Why may relative income tax rates between countries give only a partial picture of the international competitiveness of these countries? What else would need to be taken into account?
Compering income tax rates in different countries may give a general clue about their international competitiveness, but there are many other factors worth taking into consideration. Firstly, the rates of expenditure taxes could differ dramatically (for example the VAT rate). Secondly, there cooperate taxes and tariffs are also important issues to take into account. Thirdly, the current political and economic situation can influence country’s competiveness. It is more beneficial for an investor to put money into a country with a stable growth than into one with a risky public debt. Others factors are: the quality of labour force and infrastructure, costs of living (education fees, rent) and social insurance.
Does making taxes more steeply progressive necessarily act as a disincentive to output? Explain.
Of course it depends. Generally, more steeply progressive taxes could act as a disincentive to output, because many rich people could flee to other countries or simply work less. On the other hand, they could gain more from government’s spending and investments.
How progressive are income taxes in the UK compared with other countries? Give examples.
In the UK individual income taxes are highly progressive at the rate of 0-50%. In Norway it is 28-49%, in Ireland 20-41% and in the USA 15-45%.
What externalities (positive and negative) might result from steeply progressive income tax rates?
Countries have to find a compromise between efficiency, fairness and simplicity. Steeply progressive income taxes could cause a disincentive for wealthy people to work more and also encourage them to leave the country, in order to pay lower taxes. On the other hand, steeply progressive tax rates could help in reducing the gap between the rich and the poor in the society. Another advantage of it is a bigger tax revenue for the government and the possibility of higher spending and investment, which would benefit the whole nation.
That's what I think.