tax base effects and fiscal externalities of local capital taxation evidence from a panel of german jurisdictions abstract this paper provides empirical evidence on the tax base effects of local capital taxation using a large panel of german municipalities it tests whether both the local tax rate and the tax rate in adjacent jurisdictions affect the local tax base the results obtained from a spatial gmm approach confirm a strong negative impact of the local tax rate whereas the average tax rate of neighboring municipalities proves insignificant only if interacted with the relative population size of neighbors a significant positive impact is found indicating that externalities from taxing decisions of adjacent jurisdictions are experienced only by relatively small municipalities

evading the use tax on cross border sales abstract a use tax is similar to a sales tax except that it is imposed on purchases made from out of state firms historically the use tax has been widely evaded this paper uses a spatial model to analyze the welfare effects of such evasion the analysis shows that the ability of consumers to evade the use tax alters their behavior in a way that leads firms to charge lower prices this reduces the welfare loss created by the sellers market power and implies that evasion can increase welfare even when tax rates are adjusted to offset the effect of evasion on tax revenue

technological change and the stock market tobin s average q has usually been well above 1 but fell below 1 during 1974 1984 our model explains this pattern and reconciles it with unchanging aggregate investment the stock market value in the numerator of q reflects ownership of physical capital and knowledge but the denominator measures just physical capital therefore q is usually above 1 periodic arrivals of important new technologies such as the microprocessor in the 1970 s suddenly render old knowledge and capital obsolete causing the stock market to drop national accounts measures of physical capital miss this rapid obsolescence then q appears to drop below 1 jel e44 o3 o41

no taxation without information deterrence and self enforcement in the value added tax abstract claims that the vat facilitates tax enforcement by generating paper trails on transactions between firms contributed to widespread vat adoption worldwide but there is surprisingly little evidence this paper analyzes the role of third party information for vat enforcement through two randomized experiments among over 400 000 chilean firms announcing additional monitoring has less impact on transactions that are subject to a paper trail indicating the paper trail s preventive deterrence effect this leads to strong enforcement spillovers up the vat chain these findings confirm that when taking evasion into account significant differences emerge between otherwise equivalent forms of taxation jel d83 h25 h26 k34 o17

models of energy use putty putty versus putty clay energy use is inelastic in time series data but elastic in international cross section data two models of energy use reproduce these elasticities a putty putty model with adjustment costs developed by pindyck and rotemberg 1983 and a putty clay model in the pindyck rotemberg model capital and energy are highly complementary in both the short run and the long run in the putty clay model capital and energy are complementary in the short run but substitutable in the long run we highlight the differences in the cross section implications of the models by considering the effect of an energy tax on output in both models in the putty putty model an energy tax that doubles the price of energy leads to a fall in output in the long run of 33 in contrast the same tax in the putty clay model leads to a fall in output of only 5 3

industry dynamics and the minimum wage a putty clay approach we document two new findings about the industry level response to minimum wage hikes first restaurant exit and entry both rise following a hike second there is no change in employment among continuing restaurants we develop a model of industry dynamics based on putty clay technology that is consistent with these findings in the model continuing restaurants cannot change employment and thus industry level adjustment occurs gradually through exit of labor intensive restaurants and entry of capital intensive restaurants interestingly the putty clay model matches the small estimated short run disemployment effect of the minimum wage found in other studies but produces a larger long run disemployment effect

budget spillovers and fiscal policy interdependence evidence from the states abstract this paper formalizes and tests the notion that states expenditures depend on the spending of similarly situated states we find that even after allowing for fixed state effects year effects and common random shocks among neighbors a state government s level of per capita expenditure is positively and significantly affected by the expenditure levels of its neighbors ceteris paribus a one dollar increase in a state s neighbors expenditures increases its own expenditure by over 70 cents

coveting thy neighbor s manufacturing the dilemma of state income apportionment abstract this paper investigates the economic impact of the apportionment formulae used to divide corporate income taxes among the states most apportionment formulae by including payroll turn the state corporate income tax at least partially into a payroll tax using panel data from 1978 1994 the results show that this distortion has an important effect on state level employment for the average state reducing the payroll weight from one third to one quarter increases manufacturing employment around 1 1 concentrated in durable goods manufacturing and with larger effects in the long run the results also suggest that apportionment changes have important negative externalities on other states on average the aggregate effects of apportionment formula changes are close to zero

in a world without borders the impact of taxes on internet commerce the rapid rise in sales over the internet and the fact that most internet buyers pay no sales tax has ignited a considerable debate over taxes and the internet this paper uses new data on the purchase decisions of approximately 25 000 online users to examine the effect of local sales taxes on internet commerce the results suggest that controlling for observable characteristics people living in high sales taxes locations are significantly more likely to buy online the results are quite robust and cannot be explained by unobserved technological sophistication shopping costs or other alternative explanations the magnitudes in the paper suggest that applying existing sales taxes to internet commerce might reduce the number of online buyers by up to 24 percent

2 00 gas studying the effects of a gas tax moratorium there are surprisingly few estimates of the effects of sales taxes on retail prices especially at the firm level we consider the temporary suspension and subsequent reinstatement of the gasoline sales tax in illinois and indiana following a price spike in 2000 earlier laws set the timing of the reinstatements providing plausibly exogenous changes in the tax rates using a unique dataset of daily prices at the gas station level 70 of the tax suspension is passed on to consumers in the form of lower prices while 80 100 of the tax reinstatements are passed on to consumers some evidence suggests that these short run pass through estimates are smaller near the state borders with the tax reinstatements associated with relatively higher prices up to an hour s drive into neighboring states

vertical versus horizontal tax externalities an empirical test abstract we study taxation externalities in federations of benevolent governments where different hierarchical government levels tax the same base one can observe two types of externalities a horizontal externality working among governments of the same level and leading to tax rates that are too low compared to the social optimum and a vertical externality working between different levels of government and leading to suboptimally high tax rates building on the model of keen and kotsogiannis keen michael j kotsogiannis christos 2002 does federalism lead to excessively high taxes american economic review 92 1 363 370 we derive a discriminating hypothesis to distinguish vertical and horizontal tax externalities based on measurable variables this test is applied to a panel data set on local taxes in a sample of swiss municipalities that feature direct democratic fiscal decision making so as to maximize the correspondence with the benevolent governments of the theory we find that vertical externalities dominate they are thus an observed empirical phenomenon as well as a notable extension to the theory of tax competition

investment and technical progress models in which the growth rate is exogenous provide no role for government in determining growth in our model growth is associated with investment through externalities from learning by watching rather than with the level of the capital stock presumption of a technical progress function with first increasing and then decreasing returns leads to multiple steady state growth equilibria there is also an explicit role of government policy in setting tax rates on output it follows that two economies with identical structures and stochastic tax policies may exhibit very different growth paths over sustained periods although the stationary distribution of growth rates is the same given the desirability in principle of subsidizing investment various practical methods are considered copyright 1992 by oxford university press

measuring factor adjustment costs i estimate adjustment costs for labor and capital from the euler equations for factor demand for both factors i find relatively strong evidence against substantial adjustment costs my estimates use annual data from two digit industries my results support the view that rents arising from adjustment costs are relatively small and are not an important part of the explanation of the large movements of the values of corporations in relation to the reproduction costs of their capital i investigate the potential effects of three types of specification error 1 aggregation over time 2 aggregation over firms with heterogeneous demand shocks and 3 estimation of a convex adjustment cost technology in the presence of nonconvex discrete adjustment costs i find that the likely biases from these specification errors are relatively small

a simple model of commodity taxation and cross border shopping this paper sets up a simple model in which two countries differing in geographical extent engage in commodity tax competition originating in opportunities for cross border shopping the non cooperative tax equilibrium and various coordination initiatives are examined in the benchmark model and in two model extensions incorporating i costs of transportation for goods and ii border inspection among the more surprising results are the following with i pure profits accrue to sellers near the border but subjecting them to tax may lower the country s total tax revenue with ii the volume of cross border shopping may well increase jel classification h20 h87 h26

did the single market cause competition in excise taxes evidence from eu countries tax competition theory predicts that the introduction of the eu single market in 1993 should have caused excise tax competition and thus increased strategic interaction in the setting of excise taxes among eu countries we test this prediction using a panel data set of 12 eu countries over the period 1987 2004 we find that for excise duties on still and sparkling wine beer and ethyl alcohol strategic interaction significantly increased after 1993 there is weaker evidence of increased interaction in cigarette taxes possibly because cigarettes are widely smuggled giving rise to tax competition even before the single market

tax compliance and fiscal externalities evidence from u s diesel taxation abstract fiscal externalities across jurisdictions can arise from tax evasion and avoidance while the tax competition literature has generally focused on base shifting and the resulting positive fiscal externalities we show theoretically and empirically that negative fiscal externalities can dominate when the tax base is apportioned across jurisdictions this can lead to a negative relationship between jurisdiction size and the desired tax rate interstate truckers in the united states owe state diesel taxes based on diesel consumption which is apportioned based on the miles driven in each state we find that own state diesel sales fall when the diesel tax rates of other states rise suggesting that tax base evasion is the predominant source of externalities we then estimate a tax reaction specification finding that the own state tax rate is negatively correlated with the tax rates set in other states and with state size both consistent with the sign of the estimated fiscal externality

entry and exit of manufacturing plants over the business cycle abstract this paper analyzes the plant level entry and exit over the business cycle we document basic patterns of entry and exit of u s manufacturing plants between 1972 and 1997 we find that the entry rate is more cyclical than the exit rate we also find that the differences in productivity and employment between booms and recessions are particularly larger for entering plants than for exiting plants our new finding suggests that the selection at the entry margin may be more important than the selection at the exit margin in understanding the plant level dynamics over the business cycle

crossing the border does commodity tax evasion reduce welfare and can enforcement improve it this paper compares discrete equilibria in which consumers do and do not evade commodity taxes by making cross border purchases when the government faces a revenue requirement the comparison shows that border crossing reduces welfare if resources wasted by evasion exceed the benefit of consumption changes where these changes reflect lower prices across the border and induced changes in domestic tax rates enforcement reduces welfare if administrative and uncertainty costs outweigh the benefits of consumption changes and the reduction in resource costs the analysis shows that the welfare effect of evasion depends on how well designed the tax system is and how effective enforcement resources are in deterring border crossing

interstate commodity tax differentials and the distribution of residents abstract this paper considers the manner in which an unequal distribution of consumers affects the commodity tax policies of neighboring jurisdictions the paper uses a spatial model in which the residents of two states are distributed non uniformly and employs a variety of assumptions about the behavior of governments and firms throughout the paper shows that at a nash equilibrium in tax levels the sparsely populated state imposes a lower tax than does its densely populated neighbor the paper also demonstrates how equilibrium state taxes differ depending on whether firms employ marginal cost or profit maximizing pricing

putty clay technology and stock market volatility abstract firms first order conditions imply that stock returns equal investment returns from the production technology much applied work uses the adjustment cost technology which implies that the realized return is high when the investment capital ratio is high this paper derives for an arbitrary stochastic discount factor the investment return implied by the putty clay technology the combination of capital heterogeneity and irreversibility creates a novel channel for return volatility the investment return is high when the ratio of investment to gross job creation is low empirically the putty clay feature helps account for u s stock market data

income misattribution under formula apportionment abstract alternatives to the current system of separate tax accounting such as the proposed common consolidated corporate tax base in europe would apportion a firm s worldwide profits using formulas based on the location of employment capital or sales this paper offers a new method of evaluating the accuracy of these apportionment rules and the ownership distortions they create evidence from european company accounts indicates that apportionment formulas significantly misattribute income since employment and other factors on which they are based do a very poor job of explaining a firm s profits for example the magnitude of property employment and sales explains less than 22 of the variation in profits between firms and the prediction estimates from using such a formula exceed half of predicted profits 64 of the time and exceed twice predicted income 11 of the time as a result the use of formulas rewards or punishes international mergers and divestitures by reallocating taxable income between operations in jurisdictions with differing tax rates the associated ownership distortion is minimized by choosing factor weights to minimize weighted squared prediction errors for which based on the european evidence labor inputs should play little if any role in allocation formulas but even a distortion minimizing formula creates large incentives for inefficient ownership reallocation due to the enormous variation in profitability that is unexplained by formulary factors implying that significant resource allocation costs would accompany european adoption of formulary apportionment methods

sales taxes and internet commerce we estimate the sensitivity of internet retail purchasing to sales taxes using ebay data our first approach exploits the fact that a seller s location and therefore the applicable tax rate is revealed only after a buyer has expressed interest in an item we document how adverse tax surprises reduce the likelihood of purchase and shift subsequent purchases toward out of state sellers we then use more aggregated data to estimate that every one percentage point increase in a state s sales tax increases online purchases by state residents by almost 2 percent while decreasing their online purchases from state retailers by 3 4 percent jel h71 l81 l86

labor immobility and the transmission mechanism of monetary policy in a monetary union abstract it is believed that a common monetary policy in a monetary union will have identical effects on different countries as long as these countries have identical fundamentals we show that when there is specialization in production the terms of trade react to the shock the transmission mechanism of a monetary shock has in this case an additional channel the terms of trade this is the case even if state contingent assets can be traded across countries for a reasonable parametrization the differential on the transmission across countries is quantitatively significant when compared with the effect on the union s aggregates monetary shocks create cycles with higher volatility in poor countries than in richer ones

cross border shopping from small to large countries abstract contrary to predictions of theoretical models there are many examples in the real world of cross border shopping from small to large countries we demonstrate that a sufficient wedge between marginal costs of public funds in small and large countries can explain this phenomenon

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

the cleansing effect of recessions the authors investigate industry response to cyclical variations in demand production units that embody the newest process and product innovations are continuously being created and outdated units are being destroyed although outdated units are the most likely to turn unprofitable and be scrapped in a recession they can be insulated from the fall in demand by a reduction in creation the structure of adjustment costs plays a determinant role in the responsiveness of those two margins the calibrated model matches the relative volatilities of the observed manufacturing job creation and destruction series and their asymmetries over the cycle copyright 1994 by american economic association

labor and the market value of the firm what role does labor play in a firm s market value we explore this question using a production based asset pricing model with frictions in the adjustment of both capital and labor we posit that hiring of labor is akin to investment in capital and that the two interact with the interaction being a crucial determinant of the time series behavior of market value we use aggregate u s corporate sector data to estimate firms optimal hiring and investment decisions and the consequences for firms value the model generates a good fit of the data we decompose the estimated market value thereby quantifying the link between firms value and gross hiring flows employment gross investment flows and physical capital we find that a conventional specification quadratic adjustment costs for capital and no hiring costs performs poorly hiring and investment flows unlike employment and capital stocks are volatile and both are essential to account for market value volatility a key result is that firms value embodies the value of hiring and investment over and above the capital stock

the information technology revolution and the stock market technological progress comes in waves the british industrial revolution 1760 1850 ushered in cort s puddling and rolling process for making iron crompton s mule for spinning cotton and the watt steam engine the second industrial revolution 1890 1930 witnessed the rise of electricity the internal combustion engine and the chemical industry the birth of information technology it may herald the start of a third industrial revolution a new technology or product is often developed by the single entrepreneur who initially finds it hard to get funds develop the product and find customers but if the product is good customers eventually line up and investors flock in other firms then move in to make the product and may drive the innovator out or acquire him whether he reaches the initial public offering ipo stage or is acquired by a listed firm though it takes time for the innovator to add value to the stock market indeed the innovation may at first reduce the market s value because some firms usually large or old will cling to old technologies that have lost their momentum figure 1 plots the market value of u s equity relative to gdp this paper argues that a the market declined in the late 1960 s because it felt that the old technologies either had lost their momentum or would give way to it and that b it innovators boosted the stock market s value only in the 1980 s if the stock market provides a forecast of future events then the recent dramatic upswing represents a rosy estimate about growth in future profits for the economy this translates into a forecast of higher output and productivity growth holding other things equal such as capital s share