Ülo Ennuste Economics

papers and articles in wordpress

Draft 28.VII – do not quote

Draft 28.VII – Microsoft translation of:


Macro-Heterodox Bird-eye Note on the evolutionary puzzle of  zero-profit tax

In theory,  in conditions of risk (especially in moral-hazards) the so-called 0-base 0-profit tax  is almost certainly sub-optimal in the natinal complex social market environment in the long-term context and considering fair economic inequality – although possibly Pareto efficent in the short term e.g. on simple efficiency- inequity plane – without of any question* already a long time ago: thus, the implemented o-profits tax, in the context of  national economy is in theory are quite certainly not theory based policy designs  but must be politically  motivated policy mechanisms.

The national losses and risks (real and moral) of such mechanisms as compared to the optimal and the risks to national socio-economic sustainability of the domestic stability must take into account both direct (e.g., a decrease in receipts of the State budget to resident legal persons/corporations, etc.) and indirect (e.g., reduction in receipts will reduce the establishment of the new high-tech jobs by the Government, and therefore causes a further exodus of qualified labor force, and thus the direct revenue losses of the natural persons and the human capital, the direct losses from their homeland, and thus also to the decline in the economic potential of the national income, and indirectly through the losses, etc.)-losses and the long term and, cumulatively, which requires the losses of the end of the period of retrospective “discounting” (thus, the estimated volume of the losses time to grow, such as the amount of the loss of the x in t to the year t + n discounted is as  x [(1 + y) level (n)] where y is yield rate), etc.

In particular a dangerous cocktail is a profit tax to zero with the  relatively high entrepreneur labor taxes because it encourages the profits/savings from domestic economy to machinate anomaly  out of the  home country together with the resulting increasing economic inequalities with impairments in such as the worsening of the social capital losses and the  and the decreasing quality of national knowledge structure and so  of the economic potential of the risks and thus the decrease in turbidity especially in human intellectual capital and the logic of quality impairment, etc.

We must not forget also the moral hazard in this context economic union, that the exceptionally low profit tax enforcement in a Member State creates injustice  cases directly on-line, such as the reduction of taxation, and in the partner countries in the wake of gains to the unfair transfers predatory (2014 Nobelist term byTirole) agents involved in the multinational, etc.

Any credible 0-profit tax generated by the national (Let’s leave aside the simplification of foreign residents here) for domestic losses of a statistical calibration (compared to optimal) calls in any case a very large model and corresponding experts clusters* *: but as the birde-eye views  can be very roughly and coarsely to assess both the ESA and the EP on the basis of the statistics that the Estonia, 2000-2015 for the damage caused ranges from somewhere around 20-30 billion (2014 was the Estonian NNI domestically used somewhere in the 15-16 billion, in the ring) with the contents of the current (1999 was 0-profit tax initialing the apparent administratively FM S. Kallas and  in 2014 was the I guess the FM . Lauri who failed to inform the Commission** to which factual rules according to the profit tax  we’ve got still corporations works: = =).

P.S.: here it must be stressed that the main political enforcement of the 0-profit tax was politically motivate foreign investors, was being buried in that (a) in General, foreign investors do not built up substantially to jobs in green-grass way  (b) that the expanse of the moral hazard profit transfers gains more international expansion (c) that the 0-profit tax is unfair because of the moves, such as the inclusion of collective local contractors largely infrastructure expenditures  (d) the most important of which is that it is not considered that the politically motivated decisions must remain within the limits of fairness, however, and not to deepen the international profit paradise cases etc.

*) See, e.g. especially the selected citations:


“The Case for a Progressive Tax: From Basic

Research to Policy Recommendations “

by Peter Diamond and Emmanuel Saez





This paper presents the case for progressivity of the tax based on recent results in the optimal tax theory.

We consider the optimal earnings progressivity of taxation and whether capital income should be taxed. We critically discuss the academic research on these topics and when and how the results can be used for policy recommendations. We argue that (a) the result from basic research is relevant for policy only if (a) it is based on economic instead of mechanisms that are empirically relevant and at the first order to the problem, (b) it is reasonably robust to changes in the modeling assumptions, (c) the policy prescription is implementable (i.e., is socially acceptable and is not bring complex). We obtain three policy recommendations from the basic research that satisfy these criteria reasonably well. First, the very high earners should be subject to a high and rising marginal tax rates is earnings. Second, the low income families should be encouraged to work with earnings subsidies, which should then be phased-out with high implicit marginal tax rates. Third, capital income should be taxed. We explain why the famous zero marginal tax rate the result for the top earner in the Mirrlees model and the zero capital income tax rate the results of Chamley-Judd and Stiglitz-Atkinson, the concept of the policy are not in our view.

JEL-Code: H210.


References (in part, üe)

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Banks, James and Peter Diamond. 2010 “The Base for Direct Taxation,” in the Dimensions of the Tax Design: The Mirrlees Review , Edited by The Institute for Fiscal Studies (IFS), Oxford University Press for The Institute for Fiscal Studies (Oxford). Chapter 6, p .548-648.

Chamley, Christophe. 2001 “Capital Income Taxation, Wealth Distribution and Borrowing Constraints,” The Journal of Public Economics 79, 55-69.

Christiansen, Vidar, and Matti Tuomala. 2008. “is a taxing capital income with income shifting.” International Tax and Public Finance , 15:527-545.

Cremer, Helmuth, and Pierre Pestieau. 2004. “Wealth Transfer Taxation: (A) A Survey of the Theoretical Literature.” in the three Sc. and j. Mercier Ythier, eds, Handbook is Altruism, Giving and Reciprocity , The North Netherlands, Amsterdam.

Diamond, Peter. in 1973, the “Taxation and Public Production in a Growth function Setting,” in J.A. Mirrlees and Stern, N. H., eds., Models of Economic Growth , MacMillan, London.

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Diamond, Peter. 1998. “Optimal Income Taxation: An Example with a U-Shaped Pattern of the Optimal Marginal Tax Rates.” The American Economic Review , 88 (1): 83-95.

Diamond, Peter. in 2003, the Incomplete Markets, Taxation and Social Security, the 2000 Munich Lectures , Cambridge: The MIT Press.

Diamond, Peter and James Mirrlees. 1986. “” “” Payroll-Tax Financed Social Insurance with Variable Retirement, ” Scandinavian Journal of Economics 88 (1): 25-50.

Diamond, Peter and James Mirrlees. 2000. “Adjusting One’s Standard of Living: the Two Period Models,” in p. j. Hammond and g. d. Myles (eds.), Incentives, Organization, and Public Economics, papers in Honour of Sir James Mirrlees, Oxford; Oxford University.

Diamond, Peter and Johannes Spinnewijn. 2010. “the Capital Income Taxes with Heterogeneous Discount Rates,” the MIT working paper, forthcoming in American Economic Journal: Economic Policy .

Farhi, Emmanuel and Iván Werning. 2010a. “Progressive Estate Taxation,” Quarterly Journal of Economics 125 (2), 635-659.

Farhi, Emmanuel and Iván Werning. 2010b. “Insurance and Taxation over the Life Cycle”, MIT Working Paper.

Of Narayana Kocherlakota, Mikhail Golosov, Aleh Tsyvinski the and. 2003. “Optimal Indirect and Capital Taxation.” Review of Economic Studies , 70 (3): 569-87.

Golosov, Mikhail and Aleh Tsyvinski. 2006. “Designing Optimal Disability Insurance: (A) the Case for Asset Testing.” The Journal of Political Economy , 114 (2): 257-69.

Golosov, Mikhail, Maxim Troshkin, Aleh Tsyvinski the and. 2009. “A Quantitative Exploration in the Theory of Dynamic Optimal Taxation,” Yale University working

Golosov, Mikhail, Aleh Tsyvinski, and Matthew Weinzierl. 2009. “the Preference Heterogeneity and Optimal Commodity Taxation” Yale Working Paper.

Goolsbee, Respect. 2000. “What Happens When You Tax the Rich? Evidence from Executive Compensation. ” The Journal of Political Economy , 108 (1): 352-378.

Gordon, Roger h., and Jeffrey k. MacKie-Mason. 1995.”Why is There Corporate Taxation in a Small Open Economy? ” In The Effects of Taxation are the Multinational Corporations, eds., Martin Museumsstraße, James r. Hines, Jr., and r. Glenn Hubbard. Chicago: University of Chicago Press.

Gordon, Roger and Joel Slemrod. 2000. “Are the ‘ Real ‘ Responses to” Texas Simply Income Shifting Between the Corporate and Personal Tax Bases? ” In Joel Slemrod, ed., Does Atlas Shrug? The Economic Consequences of Taxing the Rich, Harvard University Press:

Gruber, Jonathan and Emmanuel Saez. 2002. “The Elasticity of Taxable Income: Evidence and Implications”, Journal of Public Economics, 84:1-32.

Holmstrom, Bengt. 1979. “The Moral Hazard and Observability,” The Bell Journal of Economics, 10 (1): 73-91.

The Internal Revenue Service. 2009. Statistics of Income: Individual Income Tax Returns for the Year 2007, Publication No. 1304, (Washington, DC: Government Printing Press).

The Internal Revenue Service. 2009b. “The 400 Individual Income Tax Returns Reporting the High Adjusted Gross Incomes Each Year, 1992-2007”, (Washington, DC: Government Printing Press).

Judd, Kenneth. 1985. “The Redistributive Taxation in a Simple Perfect Foresight Model.” The Journal of Public Economics , 28 (1): 59-83.

Judd, Kenneth L. 1999. “Optimal taxation and spending in general competitive growth models,” Journal of Public Economics, 71:1-26.

Kaplow, Louis. 2006. “On the Undesirability of Commodity Taxation Even When Income Taxation Is Not Optimal.” The Journal of Public Economics , 90 (6-7): 1235-50.

Of Narayana Kocherlakota, The. 2005. “A Zero Expected Wealth Taxes: (A) the Mirrlees Approach to Dynamic Optimal Taxation.” Econometrica , 73 (5): 1587-621.

Of Narayana Kocherlakota, R. 2010. The New Dynamic Public Finance, Princeton, Princeton University Press.

Kopczuk, Wojciech. 2005. “The Tax Bases, Tax Rates and the Elasticity of the Reported Income,” Journal of Public Economics, 89 (11-12): 2094-2119.

Value, Guy R. 2005. “Indirect Taxation is Superfluous under the Separability and Taste Homogeneity: (A) the Simple Proof.” Economics Letters , 87 (1): 141-4.

Mankiw, n. Gregory, and Matthew Weinzierl. 2010. “The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution.” American Economic Journal: Economic Policy , 2 (1), 154-76.

Mankiw, n. Gregory, Matthew c. Weinzierl, and Danny Yagan. 2009. “Optimal Taxation in Theory and Practice.” The Journal of Economic Perspectives 23 (4): 147-174.

Meade, James Edward. 1978. The Structure and Reform of Direct Taxation, the Report of a Committee chaired by Professor j. e. Meade. London: George Allen & Unwin.

Meyer, Bruce. 2010. “The Effects of the EITC and the Recent Reforms”, Tax Policy and the Economy, ed., Jeffrey Brown, (Cambridge: MIT Press), Volume 24.

Vilfredo Pareto,. 1896. “La courbe de la répartition de la richesse” Ecrits sur la courbe de la répartition de la richesse, (collected writings by Pareto by g. Busino, Librairie Droz, 1965), 1-15.

Piketty, Thomas and Emmanuel Saez. 2003. “Income Inequality in the United States, 1913-1998”, Quarterly Journal of Economics, 117 (1), 1-39, series updated to 2007 in August 2009.

Piketty, Thomas and Emmanuel Saez. 2007 “How Progressive is the U.S. Federal Tax System? (A) the Historical and International Perspective, ” Journal of Economic Perspectives, 12 (1), 3-24.

Jukka Pirttilä,, and Håkan Selin. 2011. “Income Shifting within  the Dual Income Tax System: Evidence from the Finnish Tax Reform of 1993”.  Scandinavian Journal of Economics , 113 (1), 120-144.

The Trip, Catarina. 2007. “The Entrepreneurial Labour Taxation.” Dissertation chapter, MIT.

Saez, Emmanuel. 2001. “Using Elasticities to Derive Optimal Income Tax Rates”, Review of Economic Studies, 68:205-229.

Saez, Emmanuel. 2002a. “Optimal Income Transfer Programs: Intensive Versus Extensive Labour Supply Responses.” The Quarterly Journal of Economics , 117 (2): 1039-73.

Saez, Emmanuel. 2002b. “The Desirability of Commodity Taxation under Non-linear Income Taxation and Heterogeneous Tastes.” The Journal of Public Economics , 83 (2).

Saez, Emmanuel. 2004. “The Optimal Treatment of Tax expenditures,” the Journal of Public Economics, 88 (12): 2657-2684.

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* *) See, e.g,-

The EU Commission is disturbed by the Estonian arrogance to ignore:



„ … Previous requests for information were sent to Estonia and Poland by 2014. as part of the initiative of the Commission in December to extend the State aid investigation in respect of the national assessment notices, too, so that would be covered by all of the Member States.

The purpose of the investigation is to clarify allegations that maksuotsused may constitute State aid. The study will enable the Commission to obtain an overview of the assessment notices also practices in all Member States.

All of the EU Member States, with the exception of Poland and Estonian, have cooperated and provided all the requested information. On the basis of the information received, the Commission paulub the 15 Member State to provide a number of individual maksuotsused.

Application for assessment notices does not mean that their assessment notices to recipients of State aid is initiated the investigation of individual cases. … “

Indeed, the Rahandusteoreetiliselt is the Estonian law on profit tax of 0-interpreted as unfair competition in the capital markets in the Eu if the solkimine say that, given the State of both multinational and domestic corporations. In particular, the current situation will make it where we can get into such a State aid recipients also include under the control of Russia, and in talking to the Kremlin, and even in the Eu by sanktsioneeritavate corporations near here in the affiliated companies: see, e.g., http://pub.stat.ee/px-web.2001/Database/Majandus/03Ettevetete_majandusnaitajad/12Valismaised_tutarettevotted/12Valismaised_tutarettevotted.asp (be careful-that our statistics are hopelessly outdated in the sense that, on this basis, the Commission to answer).

It remains only as an excuse to add to that, I think we have more important things to do than those of a financial nature, such as correspondence with the Commission, be considered: such as the Minister of finance who like sloping towards Brussels, came out against such change who argue that the financial situation of our suhtviletsas (petislikult-väljasahkerdamine to the Finance of the country more anomalous eurotoetustest) is not the fault of not only mitigate the levy machinery was executed with incompetence – application for imaginaarne (especially in our elitaarsete the Bank’s analysts led by), etc – what the majandusküberneetiliselt does not exist, etc.

By the way the ridiculous poliitkorrektsusest and vastutustundetusest of our national economy, so far, the Commission erroneously uses the profit tax rate 21% of Estonian-and shows that the admission of the reduction by the Estonian policy (the regularity in the sense that how to reset otherwise, yet our Government allows to reduce the: = =).


July 28, 2015 - Posted by | Uncategorized

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