Saturday, October 13, 2007

I have no idea who Sebastian Dullien is, but this is brilliant.

quick summary
1. Germany is about to cut the corporate income tax rate to 30% and pay for it by reducing depretiation allowances for capital goods (equipment).
2. This is terrible policy. When they did something similar in the past investment declined.
3. The problem is that the big coalition makes policy by compromise -- the Christian Democrats wanted to cut corporate tax rates and the Social Democrats want to contain the cost of the reform, so they agreed on a policy which will reduce revenue and worsen incentives.
4. Another problem is that economic policy is made by people with law degrees who can handle the simple concept of "low tax rates and a broad tax base are good" but consider any analysis of incentive effects of taxes to be to clever by half.
5. Finally the Social Democrats have decided not to be leftists but have no idea what to be instead and are headed for the ash heap of history.

1 comment:

Hans Suter said...

don't they do the same in Italy ? Lowering IRES and IRAP but allowing leasing costs deduction only for the same amount as legal depretiation of capital goods produces.