MARCIN PIATKOWSKI, TIGER - Transformation, Integration and Globalization Economic Research; Leon Kozminski Academy of Entrepreneurship and Management
Email: MPIATEK@TIGER.EDU.PL
MARIUSZ JARMUZEK, Centre for Social and Economic Research (CASE)
Email: mariusz.jarmuzek@case.com.pl

Global economic integration intensified tax competition and raised concerns about the resulting "race to the bottom", which could undermine public investment and social spending. The aim of this paper is to test predictions that (i) there is interdependence in CIT rate setting in Eastern Europe and that (ii) the recent CIT cut in Moldova may intensify tax competition in the region. It finds that there is indeed evidence that during 1995-2006 countries in Eastern Europe strategically responded to changes in CIT rates in the region and that Moldovan zero CIT is likely to encourage further cuts in CIT. The paper also discusses implications of tax competition for Eastern Europe and finds that FDI flows will not be much affected, tax revenues are likely to decline, the shift in the composition in tax revenue may increase economic efficiency, but decrease equity. Tax coordination, while difficult politically, could help stem further decline in corporate taxation, but any gains might be modest and not certain to exceed the costs of tax coordination. Without tax coordination, however, it is unclear what exactly could stop corporate taxes from falling further.

ERKKI KOSKELA, University of Helsinki - Department of Economics, CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Bank of Finland - Research Department, Institute for the Study of Labor (IZA)
Email: ERKKI.KOSKELA@HELSINKI.FI
PANU POUTVAARA, University of Helsinki - Department of Economics, Helsinki Center of Economic Research (HECER), Center for Economic and Business Research (CEBR), CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Institute for the Study of Labor (IZA)
Email: PANU.POUTVAARA@HELSINKI.FI

In European Welfare States, unskilled workers are typically unionized, while the wage formation of skilled workers is more competitive. To focus on this aspect, we analyze how flexible international outsourcing and labour taxation affect wage formation, employment and welfare in dual domestic labour markets. Higher productivity of outsourcing, lower cost of outsourcing and lower factor price of outsourcing increase wage dispersion between the skilled and unskilled workers. Increasing wage tax progression of unskilled workers decreases the wage rate and increases the labour demand of unskilled workers. It decreases the welfare of unskilled workers and increases both the welfare of skilled workers and the profit of firms.

ALARI PAULUS, University of Essex - Institute for Social and Economic Research (ISER)
Email: apaulus@essex.ac.uk
ANDREAS PEICHL, Institute for the Study of Labor (IZA), University of Cologne - Cologne Centre for Public Economics (CPE), University of Essex - Institute for Social and Economic Research (ISER)
Email: peichl@iza.org

The flat income tax has become increasingly popular recently, yet its implementation is limited to Eastern Europe. We analyse the distributional and efficiency effects of flat tax scenarios for Western European countries. Our simulations show that flat tax rates required to attain revenue neutrality with existing basic allowances improve labour supply incentives. However, they result in higher inequality and polarisation. Flat rates necessary to keep the inequality levels unchanged allow for some scope for flat taxes to increase both equity and efficiency. Our analysis suggests that Mediterranean countries are more likely to benefit from flat taxes.

ENRICO BRACCI, University of Ferrara
Email: enrico.bracci@unife.it

The attention on education and the management of the schools represent important elements of the overall public sector management reforms in many OECD countries. The Italian school system has been characterised, in the last decade, by a process of granting schools a degree of autonomy in terms of educational, managerial and financial functions. Autonomy goes hand by hand with responsibility and accountability systems of schools. This paper delivers a critical analysis of the accountability system designed intentionally or not by the reform. The reform is based on the assumption that more local managed schools will improve the overall performance, through more autonomy, responsibility and accountability. In doing so, the concept of accountability web and the role of cultural traits in developing forms of accountability are used in order to analyse the context of three case studies. The findings suggest that the reform created a dual-based accountability on schools causing higher level of stress in the organization, and a misalignment on the accountability web between school manager and teachers.

ANDRE C. SILVA, New University of Lisbon - Faculdade de Economia
Email: acsilva@fe.unl.pt

I relate hours worked with taxes on consumption and labor for Portugal, France, Spain, United Kingdom and United States. From 1986 to 2001, hours per worker in Portugal decreased from 35.1 to 32.6. With the parameters for Portugal, the model predicts hours worked in 2001 with an error of only 12 minutes from the actual hours. Across countries, most predictions differ from the data by one hour or less. The model is not sensible to special assumptions on the parameters. I calculate the long run effects of taxes on consumption, hours, capital and welfare for Portugal. I extend the model to discuss implications for Social Security. I discuss the steady state and the transition from a pay-as-you-go to a fully funded system.

ANSGAR HUBERTUS BELKE, University of Duisburg-Essen - Department of Economics, Institute for the Study of Labor (IZA)
Email: ansgar.belke@uni-due.de
DANIEL GROS, Centre for European Policy Studies, Brussels, CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Email: DANIEL.GROS@CEPS.BE

It is widely assumed that a common currency makes it desirable to have also a common fiscal policy. However, if fiscal policy is a source of shocks, independent national fiscal policies are generally preferable because they allow for risk diversification.