Companies & Regulation

By Jacob Arfwedson

For global capitalism to reach optimal eclosion, there are several basic conditions:

– the right to be wrong, i.e. the right to fail which is inherent in and necessary to any entrepreneurial activity.

By Alexandre Diehl, Lawyer and IREF research Fellow

For the past few weeks, and as Google has announced “bad” results on the financial markets, the media are gurgling with strange and technical news on a possible tax audit for the company. What is going on? Has Google broken the law, or are the French yet again attacking a success story out of envy? Has the government found another cash-cow?

IREF has asked its scientific director, prof. Enrico Colombatto (Turin) to provide a periodic update on EU regulations. Policies adopted by Brussels in 2012 did not help to surmount the crisis: what will happen in 2013?

A petition was submitted by French MPs to the Constitutional Council regarding the limitation on the wealth tax and the new regulations which were to take into account “virtual” incomes.

On 28 November 2012, IREF and the French Taxpayers Association addressed an argumentary (see attachment in French) to the members of the National Assembly, urging them to seize the Constitutional Council in this matter. The MPs replied favourably and passed on the request to the Constitutional Council on 20 December.

Important determinants of multinational firms’ choice of location include, besides resource cost and infrastructure, the taxation regime through its effects on international pricing and profits. This paper investigates the effects of tax rates on firms’ profits and financing decisions by analyzing a panel of several hundred thousand European firms for the years 1985 to 2010. Results indicate that taxation has a negative effect on overall firm profits but not on returns on shareholder funds.

By Jean-Philippe Delsol

The fiscal frenzy which has seized the French socialists not only means that the economy grinds to a halt. It is attacking the very foundations of society by destroying entrepreneurship and responsibility. Taxes are raining on the people and the promised shelters often disappear before they have even been introduced. The 2013 finance bill has announced confiscatory tax rates on incomes, capital gains, and the payroll taxes will be increased as well. But the socialists are shooting themselves in the foot: such tax rates will destroy wealth and drive out entrepreneurs, capital, businesses and young people. Thus tax revenues will fall.

This paper provides both a theoretical framework and an experimental test to analyze how individual responsibility affects social preferences for redistribution in settings where individuals are differentially subjected to the probability of a productivity shock. Our results confirm the predictions of the theoretical section of the paper which presents the redistribution game as a public good game.

The founder of the Adam Smith Institute, Dr. Madsen Pirie, visited IREF on Thursday 15 November to present his book Think Tank: The Story of the Adam Smith Institute (Biteback Publishing, 2012)

After discussing the specificity of the think tank as an independent influence on policy, and the nuts and bolts of policy-making during Thatcherism in the UK, Madsen Pirie offered the following conclusion.

At his press conference on Tuesday 13 November, François Hollande declared that, “Returning to a balanced budget essentially means looking to spending cuts rather than tax increases. Are we better off with 57 per cent of GDP of public spending, whereas it was 52 per cent five years ago?” He is right. This is common sense coming from a socialist president who set out with a policy of tax hikes, practically without touching public expenditure that is the highest among OECD countries. France spends € 150 bn more than Germany per year. Does that mean that the Germans are less well off? The average public spending in Europe is some 48 per cent of GDP.

Jean-Philippe Delsol

Tax lawyer, deputy director of IREF

The government’s goal of reducing the budgetary deficit to 3 per cent of GDP is commendable, even though such a deficit will inevitably increase the French public debt as growth will be low or even close to zero. However, the tools applied are both unjust and inefficient.