be since high earners will start leaving the country. On the other hand if the taxation is low the curve will we stretched upward.