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This paper examines corporate tax avoidance involving Dutch special purpose entities (SPEs), or shell companies. We use unique data of the SPEs including the origin and destination country of dividend, interest, and royalty flows passing the Netherlands. First, we present descriptive statistics of these flows which amount to 140 billion euro in 2016. Second, we collect national tax data on the corporate income tax and fiscal treatment of these flows. By combining tax parameters with bilateral flows, we can assess the potential tax gains for multinational enterprises using Dutch SPEs. We find massive tax savings for royalties when Dutch SPEs are used as an intermediate station compared to direct flows between the origin and destination country. We measure this tax gain at almost 3 billion euro in a single year. However, we do not find such tax savings for dividends and interest. We explain where we lack information and hence cannot measure possible tax gains. In regression analysis, controlling for country characteristics, we find that tax differentials partially explain the geographical patterns of income flows diverted through the Netherlands. This paper is one of the first using bilateral income flows as dependent variables instead of FDI stocks or flows.

This paper makes a welfare comparison between the issuance of price-indexed and nominal public debt in the presence of fiscal constraints, viz. a debt constraint, a deficit constraint and a combination of both. Distortionary taxes or public consumption are regulated to avoid the violation of the relevant fiscal constraint(s). Under a debt constraint indexed debt is generally preferred, while under a deficit constraint the results are more mixed. Introducing inflation persistence and raising the maturity of the debt tend to increase the magnitude of the welfare differences between the two types of debt. Welfare differences are further affected by the degree to which public consumption and tax revenues are indexed to actual versus structural nominal GDP.

This chapter elaborates on different conceptions of justice. Economic justice aims at correcting market outcomes to warrant a fair distribution of resources, whereas tax justice focuses on the fair distribution of the tax burden. Both elements of distributive justice have their own ‘domain-specific’ principles. These principles may collide. Hence, balancing both elements of distributive justice is necessary. However, a balance also has to be sought between economic justice and legal justice and its core principles, such as legal equality, legal certainty and proportionality. Legal justice and economic justice pose diverging demands which the legislature should carefully balance. However, hasty parliamentary decisions and political decisiveness often seem to prevail over respect for legal values and principles, such as legal certainty and equality. This has been explained with an example of Dutch tax legislation: the (rapid) evolvement of an instrumental incentive in the tax regulation for homeownership.Tax regulations therefore require a more careful political reflection on the fundamental tension between the focus on ends which are external to the law and legal principles. Moreover, the use of tax legislation for external ends should also be balanced with tax law’s internal values and principles of tax fairness – foremost the ability-to-pay principle.

This paper exploits a unique set of Dutch micro data between 2006 and 2014 to analyze the heterogeneous responses in prepayment behavior to changes in financial incentives. Prepayment is defined as paying back a part of the mortgage on top of the contractual payment schedule, excluding refinancing. Because interest rates on savings have decreased while the rates on existing mortgages are generally fixed for some years, the value of prepaying a mortgage has increased. This corresponds with the surge in prepayments at the Dutch mortgage market. Using various econometric specifications, that take into account unobserved heterogeneity and endogeneity, the paper finds that incentives to prepay explain only a part of prepayment behavior. However, incentives to prepay explain a much larger part of prepayments for wealthier households and for households with a high net-of-tax interest rate differential.

We study the options for income shifting by owners of small corporations in the Netherlands using bunching techniques on individual tax records over the period 2007-2011. We find that the distribution of gross labour income strongly peaks at the minimum level of the reference wage, specified in the tax code. Next, taxable labour income bunches at the cut-offs of the tax brackets. The elasticity of taxable income at the top tax cut-off ranges from 0.06 to 0.11. Distributed profits strongly responded to the temporary tax cut from 25 to 22% in 2007, which doubled tax revenues on dividends. We reconfirm the importance of intertemporal income shifting for business owners.

This paper stems from the observation that there are two world-wide trends, pension reform and population ageing, and asks whether the two may be related. Exploring the cases of pension reform in different countries, we find that, although they are very different, the cases share a common characteristic: they shift risks away from workers towards those who are retired. Furthermore, population ageing, by increasing the weight of the elderly relative to working generations, raises the price of intergenerational risk sharing. Combining these findings, we argue and show formally that pension reform can be seen as a welfare-best response to population ageing.

The role of microdata and policy evaluation has become more important over time at CPB Netherlands Bureau for Economic Policy Analysis. CPB’s value added is the focus on the Dutch context: the data, the underlying institutions and the research topics. This chapter provides four examples of microeconometric research at the CPB: labour participation of parents with young children, tax shifting by small corporations, teacher quality and student achievement and performance-based pay in mental health care. In these examples, CPB combines the strengths of structural models and policy evaluation models with large datasets. Next to this research, the importance of good communication strategies to policy-makers is emphasized.

We study the effect of the reduction in the VAT rate on hairdresser services from 17.5 to 6% in the Netherlands in January 2000. Following Kosonen (J Public Econ 131:87-100, 2015), we use differences-in-differences to estimate the effects of this reform, with beauty salons as the main control group. In our preferred specification, we find close to full pass-through of the VAT cut into lower prices. However, we find no statistically or economically significant effect on the volume of sales or employment.

The international corporate tax system is considered a network. Just like for transportation, “shortest” paths are computed, which minimize tax payments for multinational enterprises when they repatriate profits. We include corporate income tax rates, withholding taxes on dividends, double tax treaties, and double taxation relief methods. We find that treaty shopping leads to an average potential reduction of the tax burden on repatriated dividends of about 6% points. An indicator for centrality in the tax network identifies the UK, Luxembourg, and the Netherlands as the most important conduit countries. Low-tax havens do not have a crucial role in reducing dividend repatriation taxes. By contrast, tax haven financial centres do. In the regressions we find that the centrality measures are robustly significant explanatory variables for bilateral FDI stocks. This also holds for our treaty shopping indicator.

The international tax system is the result of the interaction of different actors who share the responsibility for its integrity. States and multinational corporations both enjoy to a certain extent freedom of choice with regard to their tax behaviour – which entails moral responsibility. Making, interpreting and using tax rules therefore is inevitably a matter of exercising responsibility. Both should abstain from viewing tax laws as a bunch of technical rules to be used as a tool without any intrinsic moral or legal value. States bear primary responsibility for the integrity of the international tax system. They should become more reticent in their use of tax as regulatory instrument – competing with one another for multinationals’ investment. They should also act more responsibly by cooperating to make better rules to prevent aggressive tax planning, which entails a shift in tax payments from very expert taxpayers to other taxpayers. Here, the distributive justice of the tax system and a level playing field should be guaranteed. Multinationals should abstain from putting pressure on states and lobbying for favourable tax rules that disproportionally affect other taxpayers – SMEs and individual taxpayers alike. Multinationals and their tax advisers should avoid irresponsible conduct by not aiming to pay a minimalist amount of (corporate income) taxes – merely staying within the boundaries of the letter of the law. Especially CSR-corporations should assume the responsibility for the integrity of the tax system.

Using Dutch transaction-level data on international trade we find that the intensive margin drives Dutch trade growth year by year. After 6 years, new trade relations cover about 50 percent of Dutch exports. Each year 40 percent of the relations are new, but only 25 percent survives after two years. We distinguish several firm-country-product (FCP) relations characterised by the export familiarity of the firm, country or product to identify differences in survival rates. The estimates show that the hazard rates of trade relations with new exporting firms or incumbent firms to new countries are about 15 percent lower. EU membership decreases the hazard rate by 40 percent. Initial sales are also important. Relations with an initial export value of about 50 thousand euro do not survive, while those with an initial value of 200 thousand euro exist after a few years. Exports with homogeneous goods tend to have higher initial trade values and the hazard is about 10 percent lower than those with heterogeneous goods. Read also: De economist, juni 2015, Volume 163, Issue 2, pp 155-176

This special issue of JITC focuses on the globalization of trade in services and the effects on small open economies. It looks\n at a number of issues relating to international trade in services to re-evaluate the degree to which services are traded and\n tradable, the degree to which such trade is increasing, the implications of globalization and off-shoring and the policy responses\n required both to foster international integration in services and to react to the likely economic implications.

This paper analyses firms’ export entry decisions and their subsequent expansion to other export markets using Dutch firm-level international transaction data. In particular new exporters increase quickly the distance between their export markets and their home country. They are also going to export to countries in which the institutional and regulatory quality is lower. We show that firms follow a stepping stone approach for learning to export and to enter distant markets. The probability to enter a market at 1,000 km from the Netherlands increases by about 25% if the firm already exports to a market at 500 km from the new one.

The increasing importance of global supply chains has prompted the use of analytical tools based on trade in value added, because traditional trade measures (in gross value) cannot track the origin and destination of value added produced in different countries. This paper follows a recently created methodological framework for analyzing trade in value added, but extends it to identify the spokes and hubs in these global supply chains. In particular, we create indicators that measure the origin of value added which is redirected by hubs and the destinations of redirected value added. Using these indicators and the GTAP database for 2001, 2004 and 2007 we identify the importance of redirected value added and the hub and spoke relationships at the industry level.

In a two-country model with mobile capital we analyse decentralized social insurance policies. These policies are a compromise between the preferences of workers and capital owners. Due to wage bargaining, worker-based social insurance contributions are borne by capital owners. These contributions affect the profitability of investment, and consequently the direction and size of capital flows. Countries will take account of these effects in determining social insurance policy. Noncooperative decision making results in tax competition and an underprovision of social insurance. In addition, increasing economic integration, represented by increasing capital mobility, could imply a divergence of social insurance levels in the two countries.

This CPB Discussion Paper addresses two policy questions with respect to public defined benefit (DB) pension schemes. Firstly, does a funded DB pension scheme increase welfare? Secondly, how large is the commitment problem of pension funds after an adverse capital market shock? This CPB Discussion Paper addresses two policy questions with respect to public defined benefit (DB) pension schemes: Firstly, does a funded DB pension scheme increase welfare? In other words: do the gains from intergenerational sharing of capital market risks outweigh the labour market distortions from pension schemes? Secondly, how large is the commitment problem of pension funds after an adverse capital market shock? The answer to the first question depends on the used welfare measure. If we use risk-neutral weights to aggregate the equivalent variations of different generations in different states of nature then a DB pension scheme is welfare increasing. If we use as weights the stochastic discount factors that corresponds to these states of nature, we conclude the opposite: a DB pension scheme reduces welfare. The probability that future households actually experience a welfare gain if the pension scheme is closed can be as large as 38 percent. So, a pure DB pension scheme has a large commitment problem: continuity will become at risk in case participation in the pension scheme is not mandatory. These results are most sensitive for the values of the labour supply elasticity, the risk aversion parameter and the mean and the standard deviation of the excess return on equity.

A popular view is that ageing populations increase health expenditure to GDP ratios because health expenditure correlates positively with age and because the concomitant shrinking of the labour force depresses GDP. The resulting increase in transfers from the young to the old then calls for a reform of health care policies. This article critically examines the arguments underlying this view. It gives credit to factors that counteract the expenditure effect, the effects upon health care market and labour market distortions and the effects upon intergenerational solidarity. Although important, these factors are found to have insufficient weight to invalidate the popular view.

Pensions are currently at the top of the agenda of companies, employees, pension carriers, governments and, last but not least, the European Commission. This is partly because of the economic crisis pension funds are in right now but also because of the aging population and the impact on public treasuries. These problems however cannot be solved easily. A well-functioning internal market for pan-European pensions without tax barriers can however contribute in solving the current pension crisis. In this article the authors describe the current situation and legislation regarding cross-border pension carriers and pension schemes within the EU.