taxation and international migration of superstars evidence from the european football market we analyze the effects of top tax rates on international migration of football players in 14 european countries since 1985 both country case studies and multinomial regressions show evidence of strong mobility responses to tax rates with an elasticity of the number of foreign domestic players to the net of tax rate around one around 0 15 we also find evidence of sorting effects low taxes attract highability players who displace low ability players and displacement effects low taxes on foreigners displace domestic players those results can be rationalized in a simple model of migration and taxation with rigid labor demand jel f22 h24 h31 j44 j61 l83

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

transfer fee regulations in european football abstract we analyze the impact of three different transfer fee systems on payoffs contract lengths training and effort incentives in european football the different regimes being used until 1995 pre bosman currently in use bosman and recently approved monti differ with respect to the transfer fee an initial club is entitled to depending on whether a player has a valid contract or not we show that the different systems differ only with respect to the contract length if the contract which maximizes the expected joint surplus of the initial club and the player is feasible under each system otherwise regime p is strictly dominated by regime b in terms of expected social welfare regime m leads to higher effort but lower incentives to invest in training compared to system b

voluntary disclosure of evaded taxes increasing revenue or increasing incentives to evade many countries apply lower fines to tax evading individuals when they voluntarily disclose the tax evasion they committed i model such voluntary disclosure mechanisms theoretically and show that while such mechanisms increase the incentive to evade taxes they nevertheless increase tax revenues net of administrative costs i confirm the importance of administrative costs in a survey of german competent local tax authorities i then test the effects of voluntary disclosure on the tax evasion decision using the introduction of the 2009 offshore voluntary disclosure program in the u s for identification the analysis confirms that the introduction of voluntary disclosure increases tax evasion

income redistribution in open economies i propose a model of income redistribution in an open economy environment the world consists of a finite number of countries whose governments seek to maximize the welfare of their low skilled populations by taxing skilled workers labor income while tax competition limits the extent to which redistribution is possible as compared to the closed economy outcome when skilled people are internationally mobile i argue that race to the bottom does not necessarily occur even if the number of countries becomes arbitrarily large the asymptotic sustainability of the welfare state crucially depends on the statistical properties of the probability distribution of skilled people s location preferences

optimal asset allocation and risk shifting in money management this article investigates a fund manager s risk taking incentives induced by an increasing and convex relationship of fund flows to relative performance in a dynamic portfolio choice framework we show that the ensuing convexities in the manager s objective give rise to a finite risk shifting range over which she gambles to finish ahead of her benchmark such gambling entails either an increase or a decrease in the volatility of the manager s portfolio depending on her risk tolerance in the latter case the manager reduces her holdings of the risky asset despite its positive risk premium our empirical analysis lends support to the novel predictions of the model

scale economies and the volume of trade in this paper we split the number of actual years of schooling into five components effective years repeated years skipped years inefficient routing years and dropout years estimation of earnings equations using these explanatory variables produces some interesting empirical and theoretical results the main empirical finding is that the concepts of actual and effective years of schooling that are usually used in the estimation of earnings equations are statistically inferior to our classification both concepts pro

the incidence of income taxes on high earners in canada this article explores the brain drain explanation for the concentration of incomes in canada during the past 30 years namely that high skilled canadians make use of high salaries on offer in the united states to extract higher salaries at home if this is the case then for a given level of us salaries the threat to accept outside offers should be more credible when the canadian dollar is depreciating against the us dollar and weaker when the canadian dollar is appreciating the data are broadly consistent with this claim income concentration worsened during the depreciations of the 1980s and 1990s and eased when the canadian dollar began to appreciate in value the article develops a simple two parameter model based on the propositions that high earners in canada can use us salaries to bargain for higher salaries and that canadian high earners can shelter part of their income from personal income taxes it also offers some preliminary evidence about the parameter values consistent with available data the results suggest that higher top marginal personal income tax rates may potentially accentuate top end after tax income inequality if high earners are able to use their bargaining power to extract pay increases to offset higher tax rates then the burden of increased personal income taxes will be deflected elsewhere and may even have the perverse effect of making the after tax income distribution more unequal than it was before l incidence des impots sur le revenu des hauts salaries au canada cet article examine l hypothese des produits de base produits de base produits de base produits de base produits de base fuites des cerveaux comme explication pour la concentration des revenus au canada pendant les dernieres decennees c est a dire que les canadiens hautement qualifies se servent des salaires offerts aux etats unis pour negocier des salaires plus eleves au canada si tel est le cas la menace d emigrer aux etats unis est plus credible lorsque le dollar canadien deprecie contre le dollar americain et elle est moins credible pendant une appreciation les grandes lignes des variations des donnees vont dans le sens de cette conjecture la concentration des revenus a accru pendant les depreciations des annees 1980 et 1990 et cette tendance a renverse la direction suite a l appreciation du dollar canadien l article developpe un modele a deux parametres base sur les propositions que les hauts salaries au canada peuvent utiliser les salaires aux etats unis afin de negocier des salaires plus eleves et que les hauts salaries se servent de la planification fiscale afin de mettre une partie de leurs revenus a l abri des impots des estimations preliminaires pour les parametres sont presentees les resultats suggerent qu une augmentation du taux marginal d imposition pourrait meme accentuer l inegalite des revenus apres impots si les hauts salaries sont capables de negocier des salaires plus eleves face aux augmentations des taux d imposition le fardeau du nouvel impot serait refile ailleurs la distribution des revenus nets pourrait meme devenir encore plus inegale

can state taxes redistribute income abstract the evidence presented in this paper supports the basic theoretical presumption that state and local governments cannot redistribute income since individuals can avoid unfavorable taxes by migrating to jurisdictions that offer more favorable tax conditions a relatively unfavorable tax will cause gross wages to adjust until the resulting net wage is equal to that available elsewhere the current empirical findings go beyond confirming this long run tendency and show that gross wages adjust rapidly to the changing tax environment thus states cannot redistribute income for a period of even a few years the adjustment of gross wages to tax rates implies that a more progressive tax system raises the cost to firms of hiring more highly skilled employees and reduces the cost of lower skilled labor a more progressive tax thus induces firms to hire fewer high skilled employees and to hire more low skilled employees since state taxes cannot alter net wages there can be no trade off at the state level between distribution goals and economic efficiency shifts in state tax progressivity by altering the structure of employment in the state and distorting the mix of labor inputs used by firms in the state create deadweight efficiency losses without achieving any net redistribution

intra industry trade in financial services abstract intra industry trade iit has been central to increasing the variety of products available to consumers unlike traditional trade theories the recent trade theories have placed an emphasis on the role of foreign direct investment fdi in generating trade and increasing the volume of iit this study is the first study of intra industry trade in banking services in which the key elements of the new trade theories of iit have been taken into account in measuring the determinants of iit in banking services the empirical results of the determinants of iit in banking services indicate that factor endowments average per capita income fdi in banking economies of scale in the banking sector trade intensity between the us and its partners and market openness make a positive contribution to the volume of iit in banking services furthermore the empirical results indicate that intra trade activities amongst the us multinational corporations reduce the level of iit in banking services for the us

status intertemporal choice and risk taking this paper takes the position that an individual s concern for relative status is expressed in her preferences we embed this hypothesis in an otherwise conventional model of economic growth and examine its consequences the model generates two kinds of equilibrium in the first all individuals always follow a deterministic consumption and investment strategy such a strategy must be linear in output is independent of payo s and technology and only depends on the discount factor this sort of equilibrium exists when the individual cares only about status and the individual production function is convex in investment in contrast the other kind of equilibrium involves convergence to a steady state in which there is persistent and endogenously generated gambling this kind of equilibrium exists in more plausible circumstances the individual has a utility function that may depend on consumption per se as well as implied status and individual production functions are concave we characterize the unique steady state in such a situation and prove that any dynamic equilibrium path must converge to it risk taking arises not from the presumption of a utility function with strictly convex segments as in friedman savage but naturally from a view of utility as depending on relative status our steady state is broadly consistent with the stylized facts that individuals both insure downside risk and to gamble over upside risk and generates similar patterns of risk taking and avoidance across environments with quite di erent overall wealth levels finally in contrast to friedman 1953 endogenous risk taking here is generally pareto ine cient

income taxation and the diversity of consumer goods a political economy approach after tax income inequality has risen since the mid 1990s as increases in market income inequality have not been offset by greater fiscal redistribution we argue that the substantial increase in the diversity of consumer goods has mitigated mounting political pressures for redistribution within a probabilistic voting framework we demonstrate that if the share of diversified goods in the consumption bundle increases sufficiently with income then an increase in goods diversity can reduce the political equilibrium tax rate focusing on oecd countries we find empirical support for both the model s micro political foundations and the implied relation between goods diversity and fiscal policy outcomes

taxing the rich affluent households can respond to taxation with means that are not economically viable for the rest of the population such as sophisticated tax plans and international tax arbitrage this article studies an economy in which an inequality averse social planner faces agents who have access to a tax avoidance technology with subadditive costs and who can shape the risk profile of their income as they see fit subadditive avoidance costs imply that optimal taxation cannot be progressive at the top this in turn may trigger excessive risk taking when the avoidance technology consists in costly migration between two countries that compete fiscally we show that an endogenous increase in inequality due to risk taking makes progressive taxation more fragile which vindicates in turn risk taking and can lead to equilibria with regressive tax rates at the top and high migrations of wealth towards the smaller country

the missing wealth of nations are europe and the u s net debtors or net creditors this paper shows that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens drawing on systematic anomalies in portfolio investment positions and a unique swiss dataset i find that 8 of the global financial wealth of households is held in tax havens 6 of which goes unrecorded on the basis of plausible assumptions accounting for unrecorded assets turns the eurozone officially the world s second largest net debtor into a net creditor it also reduces the u s net debt significantly the results shed new light on global imbalances and challenge the widespread view that after a decade of poor to rich capital flows external assets are now in poor countries and debts in rich countries i provide concrete proposals to improve international investment statistics

openness to trade in manufactures in the oecd abstract how open are the advanced economies to trade with each other in this paper openness is calculated relative to the predictions of the monopolistic competition trade model using data on manufacturing trade and production in the oecd in 1985 the paper finds that 1 japan imports much less than other large oecd countries while the european countries have larger import volumes than does the us 2 japan and the us engage in less intra industry trade than the rest of the oecd and 3 the eu countries are less open to imports from japan and the us than those countries are open to imports from the eu

the optimal elasticity of taxable income abstract the strength of the behavioral response to a tax rate change depends on the environment individuals operate in and may be manipulated by instruments controlled by the government we first derive a measure of the social benefit to affecting this elasticity the paper then examines this effect in the solution to the optimal income taxation problem when such an instrument is available first in a general model and then in an example when the government chooses the income tax base

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

relativity mobility and optimal nonlinear income taxation in an open economy abstract recent evidence suggests that globalization has reduced the barriers to international labor mobility and induced more cross country social comparisons in an open economy with tax driven migration and consumption externalities relativity we derive an optimal tax formula that subsumes existing ones obtained under a maximin social objective and additively separable utility and sign the second best mirrleesian marginal tax rates for all skill levels we establish the thresholds of the elasticity and level of migration to determine when relativity and inequality act as complements or substitutes in shaping the optimal top tax rate under both nash and stackelberg tax competition if the migration probability of top income workers is approximately 50 numerical calculation using parameter estimates from empirical studies shows that the country with labor inflow outflow implements over 10 lower higher marginal tax rates than suggested by the autarky equilibrium of kanbur and tuomala 2013

the selection of high skilled emigrants we measure selection among high skilled emigrants from germany using predicted earnings migrants to less equal countries are positively selected relative to nonmigrants while migrants to more equal countries are negatively selected consistent with the prediction in borjas 1987 positive selection to less equal countries reflects university quality and grades and negative selection to more equal countries reflects university subject and gender migrants to the united states are highly positively selected and concentrated in stem fields our results highlight the relevance of the borjas model for high skilled individuals when credit constraints and other migration barriers are unlikely to be binding

markets and institutions global perspectives abstract the purpose of this paper is to highlight some of the key developments of markets and institutions at the global level over the past few decades by referring to the evolution of institutions from the government led system to a market led system the paper argues that innovation and deregulation in the financial sector led to acceleration of the process of globalisation in which both markets and institutions are becoming increasingly integrated and more efficient the paper highlights the role of trade liberalisation in financial services as a way of increasing efficiency and better use of national resources the paper also highlights the role of consolidation of financial institutions as one of the ingredients of the new developments of markets and institutions the paper also provides brief highlights of six other papers in this special issue that analyse and discuss some of the global aspects of markets and institutions

changes in the labor supply behavior of married women 1980 2000 using march current population survey data we investigate married women s labor supply from 1980 to 2000 we find a large rightward shift in their labor supply function for annual hours in the 1980s with little shift in the 1990s these shifts account for most of the slowdown in the growth of labor supply during this period a major development was the dramatic decrease in the responsiveness of married women s labor supply to their own and husbands wages their own wage elasticity fell by 50 56 while their cross wage elasticity fell by 38 47 in absolute value

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

tax harmonization and tax competition in the european union lessons from switzerland abstract this paper presents empirical evidence on individual income tax competition in switzerland tax competition has some influence on the spread of people with high income over the cantons and it is partly capitalised in dwelling rents however it neither leads to a collapse of public good supply nor makes redistribution by the fiscal authorities impossible thus if tax competition works well in switzerland there is no reason why it should have disastrous effects in a future european union

are scale economies in banking elusive or illusive evidence obtained by incorporating capital structure and risk taking into models of bank production abstract this paper explores how to incorporate banks capital structure and risk taking into models of production in doing so the paper bridges the gulf between 1 the banking literature that studies moral hazard effects of bank regulation without considering the underlying microeconomics of production and 2 the literature that uses dual profit and cost functions to study the microeconomics of bank production without explicitly considering how banks production decisions influence their riskiness various production models that differ in how they account for capital structure and in the objectives they impute to bank managers cost minimization versus value maximization are estimated using u s data on highest level bank holding companies modeling the bank s objective as value maximization conveniently incorporates both market priced risk and expected cash flow into managers ranking and choice of production plans estimated scale economies are found to depend critically on how banks capital structure and risk taking are modeled in particular when equity capital in addition to debt is included in the production model and cost is computed from the value maximizing expansion path rather than the cost minimizing path banks are found to have large scale economies that increase with size moreover better diversification is associated with larger scale economies while increased risk taking and inefficient risk taking are associated with smaller scale economies

on income tax avoidance the case of germany abstract we present a micro estimate determining taxed income as a function of gross income and all major deduction options depending on household and asset categories it shows that tax savings strongly increase with increasing income resulting in an effective marginal tax rate 16 percentage points below the legislated one for the highest income groups this calls into question the intended distributional impact of progressive income taxation our estimate suggests aggregate income tax losses to the german fiscal authorities in the order of magnitude of 34 of wage and income taxes paid in 1983 relative to 1994 tax proceeds this percentage would amount to dm 105 b

mobility and redistribution the ability of individuals to move freely from one jurisdiction to another is generally seen as a constraint on the amount of redistribution that each jurisdiction within a system of governments can undertake in this paper we look at this proposition by developing a positive analysis of income redistribution by local governments in a federal system we ask how much redistribution occurs when only local governments can have tax transfer instruments individuals can move freely among jurisdictions and voters in each jurisdiction are fully aware of the migration effects of redistributive policies local redistribution is shown to induce sorting of the population with the poorest households located in the communities that provide the most redistribution while the threat of out migration affects the potential for redistribution our results suggest that significant local redistribution is nonetheless feasible numerical computations indicate that the proportion of residents who are renters is a major factor affecting the local choice of level of redistribution

multinationals multi plant economies and the gains from trade a general equilibrium model of a multinational enterprise based on economies of multi plant operation is developed these economies are modelled as arising from the existence of a joint input whose productivity in each production facility is independent of the number of facilities maintained by a firm the multinational thus offers the world increased technical efficiency by eliminating the duplication of the joint input that would occur with independent national firms since this technical efficiency may come at the expense of increased market power the full determinants of home country host country and world welfare are considered

commercial policy and intra industry trade abstract this paper constructs a model of intra industry trade within a multi product industry whose output range is limited to that obtainable from a particular type of capital intra industry trade is a natural outcome in this structure without requiring increasing returns to scale or imperfectly competitive markets and with its pattern determined along traditional relative factor abundance lines the volume of this trade will vary inversely with the level of trade restrictions as observed empirically other policies are then considered for their influence on the range rather than the level of domestic production since the former is the more likely policy objective under these circumstances

the elasticity of taxable income with respect to marginal tax rates a critical review this paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data first we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis we discuss what other parameters should be estimated when the elasticity is not a sufficient statistic second we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the united states to illustrate those issues third we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out finally we discuss avenues for future research jel h24 h31 j22

growth efficiency and convergence in china s state and collective industry in china as in the soviet union and eastern europe economic reform initiatives seek to increase productivity by introducing elements of market oriented policies and institutions into an economy formerly dominated by state planning efforts to evaluate the impact of reform of chinese industry have focused on the measurement of productivity change in state enterprises this study expands the prior framework of analysis in several directions our investigation of productivity trends is not limited to state enterprises but includes quantitative comparisons with china s fast growing collective industries which contributed 36 of overall industrial output in 1988 1 unlike previous studies our analysis works with gross rather than net output this permits us to investigate changes in the productivity of intermediate inputs which occupy a large portion of total costs in chinese industry as well as labor and capital to do this we develop a quasi frontier estimation procedure which seems appropriate for comparisons of total factor productivity based on chinese industrial data finally we offer a quantitative perspective on the extent to which reform efforts have moved industrial resource allocation toward patterns expected of a market system the analysis confirms our previous finding based on a restricted framework employing only labor fixed capital and net output that multifactor productivity in state industry has risen substantially during

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

differential taxation and occupational choice we develop a framework to study optimal sector specific taxation where each agent chooses an occupation by comparing her skill differential with the tax burden differential across sectors because skills are not perfectly transferable the diamond mirrlees theorem according to which the second best entails production efficiency fails social welfare can be increased by inducing some agents to join the sector in which their productivity is not the highest at the optimum income taxes balance the marginal losses from inter sector migration with the marginal gains from tailoring tax schedules to the distribution of productivities in each sector tagging a calibrated model indicates that sector specific taxation generates substantive welfare gains when skill transferability decreases with income as it enables the government to increase average taxes on high earners with large wage premia

intra industry trade and strategic interaction theory and evidence abstract we conduct a theory based empirical study of intraindustry trade in homogeneous products we derive an oligopolistic model of intra industry trade which is an extension of the segmented market model of trade initially proposed by brander j a 1981 intra industry trade in identical commodities journal of international economics 11 1 14 the empirical implementations of the model are investigated in the context of the petrochemical industry our analysis employs a unique data set containing detailed product and location specific data on the petrochemical industries in germany and the united states allowing for different empirical specifications we find that cross product variations in bilateral intra industry trade of petrochemicals are well explained by the variables suggested by the theoretical model

enterprise reform and technical efficiency of china s state owned enterprises this study investigates whether the enterprise reforms were helpful for the technical efficiency of china s state owned enterprises a stochastic varying coefficients frontier approach is applied on enterprise survey data in 1992 the results suggest that exposure to market competition or less state intervention is positively correlated with firms level of technical efficiency there is no evidence however of positive contribution by adoption of the new enterprise institutions to technical efficiency

economic reform and allocative efficiency in china s state owned industry beginning in late 1978 the people s republic of china introduced sweeping reforms into its management of state owned industry before reform the allocation of labor capital and materials to industrial enterprises was carried out administratively at the central or regional level and output was typically sold to the state at controlled prices this planned system succeeded in channeling capital and labor into industry and raising industrial output but there is considerable evidence that allocative efficiency has been poor in this planned sector total factor productivity tfp was at best stagnant in chinese industry from 1957 to 1978 and may have actually declined over that period decisions made by the central committee of the chinese communist party at its third plenum in december 1978 led to the development of a reform program for the chinese economic system concrete plans for reform started to be announced by the state council in mid1979 the centerpiece of reform has been the devolution of economic control to the enterprise level in the agricultural sector this meant breaking up the communes and introducing the family responsibility system providing individual peasant families considerable freedom to choose inputs and outputs sell a large share of output on free markets and retain the profits agricultural output grew rapidly in the years following reform and there is a growing body of evidence that resource use has become more efficient in chinese agriculture 2 there have been analogous attempts to reform state owned industry in china which consists of 87 000 enterprises and accounts for three quarters of the country s industrial output the reforms have provided enterprises with more freedom in hiring or purchasing inputs including capital materials and to a lesser extent labor enterprises now have limited ability to alter their product line and introduce new

the equilibrium distribution of income and the market for status this paper explores the implications for risk taking behavior and the equilibrium distribution of income of assuming that the desire for status positions is a powerful motive and that it raises the marginal utility of consumption in contrast to previous analyses we consider the case in which status positions are sold in a hedonic market we show that such a complete hedonic market in status positions can be perfectly replicated by a simpler arrangement with a status good and a social norm that assigns higher status to those that consume more of this good the main result is that for a wide range of initial conditions the equilibrium distribution over income status and consumption is the same that this allocation requires inequality of income and consumption and that this allocation coincides with the optimum of a utilitarian planner

rewarding trading skills without inducing gambling this paper develops a model of active portfolio management in which fund managers may secretly gamble in order to manipulate their reputation and attract more funds we show that such trading strategies may expose investors to severe losses and are more likely to occur when fund managers are impatient their trading skills are scalable and generate higher prot per unit of risk we study investment management contracts that deter this behavior if investors are short lived then the manager must leave rents to investors in order to credibly commit not to gamble if investors are long lived contracts that increase but defer expected bonuses after an outstanding performance implement the rstbest our model can explain a number of observed dierences

how can scandinavians tax so much american visitors to scandinavian countries are often puzzled by what they observe despite large income redistribution through distortionary taxes and transfers these are very high income countries they rank among the highest in the world in terms of income per capita as well as most other economic and social outcomes the economic and social success of scandinavia poses important questions for economics and for those arguing against large redistribution based on its supposedly detrimental effect on economic growth and welfare to form a basis for the discussion table 1 shows tax revenues and income tax rates in the three scandinavian countries denmark norway and sweden as compared to other european countries and the united states we see that the tax to gdp ratio and the tax rates on income are much higher in scandinavia than elsewhere the top marginal tax rates are about 60 70 percent in the scandinavian countries as opposed to only 43 percent in the united states the contrast is even more striking when considering the so called participation tax rate which is the effective average tax rate on labor force participation when accounting for the distortions due to income taxes payroll taxes consumption taxes and means tested transfers this tax rate is around 80 percent in the scandinavian countries implying that an average worker entering employment will be able to increase consumption by only 20 percent of earned income due to the combined effect of higher taxes and lower transfers by contrast the average worker in the united states gets to keep 63 percent of earnings when accounting for the full effect of the tax and

migration and optimal income taxes abstract the issue addressed in this paper is the optimal taxation of incomes earned in the home economy and of incomes earned abroad when people can migrate as a preliminary the optimal taxation of home incomes when there is migration and no taxation of foreign incomes is discussed then in a more general setting we deal with optimal taxation of different kinds of labour when another kind of labour is not taxable and show how this bears on the taxation of foreign incomes the last sections of the paper analyse a simple model in which people choose between taxable labour at home taxable labour abroad and untaxable labour a condition is found implying that the optimal tax on foreign income is higher than on the home income of a person of equal utility

efficient allocations with hidden income and hidden storage we consider an environment in which individuals receive income shocks that are unobservable to others and can privately store resources we provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or alternatively in which the worst possible outcome is sufficiently dire we show that unlike in environments without unobservable storage the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade riskfree bonds among themselves in this paper we consider an environment in which individuals have random income and can accumulate assets through a storage technology their income realizations and their asset position are private information given these informational frictions we provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or alternatively in which the worst possible outcome is sufficiently dire we show that the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade risk free bonds among themselves there is a large prior literature which examines the characteristics of efficient risksharing in dynamic settings in the presence of private information unlike our paper this literature generally finds that efficient allocations do not coincide with the equilibrium allocations of any economy with a competitive bond market see atkeson and lucas 1992 in particular the key difference between our paper and these preceding ones is that the earlier literature assumes either that agents cannot accumulate resources over time or that if they can this accumulation is observable in contrast we assume that both agents incomes and their stored resources are private information it is this combination of assumptions that leads to our result our findings are reminiscent of allen s 1985 he considers a dynamic principalagent relationship in which the agent is risk averse and has hidden stochastic income the

compensation incentives and the duality of risk aversion and riskiness the common folklore that giving options to agents will make them more willing to take risks is false in fact no incentive schedule will make all expected utility maximizers more or less risk averse this paper finds simple intuitive necessary and sufficient conditions under which incentive schedules make agents more or less risk averse the paper uses these to examine the incentive effects of some common structures such as puts and calls and it briefly explores the duality between a fee schedule that makes an agent more or less risk averse and gambles that increase or decrease risk with the growing interest in executive compensation and agency problems

intra industry specialization in a multi country and multi industry framework the paper tests alternative hypotheses as to the factors determining the extent of intra industry trade defined as the share of this trade in total trade in a multi country and multi industry framework the empirical results show that the extent of intra industry trade in a particular industry between any two countries depends on the characteristics of the industry and the countries concerned the explanatory power of the regressions for the entire group of countries exporting manufactured goods as well as for trade among the developed countries is relatively high and practically all the hypotheses concerning the impact of industry trade are supported by the empirical results lower coefficients of determination have been obtained for trade between developed and developing countries and for trade among developing countries but the estimates generally support the hypotheses put forward in the paper in these cases also

equality under threat by the talented evidence from worker managed firms does workplace democracy engender greater pay equality are high ability individuals more likely to quit egalitarian organisational regimes the article revisits this long standing issue by analysing the interplay between compensation structure and quit behaviour in the distinct yet underexplored institutional setting of worker managed firms the analysis is based on novel administrative data sources which allow constructing a simple ordinal measure of the workers ability type the article s key findings are that worker managed firms have a more compressed compensation structure than conventional firms and high ability members are more likely than other members to exit

relocation of the rich migration in response to top tax rate changes from spanish reforms a spanish reform granted regions the authority to set income tax rates resulting in substantial tax differentials using administrative data we find that conditional on moving taxes have a signi

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

status the distribution of wealth private and social attitudes to risk this paper supposes an individual cares about his her own wealth not only directly but also via the relative standing that this wealth induces the implications for risk taking are investigated in particular such a model provides a natural explanation of the concave convex concave utility described by friedman and savage however there are a number of key differences between the present model and any model based on own wealth alone for example an equilibrium wealth distribution here may have a middle class further the status interaction involves an externality and an equilibrium wealth distribution may be pareto inefficient but also about the implied relative standing in the distribution of wealth has a long but checkered history an early exponent of such ideas was of course veblen 1899 it is indeed a notion which most economists reject albeit usually without explicit comment a notable and articulate exception however is frank 1985 for example see also the references frank cites on pp 33 34 it is however a notion with substantial intuitive appeal and it seems useful to ascertain its consequences before coming to a final judgement as to its merits the present paper is concerned with deriving the consequences of such valuation of status for risk taking what seems to be the sharpest possible model is adopted here this assumes that what is essentially ordinal rank in the wealth distribution enters von neumann morgenstern utility as an argument in addi tion to wealth itself thus higher wealth increases utility not only directly but also indirectly via higher status in the interests of both simplicity and drama it is typically assumed here that all individuals have identical utility functions which are concave in wealth but convex in status section 2 discusses how the model provides a natural explanation of the fundamental phenomenon addressed by friedman and savage 1948 that individuals may simultaneously purchase insurance and participate in lotteries although each individual here has a utility function which is concave in wealth itself utility can nevertheless be convex in wealth over some range when the indirect effect via status is included this effect is enhanced by the convexity of utility in status but will follow in any case if increasing wealth entails moving up in status much more rapidly than losing wealth entails moving down it is shown

trade policy issues and empirical analysis interest in u s trade policy has been stimulated in recent years by the massive american trade deficit by the belief that intervention by foreign governments in international markets has given other countries a competitive edge over the united states and by concern about the increase in protectionism among industrial countries in turn major analytical developments in international economics have revolutionized trade theory broadening its scope both by introducing in a more formal manner such concepts as imperfect competition increasing returns product differentiation and learning effects and by including the study of political and economic factors that shape trade policy decisions this collection of papers the result of a conference held by the nber applies these new trade theories to existing world cases and also presents complementary empirical studies that are grounded in more traditional trade theories the volume is divided into four parts the papers in part 1 consider the problem of imperfect competition empirically assessing the economic effect of various trade policies introduced in industries in which the new trade theory seems to apply those in part 2 isolate the effects of protection from the influences of the many economic changes that accompany actual periods of protection and also examine how the effects from exogenous changes in economic conditions vary with the form of protection part 3 provides new empirical evidence on the effect of foreign production by a country s firms on the home country s exports finally in part 4 two key bilateral issues are analyzed recent u s japanese trade tensions and the incident involving the threat of the imposition of countervailing duties by the united states on canadian softwood lumber

constitutional change and inequality in scotland what scope does a sub national economy have to affect the level of inequality does a policy menu consistent with the theories of fiscal federalism provide for an ability to affect inequality measures or does this ability require the powers of a nation state in this paper we discuss these questions in the context of the debate around the scottish independence referendum in which inequality has played a prominent role and ask whether independence further devolution or simply different policies under the current constitutional framework are capable of helping scotland make the transition to a less unequal income distribution we provide a series of estimates of the impact of different policy choices upon inequality in scotland and discuss inequality reduction in the context of different constitutional options

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

mobile labor multiple tax instruments and tax competition abstract the tax competition literature shows that local governments keep property tax rates inefficiently low to prevent capital outflows thereby underproviding local public goods this paper adds mobile labor and an alternative tax instrument to the model jurisdictions have access to a property tax levied on land and capital plus either a head tax or a labor tax scale economies in public good provision create incentives to use the property tax but these incentives are not accompanied by increased incentives to underprovide public goods in contrast underprovision is associated with the use of a distortionary labor tax

does option compensation increase managerial risk appetite this paper solves the dynamic investment problem of a risk averse manager compensated with a call option on the assets he controls under the manager s optimal policy the option ends up either deep in or deep out of the money as the asset value goes to zero volatility goes to infinity however the option compensation does not strictly lead to greater risk seeking sometimes the manager s optimal volatility is less with the option than it would be if he were trading his own account furthermore giving the manager more options causes him to reduce volatility managers with convex compensation schemes play an important role in financial markets this paper solves for the optimal dynamic investment policy for a risk averse manager paid with a call option on the assets he controls the paper focuses on how the option compensation impacts the manager s appetite for risk when he cannot hedge the option position on one hand the convexity of the option makes the manager shun payoffs that are likely to be near the money under the optimal policy the manager either significantly outperforms his benchmark or else incurs severe losses furthermore in examples of optimal trading strategies asset volatility goes to infinity as asset value goes to zero yet option compensation does not strictly lead to greater risk seeking as asset value grows large or if the evaluation date is far away the manager moderates asset risk for example if the manager has constant relative risk aversion crra asset volatility converges to the merton constant as asset value goes to infinity in some situations the manager actually chooses a lower asset volatility than he would if he were investing on his own because the leverage inherent in his option magnifies his exposure to the asset volatility in addition with all constant or decreasing absolute risk averse utility functions from the hyperbolic absolute risk averse hara class giving the manager more options causes him to reduce asset volatility in the crra case for example the manager targets a fixed volatility for his personal

migration and wage effects of taxing top earners evidence from the foreigners tax scheme in denmark this paper analyzes the eects of income taxation on the international migration and earnings of top earners using a danish preferential foreigner tax scheme and populationwide danish administrative data this scheme introduced in 1991 allows new immigrants with high earnings to be taxed at a preferential at rate for a duration of three years we obtain two main results first the scheme has doubled the number of highly paid foreigners in denmark relative to slightly less paid and therefore ineligible foreigners this translates into a very large elasticity of migration with respect to 1 minus the average tax rate on foreigners between 1 5 and 2 second we nd compelling evidence of a negative eect of the scheme induced reduction in the average tax rate on pre tax earnings of foreign migrants at the individual level this nding can be rationalized by a matching frictions

immigration and welfare magnets this article investigates if the location choices made by immigrants when they arrive in the united states are influenced by the interstate dispersion in welfare benefits income maximizing behavior implies that foreign born welfare recipients unlike their native born counterparts may be clustered in the states that offer the highest benefits the empirical analysis indicates that immigrant welfare recipients are indeed more heavily clustered in high benefit states than the immigrants who do not receive welfare or than natives as a result the welfare participation rate of immigrants is much more sensitive to changes in welfare benefits than that of natives