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This paper presents a new methodology to calculate effective tax rates on the marginal return on an investment in skills within a discounted cash-flow investment framework. This approach takes into account costs including forgone labour earnings and the direct costs of skills formation, as well as the earnings premium and the return of an alternative investment in capital income. The earnings premium necessary to pursue a skills investment is calculated endogenously. This framework can be used to analyse the financial incentives to invest in skills and the impact of different policies for financing post-secondary education and/or professional training. The paper looks in particular at the effects of personal taxes (possibly net of benefits received) on incentives to acquire skills by estimating the effective tax rate on the return on a marginal skill investment – that is, one where the resulting increase in earnings is just enough to make the investment financially worthwhile; this “margin” can span multiple years. This approach may be helpful to policymakers in assessing the impact of tax progressivity and/ or the withdrawal of benefits and the case for tax breaks for postsecondary education and training, and could be extended to compare the impact of tax breaks relative to other policy instruments to stimulate skills investments. The paper includes some illustrative calculations in order to demonstrate how to apply the methodology within the OECD's Taxing Wages framework for all OECD countries, which is left for follow-up work.
This paper discusses three connected aspects of regulation: (1) what makes a regulatory authority effective; (2) what is the legitimate role of a regulatory authority in the making and implementation of policy, and how that role may be regarded by others, and (3) the issue of independence of regulation from undue political intervention. It argues that regulators are usually established to carry out complex technical tasks which government is unable or unwilling to do, partly because government wishes to distance itself from responsibility for some decisions, but, having invested regulatory authorities with sometimes considerable powers which are more detailed and intrusive than any possessed by government over state-owned entities or industries, political or bureaucratic impatience or intolerance of that power sometimes takes over, and undue governmental pressure or interventions follow. These interventions come about either because of regulatory failures, or because politicians wish themselves to exercise regulatory powers which they regret having transferred to regulatory authorities. Regulatory independence from political intervention and regulatory freedom from political considerations is internationally recognised as an important facet of effective economic regulation, but despite that, it can come under such severe pressure that the system will fracture, causing severe loss of confidence in the regulatory system and in the reputation of the host government for fairness and respect for the integrity of the systems of checks and balances which has been established for the protection of investment. It argues that regulatory independence is as much about regulatory behaviour and legal status.
French
The heated debate on the regulatory framework for airports has highlighted the importance of creating good institutions for air transport in general. This paper defines the concept of effective regulatory institutions for air transport. It also describes the value chain for air transport and how the state intervenes with what type of regulatory institution. The paper concludes by highlighting the institutional reforms necessary to make regulation effective.
Sometimes it is argued that the content of a reform is less important in determining whether or not it receives public and legislative approval than the timing of the proposal; the way in which the reform is presented; the discussions with stakeholders; and a multitude of other factors. The OECD has a crosscutting project on these issues, entitled Making Reform Happen. A number of OECD directorates are considering the factors lying behind successful implementation of reforms in their different policy areas, including tax, environment, agriculture, trade, competition, education, health, pensions, product markets and labour markets.

This report analyses existing competitive research funding mechanisms and their effectiveness, taking into account a variety of contextual factors. It focuses on the efficiency of funding allocation mechanisms relative to their objectives. The main elements of this project have been an extensive survey of individual funding schemes in different countries, complemented with targeted interviews. Findings from the survey and interviews, completed with contextual data on national research funding trends, were analysed to identify major challenges for competitive funding processes and to propose options to overcome them.

This report is aimed both at the research funding community and policy-makers wishing to adapt competitive research funding strategies to different objectives. It includes a number of policy recommendations, which engage different actors and are derived from the analysis including identification of gaps in the available data and information.

This report analyses policies and research funding mechanisms designed to foster high-risk high-reward (HRHR) research, and explores promising practices for fostering HRHR research in a variety of contexts. The underlying concern is that failure to encourage and support research on risky, ‘out-of-the-box’ ideas may jeopardise a country’s longer-term ability to compete economically, harness science for solving national and global challenges, and contribute to the progress of science as a whole. The analysis in this paper is primarily based on a survey of individual HRHR research funding schemes in different countries, complemented by targeted interviews. This survey was supplemented by an analysis of HRHR research-oriented programmes and by the feedback from an international workshop that included all relevant stakeholders.

Investment is essential to build a competitive and sustainable tourism sector. This Tourism Paper examines effective policy approaches to boost the quantity and quality of investment in tourism. It reviews the enabling conditions and barriers to promoting investment that can foster sustainable and inclusive tourism growth. Policy considerations to encourage quality investment in tourism are discussed, including the importance of cross-government co-ordination, leveraging strategies to maximise the quality and impact of tourism investment, mainstreaming sustainability into investment decision-making frameworks, and building capacity to future-proof tourism investment in a digital economy. Case studies of investment approaches in a number of countries are presented to support the policy discussion.

French
  • 27 Jul 2023
  • Ana Cinta González Cabral, Tibor Hanappi, Silvia Appelt, Fernando Galindo-Rueda, Pierce O’Reilly
  • Pages: 64
  • in OECD Taxation Working Papers

Tax incentives such as intellectual property regimes provide for reduced taxation of the income derived from research, development, and innovation related activities. By doing so, they lower the overall tax burden from investing in certain qualified intangible assets. This paper proposes a methodology to build indicators comparing the effect of income-based tax incentives for R&D and innovation on firms’ incentives to make R&D intangible investments. It provides insights into how such incentives affect firms’ decisions on whether, where and how much to invest in R&D intangibles. These indicators are used to illustrate the extent to which these tax incentives may create potential distortions to firms’ investment, protection and commercialisation decisions. The model is further developed to account for the design changes to such tax incentives introduced by the OECD/G20 Base Erosion and Profit Shifting minimum standard.

The effective taxation of corporate profits is at the centre of an active public and academic debate. This debate is often focused on the extent of low-taxed profit of multinational enterprises (MNEs) in jurisdictions with low statutory tax rates or low average effective tax rates (ETRs). However, some affiliates in high tax jurisdictions may also be subject to low ETRs, due to tax incentives or other provisions. To date, a global accounting of the ETRs paid by MNEs that incorporates within-country heterogeneity has been missing.

Using a new dataset on the global activities of large MNEs, this paper provides new estimates of the distribution of effective tax rates of large MNEs across and within jurisdictions. The results show that low tax profit is common, and that substantial low-taxed profit exists outside low tax jurisdictions. We estimate that high tax jurisdictions (jurisdictions with average ETRs of above 15%) account for more than half (53.2%) of global profits taxed below 15%, much more than very low tax jurisdictions (those with average ETRs below 5%) which only account for 18.7% of low-taxed profits. This suggests that an assessment of global low-taxed profit that focuses only on jurisdictions with low average ETRs could potentially miss out on more than half of global low-taxed profit.

Intermittent renewable energy sources, such as wind and solar, will become increasingly important in the electricity supply mix if ambitious renewable energy targets are to be met. This paper presents evidence on the effectiveness of different strategies and measures to increase the capacity utilisation of wind and other intermittent renewable energy plants. As countries progress towards more ambitious renewables penetration objectives, it is essential that the installed capacity does not end up idle and the investment ‘wasted’. The analysis is based on data for 31 OECD countries over the period 1990- 2009. Wind speed, dispatchable power, transmission capacity and energy storage are found to have positive and significant impacts on capacity utilisation. For example, if domestic grids are poorly refurbished European countries will have to invest an additional USD 38 billion worth of investment in wind power generating capacity by 2020 in order to meet the EU renewables objectives. Cross-border electricity trade is also found to have a positive impact on wind power plant capacity utilisation, albeit only at the high end of historic levels of penetration. Up to USD 25 billion worth of investment in wind power capacity by 2020 could be avoided – while still meeting the objectives – if electricity trade within the European Union is enhanced.
Economic policies shape how much people earn as well as how stable their income and jobs are. The level and stability of earnings both matter for well-being. Standard economic aggregates do not measure accurately the economic uncertainty which households are facing. This paper shows that household-level economic instability is only very loosely related to macroeconomic volatility. It uses several household-level databases to document how pro-growth reforms influence household-level economic stability. Movement from less to more productive processes and firms is at the heart of economic growth, which suggests a trade-off between growth and micro-level stability. Certain policy changes boost growth but increase micro-level instability: they include reductions in tax progressivity or social transfers (including unemployment benefits) as well as moves from very to moderately tight restrictions on the flow of goods and services and on the dismissal of regular workers. However, the analysis also uncovers that moving to highly competitive policies generally reduces micro-level instability.
Compliance with the European Union’s budgetary, financial control and audit requirements is one of the basic obligations of EU membership. SIGMA examines this in two publications that chronicle the experiences of seven EU Member States, including its three newest adherents, in integrating EU budgetary, financial control and audit procedures and requirements with national ones. The publications also describe central regulations and procedures used by the European Commission and the European Court of Audit. The present publication complements SIGMA Paper No. 20 Effects of European Union Accession—Part 2, External Audit, on the impact of accession on external audit. The purpose of these publications is to assist central and eastern European countries that have applied for membership of the European Union in discerning the ideas at stake, to give comparative information on the various approaches and solutions used by Member States and to sum up the experiences gained and lessons learned. The approach is to provide an overview of the topic and analyse key issues for reflection and debate. The focus is on practical experiences gained and conclusions drawn by those who have been involved in the daily work of adaptation and development of the government administration in the seven countries. The two publications also provide insight into the implementation policies adopted and an overview of the regulations and procedures used. Appendices include lists of abbreviations and useful terms and a selection of EU
French
Over the past decade, the European Commission, as the institution responsible for implementing the Community Budget, has taken an increasingly active interest in the effectiveness of the control measures applied by Member States to Community funds. Indeed, it is in the common interest of the Member States to exercise proper supervision of Community funds. The responses of EU Member States’ Supreme Audit Institutions (SAIs) to the Commission’s external audit procedures and requirements are divergent for various reasons, including legislative ones. This issue overview paper draws on the separate country papers which describe in more detail the different experiences of selected national SAIs in their co-operation with the Commission’s services and the European Court of Auditors (ECA). The present publication complements SIGMA Paper No. 19 Effects of European Union Accession — Part 1, Budgeting and Financial Control on the impact of accession on budgeting and financial control. In both cases, the approach adopted has been analysis of selected issues for reflection and debate.
French

Do flexibility-enhancing reforms imply more employment instability? Using individual-level data from harmonised household surveys for 26 advanced countries, this paper analyses the effects of product and labour market reforms on transitions in and out of employment. Results indicate that reforms making product markets more competitive increase transitions out of employment for less qualified and low-income workers. Less qualified and low-income workers have very high job exit rates to start with, and reforms raise these rates further. On the other hand, more pro-competitive product market regulation generally increases entry rates into employment. The concentration on less qualified and low-income workers of the increase in labour market turnover associated with product market reforms suggests a case for accompanying such reforms with labour market programmes that help the most vulnerable workers transition to new jobs. Easing employment protection for regular or temporary workers has no systematic long-term effect on workers’ probabilities to move in or out of employment. Such reforms can, however, affect employment transitions through their interaction with other policies and institutions. For example, easing employment protection for workers with regular contracts raises the job-finding chances of people out of work in countries that invest a lot in active labour market programmes. Furthermore, employment protection legislation and product market regulation are complementary in that, when either employment protection or product markets are lightly regulated, reforming the other is associated with fewer job exits.

This report evaluates the evidence on how migration may promote or hinder development in countries of origin, and explores possible win-win solutions for both sending and receiving countries. The analysis of recent OECD data of foreign-born nationals into Europe documents the presence of multiple migration patterns and reveals that the EU lags significantly behind the United States in attracting highly-skilled migrants who originate mostly from Africa. Reviewing the analytical and empirical evidence on the economic and social costs and benefits of migration and remittances for sending countries reveals that migration can generate substantial direct and indirect gains for sending countries via employment generation, human capital accumulation, remittances, diaspora networks and return migration. Policy coherence across various policies including migration, trade, investment and development cooperation can augment these gains. Major challenges for EU policymaking to maximise the gains from migration for both sending and receiving countries could include better management of migration and human resources, smart visa policies to facilitate circular migration and greater synergies between migration and development assistance programmes in the context of poverty reduction strategy initiatives.
The signing of the North American Free Trade Agreement (NAFTA) was a contentious event in United States (US) politics, in particular with respect to public views about the possible labour market effects. This paper is structured as follows. First, we provide background on the political debate in the United States at the time of the signing of NAFTA. We then outline the dynamics of trade and employment among the NAFTA partners over the last 20 years. The third section provides a literature review that summarises estimates of NAFTA’s employment impact, both shortly before its implementation and afterwards. Against this background, we provide an overview and assessment of US employment policy responses aimed at facilitating labour-market adjustment and support of trade-displaced workers.
Economic policies shape how much people earn but also how stable their income and jobs are. The level of earnings and the degree of economic stability both matter for well-being. Micro-level data indicate that, across OECD countries, economic instability is much greater at the level of individuals than at the aggregate level. The present study investigates the effects on micro-level stability of policies that boost growth. Movement from less to more productive processes and firms is at the heart of economic growth, which suggests possible trade-offs between growth and micro-level stability. The analysis indeed finds policy changes that boost growth but increase micro-level instability: reducing the progressivity or size of social transfers (including unemployment benefits) as well as moving from very to moderately tight restrictions on the competition for goods and services and on the dismissal of regular workers. However, the analysis also uncovers that moving to highly competitive policies generally reduces micro-level instability.

This report is divided into four parts. The first gives a brief description of base area and set-aside provisions in the EU’s direct area payments scheme, and examines the extent to which they are binding. The second part analyses the degree of effective decoupling of the scheme. Particular attention is paid to the impact of base area and set-aside constraints on the degree of decoupling. In the context of total decoupling, the third part looks at the impact of the EU system of direct area payments, in particular base area and set-aside provisions, on the variability of world prices. The final part sets out the conclusions. It endeavours, on the basis of the specific findings reported here, to gain broader insight into the impact of quantitative constraints on the degree of decoupling of support measures to agricultural producers.

This paper assesses the extent to which the increase in women’s human capital, as measured by educational attainment, has contributed to economic growth in OECD countries over the past five decades. Using cross-country/time series data covering 30 countries from 1960 to 2008 on education (the Barro-Lee dataset) and growth (update of OECD data), our results point out a positive and significant impact of the increase in women’s educational attainment relative to men on output per capita growth – as measured by GDP per capita. This increase in female educational attainment implies that the comparative advantage of men relative to women regarding educational attainment has weakened over time, and has even reversed in many countries. We find that the increase in the years of education of the total population has a positive influence on output per capita growth (around 10% of GDP per capita increase per additional year of education on average), and that a more equal ratio of education by gender boosts economic growth. Our results are robust to the use of estimation procedures that do not impose homogeneity restrictions on the speed of adjustment and short-run parameters, to control for endogenetiy due to possible reverse causality and to several other robustness tests. Last, but not least, we look at the potential effect of increased female labour force participation on economic growth. The size of the effect is dependent on the rate at which male and female labour force participation will converge, with a potential gain of 12% to the size of the total economy by 2030, on average across OECD countries, if complete convergence occurs in the next 20 years.
This paper examines crowding-out effects and the labour market match for the tertiary educated in 26 OECD countries, using attainment data and data on labour market outcomes from Education at a Glance 2006. A first-difference approach is applied on a three-period, pooled country-panel to examine the effects of changes in tertiary attainment levels against changes in labour market outcomes over time. The policy questions in this paper focus on the potential negative short-term effects that mismatches between the supply of and demand for higher-educated individuals might bring about. There is no evidence in the current data suggesting any crowding-out effects of lower-educated from higher-educated individuals. On the contrary, there seems to be positive employment effects for individuals with less education in countries expanding their tertiary education. Labour market outcomes for the upper secondary educated appears to be less influenced by the expansion of tertiary education, but there is no indication that tertiary educated individuals, on average, are displacing (crowding out) upper secondary educated individuals from the labour market. Similarly, the job market for the tertiary educated appears to be little influenced by the expansion of tertiary education. There are some indications that relative unemployment (relative to upper secondary) for the tertiary educated has been diluted to some extent, but this appears to be more related to the upper secondary educated, relatively speaking, strengthening their labour market positions vis-à-vis tertiary educated individuals in general. The earnings advantage (premium) for tertiary educated individuals in comparison with upper secondary educated individuals is still on the rise, which suggests that, on the whole, demand outstrips supply in most countries.
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