H2 - Taxation, Subsidies, and RevenueReturn

In the OECD, tax policy makes one of the highly sensitive areas of critical importance to the governance of global economy. The OECD authorities realize the importance of tax systems' structure for economic output and social well-being, and thus the tax policy has made one of the OECD policy priorities since the OECD's earliest days. However, the policy has been aimed on giving recommendations to national authorities solely in the area of optimal tax mix structure, while other important aspects of the tax systems have remained omitted. One of such aspects is legal certainty about the development of taxation. If the certainty is low, expectations of economic entities are deformed, which leads to substitution effect, and higher risk occurs. Therefore, the aim of the paper is to validate the hypothesis that higher legal certainty in the area of taxation significantly promotes economic growth. This hypothesis is confirmed within the analysis, and more attention to legal aspects of taxation is suggested.

Tax reliefs (tax expenditures) in the Czech Republic, as well as in other countries, are frequent topic of political and public finance discussion. Sometimes they are presented in a positive spirit as administratively inexpensive tool for promoting desirable public policies. More often, however, they are presented negatively, as an exception, which complicates the tax system and causes distortions. This article aims to identify and quantify the tax reliefs (tax expenditures) of the three major taxes in the Czech Republic in 2008: personal income tax, corporation tax and value added tax. Unlike in many other OECD member countries, in the Czech Republic, tax expenditures have not been quantified and published yet; this contributions is therefore a first attempt to quantify them. For calculation we used the reference law approach and the revenue forgone method.

The article contests an argument that the creation of a capital market in educational "human capital" and subsequent voluntary transactions on this market are sufficient to create equal opportunities in education, consequently reducing the income premium enjoyed by households with higher initial wealth endowment end eliminating deadweight detriments to efficiency caused by unequal household budget constraints. The counterargument is based on game-theoretical model developed in Bowles 2004. The inevitable incompleteness of contracts results in allocation inefficiency: agents with above average wealth endowment are able to finance larger projects, and/or projects of worse than average quality, while agents with insufficient initial wealth endowment are excluded from the financial market. This inefficiency can be attenuated only by redistribution enforced by the government. The article concludes with a discussion of the general relationship between equality (redistribution) and efficiency.