the causes of preference reversal observed preference reversal cannot be adequately explained by violations of independence the reduction axiom or transitivity the primary cause of preference reversal is the failure of procedure invariance especially the overpricing of low probability high payoff bets this result violates regret theory and generalized nonindependent utility models preference reversal and a new reversal involving time preferences are explained by scale compatibility which implies that payoffs are weighted more heavily in pricing than in choice copyright 1990 by american economic association

information transmission cournot and bertrand equilibria we examine how incentives for two duopolists to honestly share information change depending upon the nature of competition cournot or bertrand and the nature of the information structure while in earlier papers uncertainty is about an unknown common demand intercept in the present paper uncertainty is about unknown private costs the different information structure reverses the incentives to share information while with unknown common demand sharing is a dominant strategy with bertrand competition and concealing is a dominant strategy with cournot competition with unknown private costs sharing is a dominant strategy with cournot competition and concealing is a dominant strategy with bertrand competition

optimal seigniorage and financial liberalization abstract this paper analyzes the effect of financial integration for countries relying on the taxation of their domestic financial system a two country model with overlapping generations and explicit financial intermediation is used goverments derive revenues from seigniorage and set optimally but non cooperatively the rate of inflation and the level of required reserves on bank deposits a financial liberalizations leads to lower reserve ratios higher inflation rates and larger stocks of government debt when the liberalization is anticipated governments may temporarily increase the reserve ratios before the liberalization occurs jel f30 e60

nash equilibria in models of fiscal competition abstract this paper analyzes nash equilibria in a simple model of an economy with jurisdictions engaging in fiscal competition small number nash equilibria in which tax rates are the strategic variables are shown not to coincide with nash equilibria in which public expenditure levels are the strategic variables

aggregation of information in large cournot markets consider a homogeneous product market where firms have private information about an uncertain demand parameter and compete in quantities we examine the convergence properties of bayesian cournot equilibria as the economy is replicated and conclude that large cournot or almost competitive markets do not aggregate information efficiently except possibly when the production technology exhibits constant returns to scale even in a competitive market there is a welfare loss with respect to the first best outcome due to incomplete information in general nevertheless a competitive market is efficient taking as given the decentralized private information structure of the economy endogenous and costly information acquisition is examined and seen to imply that the market outcome always falls short of the first best level with decreasing returns to scale the results are also shown to be robust to the addition of extra rounds of competition which allows firms to use the information revealed by past prices explicit closed form solutions yielding comparative static results are obtained for models characterized by quadratic payoffs and affine information structures

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

economic theory of choice and the preference reversal phenomenon a reexamination in a recent issue of this review david grether and charles plott 1979 hereinafter referred to as g p presented a series of experiments that show that individual decisions are made in a manner inconsistent with standard preference theory this inconsistency can be illustrated by the following example individuals under suitable laboratory conditions first have a choice between a lottery with a high probability of winning a small sum of money the p bet probability bet and a lottery with a high stake but low probability of winning the m bet money bet after indicating a preference for one of the lotteries in the pair the same subjects are then asked to place a monetary value on each of the individual lotteries grether and plott found that a large number of participants stated a preference for the p bet in the first round but placed a higher value on the other lottery the m bet in the second round this behavior a preference reversal is inconsistent with the traditional statements of preference theory

time preference and preference reversal among experienced subjects the effects of real payments preference reversal has been frequent in tests with hypothetical or small real payoffs concerning lotteries as well as claims redeemable at different future dates pr is tested here for the latter case with nontrivial payment levels and subjects likely to deal with decisions of this type it is found i that replacing hypothetical by real payment tests reduces pr rates from 62 to i 5 for subjects predicted to reverse preferences and 2 that the real overall pr rate before correcting for response errors is i9 much lower than in earlier studies

decisions error and heterogeneity probabilistic choices or choice errors may play an important supporting role in shaping observed risky choices and a variety of restrictions on such choice probabilities play the role of identifying restrictions in empirical decision research we test six restrictions in the context of common ratio effect data for a general class of theories of risky choice two restrictions one for aggregate and one for individual data are supported but none of the heterogeneity restrictions that make the aggregate data model powerful survive scrutiny nor do estimable parametric versions of the individual data model there is room for new stochastic identifying restrictions in empirical decision research

buyers pricing behavior for risky alternatives encoding processes and preference reversals numerous studies have examined individuals minimum selling prices or certainty equivalents for lotteries as measures of preference but few have examined maximum buying prices because every transaction involves a buyer as well as a seller buyers pricing behavior is of interest in its own right two prospect theory based descriptive models of maximum buying prices the integration and segregation models are developed from different assumptions about cognitive encoding processes the models were tested experimentally using an incentive compatible cash payoff scheme in which maximum buying prices for bets and choices between bets were elicited from subjects surprisingly observed maximum buying prices were far below expected values even for bets with probabilities of winning near 1 0 this suggests buyers are strongly influenced by loss aversion and that the conventional assumption that the buying price for a risky alternative is a reduction in the alternative s payoffs fails to describe behavior instead it appears subjects predominately employed a segregation encoding process in which the buying price was encoded separately from the bet s payoffs and treated as a sure loss however an additional result was not explained adequately by either encoding model buying prices were less risk averse than choices for 3 expected value bets creating preference reversals of the standard kind lichtenstein and slovic 1971 but more risk averse for 100 expected value bets creating reverse preference reversals casey 1991 implications for the scale compatibility principle tversky et al 1988 are discussed two theoretical approaches are outlined which offer promise in the development of a unified model of price judgments and choice preferences under risk

should tax policy favor high or low productivity firms heterogeneous firm productivity raises the question of whether governments should pursue pick the winner strategies by subsidizing highly productive firms more or taxing them less than their less productive counterparts we study this issue in a setting where governments can set differentiated effective tax rates in an oligopolistic industry in which firms with two productivity levels co exist we show that the optimal structure of tax differentiation depends critically on the feasible level of the corporate profit tax which in turn depends on the degree of international tax competition when tax competition is weak and optimal profit tax rates are high favoring high productivity firms is indeed the optimal policy when tax competition is aggressive and profit taxes are low however the optimal tax policy reverses and favors low productivity firms

unlocking the gates of paradise general equilibrium effects of information exchange abstract in a move to reduce bank secrecy and fight international tax evasion about 100 tax jurisdictions have so far committed to implement a new standard on the automatic exchange of information aeoi this paper examines the quantitative consequences of the aeoi for an onshore country using a neoclassical model with an offshore financial center our main findings are i the aeoi increases government revenues but reduces welfare ii welfare improves when using the aeoi revenues to reduce tax pressure or when including household wealth inequality iii government revenues increase further when accounting for a disclosure penalty cost these results depend on the general equilibrium effects absent from earlier papers on offshore financial centers

exchange of cost information in oligopoly when do oligopolists gain by sharing their private information about their costs with one another what are the social welfare effects of such information exchange i study these questions by comparing the oligopolists expected profits under a cost sharing agreement with their expected profits in the bayesian equilibrium that would arise without cost sharing i also analyse the firms decisions to form a trade association to share their cost data under conditions of linear demand and cournot behaviour industrywide information exchange is the unique point in the core of the trade association membership game the exchange of cost data increases expected profits and welfare but reduces expected consumer surplus cost sharing increases efficiency by raising the market shares of lower cost firms and reducing the variability of aggregate output consumer surplus is diminished however because the variance of output is reduced and consumer surplus is a convex function of output

trade association disclosure rules incentives to share information and welfare in this article i propose a monopolistic competition framework to analyze the effects of different disclosure rules used by trade associations on the incentives to share information and on the welfare of consumers firms and society this framework is appropriate whenever a single firm cannot influence aggregate market magnitudes and serves as a benchmark for the analysis of information pooling agreements abstracting from strategic considerations i report two main results first a policy of nonexclusionary disclosure destroys the incentives to share information while exclusionary disclosure preserves them second information sharing increases expected total surplus with cournot competition but decreases it with bertrand competition in the context of a quadratic normal model with demand uncertainty

international policy coordination for financial market stability in the asian economies based on the understanding of financial crisis as the self fulfilling crisis of speculators belief system this paper examines the feasibility of introducing the tobin tax system to reduce financial volatility in the asian foreign exchange markets the model analysis in this paper provides the following policy implications to reduce the motivation to deviate from the policy coordination it is required to allow all tax revenues to collecting countries especially to singapore and hong kong even without the participation of the major western countries the start of the tax policy coordination in the asian region can have significant signalling effects to reduce speculative motivation

in praise of tax havens international tax planning and foreign direct investment abstract the multinationalization of corporate investment in recent years has given rise to a number of international tax avoidance schemes that may be eroding tax revenues in industrialized countries but which may also reduce tax burdens on mobile capital and so facilitate investment both the welfare effects of and the optimal response to international tax planning are therefore ambiguous evaluating these factors in a simple general equilibrium model we find that citizens of high tax countries benefit from some tax planning paradoxically if tax rates are not too high an increase in tax planning activity causes a rise in optimal corporate tax rates and a decline in multinational investment thus fears of a race to the bottom in corporate tax rates may be misplaced

taxes institutions and foreign diversification opportunities abstract investors can access foreign diversification opportunities through either foreign portfolio investment fpi or foreign direct investment fdi the worldwide tax regime employed by the us potentially distorts this choice by penalizing fdi relative to fpi in low tax countries on the other hand weak investor protections in foreign countries may increase the value of control creating an incentive to use fdi rather than fpi by combining data on us outbound fpi and fdi this paper analyzes whether the composition of us outbound capital flows reflects these incentives to bypass home and host country institutional regimes the results suggest that the residual tax on us multinational firms foreign earnings skews the composition of outbound capital flows a 10 decrease in a foreign country s corporate tax rate increases us investors equity fpi holdings by approximately 10 controlling for effects on fdi investor protections also seem to shape portfolio choices though these results are not robust when only within country variation is employed

imprecision as an account of the preference reversal phenomenon many individuals choices and valuations involve a degree of uncertainty imprecision this paper reports an experiment designed to obtain some measure of imprecision and to examine the extent to which it can explain preference reversals of two opposite forms one of which appears not to have been reported previously the model of imprecision we examine not only predicts both patterns but also provides an account of earlier results that are otherwise not well explained the results suggest that any successful descriptive theory of choice and valuation will need to allow in some way for the imprecision surrounding people s decisions

social comparisons and optimal taxation in a small open economy in this paper we analyze how international capital mobility affects the optimal labor and capital income tax policy in a small open economy when consumers care about relative consumption the main

experimental economics accounting and society in memory of john dickhaut abstract this volume consists of papers presented at a conference in memory of john dickhaut the conference sponsored by the economic science institute at chapman university focused on four areas of john s research interests during his career accounting and society methodology in experimental economics neural economics and trust and reciprocity all of the papers make novel interesting contributions to the study of human behavior in economic institutions and should interest readers in a range of fields including accounting anthropology economics finance neurology and psychology

tax competition with heterogeneous capital mobility in this paper we look at corporate fiscal policies set by two competing regions in an environment where firms are heterogonous regarding to their mobility costs we show that if regions are allow to tax domestic and foreign capital at different rates they will offer a preferential treatment to foreign firms even if mobility costs are symmetrically distributed across regions preventing such type of preferential treatment raises revenues for both regions unless there exist a high density of firms with low moving costs because preferential tax treatment promotes firms movement for fiscal raisons such tax regime always generates more social loss due to unnecessary delocalization we also investigate the effect of heterogeneity among regions

tax policy and present biased preferences paternalism under international capital mobility this paper deals with tax policy responses to quasi hyperbolic discounting earlier research on optimal paternalism typically abstracts from capital mobility if capital is mobile between countries it may no longer be possible for national governments to control domestic savings via capital taxation as in a closed economy in this paper we take a broad perspective on public policy responses to self control problems by showing how these responses vary i between closed and open economies ii between small open and large open economies and iii depending on whether or not both source based and residence based capital taxes can be used

revenue sharing and information exchange under non discriminatory taxation the international exchange of tax information and its merits compared to withholding taxes is the central topic in current debates in international tax policy the purpose of this paper is to characterize and compare the tax regimes that emerge with and without information exchange under the assumption that countries are unable to differentiate between the taxes they apply to residents and non residents it focuses in particular on the role of asymmetries in country size capturing a key feature of tax havens and on the impact and potential desirability of schemes to share the revenue raised by withholding as under the new eu savings tax arrangements or more innovatively as a consequence of information exchange it is shown that irrespective of country size difference pareto efficiency requires that all revenue collected from nonresidents be transferred to the residence country which would require taking the eu practice even further from the norm but is currently the norm in relation to information exchange a withholding scheme with revenue fully reallocated in this way pareto dominates information sharing whatever the allocation under the latter comparing schemes in which there is no revenue sharing however shows that information exchange pareto dominates simple withholding

preference reversals without the independence axiom the preference reversal phenomenon was believed to be inconsistent with the transitivity axiom of decision theory however recent theoretical papers have demonstrated that the preference reversals that were observed in earlier experiments could be explained by subject violations of the independence axiom or the compound lottery axiom therefore those preference reversals are not known to be inconsistent with generalization of expected utility theory that replace the independence axiom the present paper reports the results of experiments in which a substantial proportion of subject responses violate the asymmetry axiom these results are inconsistent with expected utility theory and its generalizations copyright 1989 by american economic association

the politics of 1992 fiscal policy and european integration the internal market in europe will greatly increase the international mobility of resources how will this affect fiscal policy in different countries we consider taxation of capital in a two country model where a democratically chosen government in each country chooses tax policy higher capital mobility changes the politico economic equilibrium in two ways on the one hand it leads to more tax competition between the countries this economic effect tends to lower tax rates in both countries on the other hand it alters voters preferences and makes them elect a different government this political effect offsets the increased tax competition although not completely

tax competition and leviathan abstract attitudes towards downward pressure on tax rates from international tax competition depend on attitudes towards government this paper synthesises the two extremes which as in other areas of public finance have dominated the debate typically being presented as stark alternatives the view of government as a leviathan from which tax competition emerges as a useful constraint on policy makers and the view of government as a benevolent maximiser of their citizens welfare from which it emerges as a source of inefficiency conditions are derived under which when policy makers are neither entirely benevolent nor wholly self serving tax coordination benefits the representative citizen

honor among tax havens abstract a simple partial equilibrium model of the supply of offshore tax havens is analyzed when multinationals are capable of sheltering some of their worldwide income this model provides a few contrasting predictions to those in tax competition with parasitic tax havens by slemrod and wilson slemrod and wilson model tax sheltering as a production process which uses up scarce resources in the tax haven providing it here multinational firms can transfer some of their income costlessly to an offshore tax haven which charges a fee for this privilege so there are no real resource costs to tax sheltering activity in this model but the tax havens must commit credibly to honor their implicit promise to keep tax rates low the cost of sheltering income the number of tax havens and the extent to which multinational firms shelter income there are all determined by this credibility requirement although the tax rates in the rest of the world the larger countries which are not tax havens will affect the number of tax havens they will have little or no effect on the amount of income which multinationals choose to shelter

can tax evasion tame leviathan governments this paper asks to what extent institutional features that facilitate tax evasion may keep leviathan governments at bay the specific feature we look at is banking secrecy abroad the analysis draws on a 16 generation olg model in which tax rates are determined in a repeated game between voters and a rent seeking leviathan government key insights are 1 effects on any generation alive when change takes place may differ substantially from steady state effects that accrue for generations yet to be born 2 there is considerable intergenerational diversity in these effects that is not monotonic as we move from young to old combined these results suggest that the political economy of pertinent institutional change may be quite complex

must losing taxes on saving be harmful abstract internationalization offers enhanced opportunities for individuals to place savings abroad and evade domestic saving taxation this paper asks whether the concomitant loss of saving taxation necessarily is harmful to this end we construct a model of many symmetric countries in which public goods are financed by taxes on saving and investment there is international cross ownership of firms and countries are assumed to be unable to tax away pure profits countries then face an incentive to impose a rather high investment tax also borne by foreigners in this setting the loss of the saving tax instrument on account of international tax evasion may prevent the overall saving investment tax wedge from becoming too high and hence may be beneficial for moderate preferences for public goods

the erosion of agriculture in an oil economy the case of export crop production in trinidad abstract this paper examines the pressures upon export agriculture in trinidad that have led to dramatic declines in sugar cocoa copra and citrus production over the past two decades data drawn from official publications and primary surveys reveal the financial strains on the industry and highlight the adverse impact of the oil economy the latter is manifested through inflationary pressures on wage rates the funding of major capital projects offering alternative employment opportunities the uncontrolled expansion of recurrent expenditure on politically motivated job creation schemes that have aided withdrawal of labor from socially and financially less rewarding agricultural employment and an escalation in land values which has diminished the need for agricultural improvement particular concern for the decline is expressed as efficiency and future viability of the new power based manufacturing developments have yet to be proved

saving taxes through foreign plant ownership this paper analyzes to which extent foreign plant ownership involves lower tax payments than domestic plant ownership we employ a model of endogenous foreign subsidiary ownership to derive a set of empirically testable hypotheses about the differential taxation of foreign and domestically owned subsidiaries we assess these hypotheses in a data set of 33 577 european foreign and domestically owned manufacturing plants we identify a significant tax saving of endogenous foreign owner ship on average foreign owners pay 594 euros per employee or about 56 percent less than domestic owners of similar subsidiaries this effect is larger in thinner markets with fewer plants in markets with a greater relative presence of foreign owners and for foreign owners of larger plants

technology and tax systems abstract technological innovations facilitating e commerce have had major effects on consumer behavior and firm organization in the retail sector but the effects of these new transaction technologies on fiscal systems remain unknown we extend models of commodity tax competition to include multiple types of commodities trade and remote commerce assuming in accordance with current policy that e commerce is taxed at destination while cross border shopping is taxed at origin when the cost of online shopping falls we show that equilibrium tax rates and revenues decrease in large core jurisdictions but increase in small peripheral ones reducing tax differentials policy commentators warn that e commerce erodes tax revenue true enough for some governments but more accurately changing transaction costs can generate entirely new commercial and fiscal equilibria that ultimately redistribute tax revenues from jurisdictions with concentrations of traditional vendors toward others with some reinterpretation the model is also adapted to analyze profit tax competition when firms can respond to high taxes both through profit shifting and through relocation each dependent on transactions costs changes in technology may again redistribute tax revenues from high tax to low tax jurisdictions

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association

duopoly information equilibrium cournot and bertrand abstract in a duopoly model where firms have private information about an uncertain linear demand it is shown that if the goods are substitutes not to share information is a dominant strategy for each firm in bertrand cournot competition if the goods are complements the result is reversed furthermore the following welfare results are obtained 1 i with substitutes in cournot competition the market outcome is never optimal with respect to information sharing but it may be optimal in bertrand competition if the products are good substitutes with complements the market outcome is always optimal 2 ii bertrand competition is more efficient than cournot competition 3 iii the private value of information to the firms is always positive but the social value of information is positive in cournot and negative in bertrand competition

can capital income taxes survive in open economies optimal tax theory forecasts that small open economies should not tax capital income yet countries do tax capital income why the inconsistency this paper shows that use of the double taxation convention whereby governments credit taxes paid abroad against domestic taxes helps explain this inconsistency in particular capital income will be taxed if a dominant capital exporter acts as a stackelberg leader when setting its tax policy due to the convention other countries will then tax capital imports making it attractive for the dominant capital exporter to tax capital income without a dominant capital exporter however the model still forecasts no capital income taxes can taxation of capital income survive the increasing integration of world capital markets a number of recent papers suggest not diamond and mirrlees 1971 for example showed that a small open economy would not choose to tax the income generated by the physical capital located within the country this is because production would occur efficiently under an optimal tax system which requires that domestic investments earn the rate of return available on the world capital market in principle a country might still attempt to tax income earned on the savings of its residents however in practice income from savings invested outside the country is virtually impossible for a government to monitor individuals therefore can evade tax on such savings with very little risk as razin and sadka 1989 show such capital flight in theory eliminates any possibility of a tax on savings investors will simply transfer their funds abroad to avoid taxation yet virtually all countries do in fact tax the capital income earned by corporations and individuals located within their borders how can the theoretical forecast of no capital income taxation be reconciled with this simple observation it is difficult to use existing models with any confidence to analyze the implications of changes in capital income tax rates if these same models forecast that countries should never tax capital income

efficient investment incentives in the presence of capital flight abstract this paper examines the efficiency of quantity restrictions on capital exports and the accompanying set of taxes when a government can effectively tax foreign source income then it is not efficient to impose restrictions on capital exports and the optimal tax rates on foreign source and domestic source income are the same an efficient allocation of domestic savings between foreign and domestic investment is obtained however when the government cannot tax foreign source income it is optimal to impose such a restriction so as to induce overinvestment in domestic capital

are international deposits tax driven abstract this paper investigates the impact of tax policy on international depositing non bank international deposits are shown to be positively related to interest income taxes and to the presence of domestic bank interest reporting this suggests that international deposits are in part intended to facilitate tax evasion at present only part of international interest flow are covered by either non resident interest withholding taxes or international exchange of information this incomplete coverage may be a reason that these policies currently appear to have little impact on international depositing

national treatment at the wto the roles of product and country heterogeneity this paper analyzes the world trade organization s wto s national treatment nt clause in a two country model where quality of goods and or market size are heterogenous across countries when market size is symmetric across countries a reciprocal nt agreement i benefits the high quality country ii hurts the low quality country and iii delivers higher aggregate world welfare however such an agreement can arise in equilibrium if the high quality country s market is relatively bigger and the quality gap between goods is small i e goods are sufficiently alike the qualitative nature of these results does not change when quality is endogenously determined

controlling preferences for lotteries on units of experimental exchange in an experimental setting when outcomes are stochastically related to actions predictions of equilibrium behavior depend not only on the participants preference orderings of outcomes but also on their orderings of lotteries on outcomes as well we introduce and test a reward structure that can be utilized in any experimental setting to allow the experimenter to decree beforehand the subjects preferences for lotteries on experimental outcomes we show analytically that the proposed reward structure can induce subjects to behave as if they have the decreed preference function defined on experimental outcomes empirical tests using two different choice settings provide evidence to support this ability to control preferences

agriculture in an export boom economy a comparative analysis of policy and performance in indonesia mexico and nigeria abstract the 1970s oil boom was accompanied for most developing country exporters by stagnating agricultural production high rural emigration and high levels of food imports this paper evaluates the experiences of indonesia mexico and nigeria dutch disease and other macroeconomic phenomena had important effects on agricultural performance but equally if not more important were microeconomic factors including agricultural price policies changing patterns of food demand based on distribution of petroleum income and public investment structural characteristics of the agricultural sector factor intensity of different subsectors labor availability and migration patterns and geographical concentration of agricultural activity and strategies of agricultural development and investment

incentives for information production and disclosure in a duopolistic environment this paper examines the nature of the equilibrium solution to the duopoly problem under various incomplete information structures and the incentives to produce and disclose information attention is focused on the duopolists cost functions the results indicate that disclosure of such information is generally beneficial to the duopolists

preference reversal real world lotteries and lottery interested subjects prefer lce reversal or choice reservation price inconsistency has been documented experimentally for zrtain types of lotteries we argue that the relevance of these findings for realworld markets is uncertain because the type of objects used cannot exist on a market and because the extent to which the subjects had any real interest in the objects is unknown using reai world lotteries we have tested choice price consistency on subjects who prefer lotteries ta cash preference reversal was observed but the frequency was much lower than in earlier experiments there were no differences between subjects who qualified as lottery interested and those who did not 1 intmduction

an explanation of anomalous behavior in models of political participation this paper characterizes behavior with noisy decision making for models of political interaction characterized by simultaneous binary decisions applications include voting participation games candidate entry the volunteer s dilemma and collective action problems with a contribution threshold a simple graphical device is used to derive comparative statics and other theoretical properties of a quantal response equilibrium and the resulting predictions are compared with nash equilibria that arise in the limiting case of no noise many anomalous data patterns in laboratory experiments based on these games can be explained in this manner

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

tax evasion tax competition and the gains from nondiscrimination the case of interest taxation in europe this paper uses a game tlieoredc approach to analyse the taxadon of interest income in europe in the presence of tax evasion the model allows tis to assess the success of various reform proposals we argue tbat the tax treatment of nonresidents interest income plays a crucial role when decisions on discriminatio n and on withholding tax rates are made noncooperadvely the outcome is similar to a prisoners dilemma all countries discriminate but in equilihrium internationally mobile portfolio capital evades taxation successfully in contrast if all governments did not discriminate tax competition leads to less tax evasion the integration of capital markets in europe has hrought various benefits at the same time however governments struggle to contain tax evasion international capital flight as an attempt to evade taxes is particularly relevant in the area of taxation of interest income banking secrecy laws in some eu countries and low tax rates in small countries like luxembourg which hoost its role as financial centre have led to the effective elimination ofthe taxation of interest income for some investors the economist speaks not surprisingly about the disappearing taxpayer may 31 1997 several proposals have been made in order to overcome this situation the european commission supports the introduction of a minimum tax rate and or the status of a community resident under the concept of a community resident a country s tax on interest income is independent of the residence of the investor practically realising the source principle by contrast a proposal of the oecd 1977 argues in favour of a maximum withholding tax rate on interest income none of these proposals has been unanimously accepted since gains and losses from non coordinated policies differ greatly across member states the main beneficiary of the present situation is luxembourg which attracts large amounts of foreign capital in particular from germany the united kingdom opposes any coordination for political reasons and because tax coordination may also threaten london s role as the leading financial centre in europe in contrast germany sticks to its traditional bank secrecy law which enables resident investors to evade german taxation by investing abroad

cross border tax evasion under a unilateral fatca regime abstract cross border tax evasion has emerged in recent years as a central issue in tax enforcement traditionally the legal regime governing cross border tax enforcement was based on information exchange upon request in 2010 the us congress enacted the foreign account tax compliance act fatca which seeks to induce foreign financial institutions ffis to participate in a global regime of automatic information reporting of the income of us residents to the us government this paper presents a simple theoretical model of cross border investment that analyzes the consequences of this unilateral fatca regime the model emphasizes cross border investors heterogeneous intrinsic motivation to comply with tax law as well as the impact of information reporting requirements on the cost of providing financial services in fatca compliant equilibria in which ffis report information to the us government ffis face a higher cost of providing financial services increasing the fees charged to their accountholders consequently tax compliant behavior such as investing via their domestic financial sector becomes more costly for foreign residents under certain conditions a unilateral fatca regime causes increased cross border tax evasion among residents of foreign countries this result is robust to various extensions

information sharing in credit markets we present a model with adverse selection where information sharing between lenders arises endogenously lenders incentives to share information about borrowers are positively related to the mobility and heterogeneity of borrowers to the size of the credit market and to advances in information technology such incentives are instead reduced by the fear of competition from potential entrants in addition information sharing increases the volume of lending when adverse selection is so severe that safe borrowers drop out of the market these predictions are supported by international and historical evidence in the context of the consumer credit market a large body of literature on credit markets has shown that asymmetric information may prevent the efficient allocation of lending leading to credit rationing e g jaffee and russell 1976 stiglitz and weiss 1981 or to a wedge between lending and borrowing rates e g king 1986 in this literature informational asymmetries are taken to be exogenous lenders fail to observe some relevant characteristic or action of potential borrowers and have no way of learning about it in some countries however lenders can improve their knowledge about new customers by exchanging information with other lenders through information brokers generally known as credit bureaus the latter collect file and distribute the information voluntarily supplied by their members and operate on the principle of reciprocity lenders who do not provide data are denied access to the bureau s files in other countries instead these institutions do not exist the literature offers no guide to identify the factors that lead to endogenous communication between lenders this paper is an attempt to fill the gap information sharing is important for a number of reasons it may increase the degree of competitiveness within credit markets vives 1990 improve

implementing tax coordination abstract this paper investigates whether tax competition can survive under tax coordination when information is private or nonverifiable we focus on a two jurisdiction model where capital can move across borders and where jurisdictions have different public good requirements but are otherwise identical in this setting coordination may call for a second best allocation supported by differentiated tax rates if however coordination must be achieved via a set of common rules that condition tax rates on jurisdictions choices the second best allocation may not be implementable we show that incentive compatibility requirements will generally affect not only the choice of coordinated rates in states where jurisdictions are different but also the choice of harmonized rates in states where jurisdictions have identical preferences for public consumption

preference reversal information processing effect or rational non transitive choice preference reversal is often explained as an information processing effect whereby individuals respond differently to valuation problems than to straight choices regret theory offers the alternative explanation that individuals act on consistent but nontransitive preferences regret theory in its most general form is shown to make specific predictions about nontransitive pairwise choices that correspond with the preferences reversal phenomenon some experiments designed to discriminate between these two explanations are reported the main finding is that as regret theory predicts the preference reversal phenomenon can be reproduced in situations in which subjects confront only choice problems copyright 1989 by royal economic society

further evidence of preference reversals choice valuation and ranking over distributions of life expectancy moving between choice and direct valuation procedures can cause substantial systematic preference reversals which is problematic because it leaves us unsure as to which procedure if any is best this article reports a study that tests whether using a ranking procedure to infer values rather than more conventional direct valuation can negate this phenomenon the results suggest that the ranking procedure can render strict preference reversals both less substantial and less systematic this could have important implications for the valuation of health outcomes and in attempting to ascertain whether choice valuation or ranking best uncovers people s preferences similar tests in the context of more realistic health outcome descriptions are recommended

sustainable development in pacific micro economies abstract this paper argues that the central economic problem for a number of very small pacific island economies is the preservation and enhancement of their status as rentier societies and the relatively high living standards vis a vis other developing countries which go with the status the thrust of most development planning in the region with its focus on sustainable expansion of productive activity is misdirected in these small countries it is not productive activity but rent entitlements which must be sustained and reproduced over time aid philately and migrant remittances are not merely supplements to local incomes they are the foundations of the modern economy insofar as conventional development projects crowd out aid and remittance entitlements their impact is immiserizing criticism is offered of a recent argument for returning to sustainable subsistence economies

is partial tax harmonization desirable we consider a setting in which capital taxation is characterized by two distortions working in opposite directions on one hand governments engage in tax competition and are tempted to lower capital tax rates on the other hand they are unable to commit to future policies and once capital has been installed have incentives to increase taxes in this setting there exists a tax that optimally trades off the two distortions we compare three possible tax harmonization scenarios no tax harmonization all countries set taxes unilaterally global tax harmonization all countries coordinate their capital taxes and partial tax harmonization only a subset of all countries coordinate capital taxes we show that if capital is sufficiently mobile partial tax harmonization benefits all countries compared to both global and no harmonization

strategic aspects of public finance in a world with high capital mobility abstract in a world with high capital mobility an increase in equity taxes is likely to induce a capital out flow it is commonly believed that in consequence there may be an under provision of public goods when governments have only equity taxes at their disposal this paper compares the provision of public goods under cooperative and non cooperative tax policies suprisingly the non cooperative regime may result in either an over or an under provision of public goods it is also shown that the gains from coordination increase as countries become atomistic

oil windfalls in a small parliamentary democracy their impact on trinidad and tobago in common with other oil exporters trinidad and tobago reaped large windfall gains after 1973 their use was heavily influenced by its distinctive political economy and resulted in substantial weakening of its non oil traded sectors the dutch disease attempts to diversify through gas based industrialization are not likely to replace shrinking oil income this paper traces the relationship from political objectives to use of oil windfalls and the effects on the non oil economy

preference reversals for ambiguity aversion this paper finds preference reversals in measurements of ambiguity aversion even if psychological and informational circumstances are kept constant the reversals are of a fundamentally different nature than the reversals found before because they cannot be explained by context dependent weightings of attributes we offer an explanation based on sugden s random reference theory with different elicitation methods generating different random reference points then measurements of ambiguity aversion that use willingness to pay are confounded by loss aversion and hence overestimate ambiguity aversion this paper was accepted by teck ho decision analysis

preference reversals the impact of truth revealing monetary incentives researchers vigorously debate the impact of incentives in preference reversal experiments do incentives alter behavior and generate economically consistent choices lichtenstein and slovic 1971 document inconsistencies reversals in revealed preference in gamble pairs across paired choice and individual pricing tasks the observed pattern is inconsistent with stable underlying preferences expressed with simple errors lichtenstein and slovic 1973 and grether and plott 1979 introduce incentives but aggregate reversal rates change little these results fostered numerous replications and assertions that models of non stable preferences are required to explain reversals contrary to this research we find that incentives can generate more economically consistent behavior our reevaluation of existing experimental data shows that incentives have a clear impact by better aligning aggregate choices and prices the effect is sufficiently large that with truth revealing incentives a stable preferences with error model not only explains behavior but fits the data as well as any model possibly could

tax evasion tax competition and gains from nondiscrimination with equilibrium mixed strategies abstract this note extends janeba and peters econ j 109 1999 93 paper on tax evasion and tax competition by allowing for equilibrium mixed strategies it shows that discrimination is still the weakly dominant strategy for both countries

information sharing and tax competition among governments abstract the residence based principle has been proposed as a second best measure to the full international coordination of capital tax policies this system requires that tax authorities have full information about the foreign investments of their residents however the degree of information transmission among governments can be considered as a strategic variable we show that under some features of the tax system there will not be any information sharing while there are institutional arrangements under which governments may transmit partial information for strategic purposes we also show that full information sharing is not necessarily a pareto optimum

international tax competition and gains from tax harmonization abstract in a world economy there are two types of distortions which can be caused by capital income taxation in addition to the standard closed economy wedge between the consumer saver marginal intertemporal rate of substitution and the producer investor marginal productivity of capital i international differences in intertemporal marginal rates of substitution implying an inefficient allocation of world savings across countries and ii international differences in the marginal productivity of capital implying an inefficient allocation of world investment across countries the paper focuses on the structure of taxation for countries which are engaged in tax competition and on potential gains from a tax harmonization we show that if the competing countries are sufficiently coordinated with the rest of the world then tax competition leads each country to apply the residence principle of taxation and there are no gains from tax harmonization if however there is not sufficient coordination then tax competition leads to low capital income taxes and the tax burden falls on the internationally immobile factors the outcome is nevertheless still efficient relative to the available constrained set of tax instruments

the taxation of financial capital under asymmetric information and the tax competition paradox information sharing between governments is examined in an optimal taxation framework we introduce a taxonomy of alternative systems of international capital income taxation and characterize the choice of tax rates and information exchange the model reproduces the conclusion found in earlier literature that integration of international caopital markets may lead to the under provision of publicly provided goods however in contrast to previous results in the literature under provision occurs due to inefficiently coordinated expectations we show that there exists a second equilibrium with an efficient level of public good provision as well as complete and voluntary information exchange between national tax authorities

the play out effect and preference reversals evidence for noisy maximization abstract in this paper we document a play out effect in preference reversal experiments we compare data where preferences are elicited using 1 purely hypothetical gambles 2 played out but unpaid gambles and 3 played out gambles with truth revealing monetary payments we ask whether a model of stable preferences with random errors e g expected utility with errors can explain the data the model is strongly rejected in data collected using purely hypothetical gambles however simply playing out the gambles even in the absence of payments shifts the data pattern so that noisy maximization is no longer rejected inducing risk preferences using a lottery procedure using monetary incentives or both shift the data pattern further so that noisy maximization achieves the best possible fit to the aggregate data no model could fit the data better we argue that play out shifts the response pattern by inducing value because subjects can use outcomes to keep score induction or monetary payments create stronger induced values shifting the pattern further

national tax systems versus the european capital market capital taxation alberto giovannini the current structure of taxes on capital income across ec countries can be exploited by corporations to reduce tax burdens skilled individuals can indulge in tax avoidance too the liberalization of capital movements stands to turn tax avoidance into a cottage industry this article provides a primer on capital income taxes and describes strategies which reduce the tax burden from a policy perspective the question is how to avoid massive tax evasion after 1992 there is no need to harmonize if the right taxation principle is adopted two principles are contrasted the territorial principle according to which taxes are levied on domestic investment irrespective of the country of residence of the beneficiary and the worldwide principle according to which taxes are levied on domestic savings irrespective of where they are invested it is shown that the worldwide principle involves much fewer distortions than the territorial principle a strict application of this principle would effectively solve the problem of tat evasion in europe without requiring full harmonization of the tax systems its full implementation would require the abolition of withholding taxes the elimination of tax deferrals which are quite pervasive throughout europe and an in depth review of blocking and secrecy laws

sorting and incentive effects of pay for performance an experimental investigation agency theory highlights losses in productivity that may occur when the interests of owners and employees are imperfectly aligned pay for performance has been proposed as a solution to this proble

should countries control international profit shifting we present a fiscal competition model with two policy instruments the level of corporate taxation and the tightness of control of profit shifting by multinational firms mnf we show that a country may optimally decide not to monitor the mnf for two reasons firstly this country becomes an attractive location for mnf activity despite a high corporate tax secondly as the profits of the mnf become mobile the focus of tax competition is shifted taxation then influences both an mnf s location and the place where it declares its profits

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

withholding taxes or information exchange the taxation of international interest flows abstract this paper considers withholding taxes and information exchange as alternative means to tax international interest income for each regime we consider the maximum level of taxation of foreign source income that can be sustained as the equilibrium of a repeated game the best regime is the one that brings the level of taxation in the repeated game closest to the cooperative level of interest taxation sustainable levels of taxation in either regime depend on the importance of bank profits and on the marginal cost of public funds among other things simulations with the model illustrate the choice between withholding taxes and information exchange an explicit possibility is the emergence of a mixed regime with one country imposing a withholding tax and the other country providing information the basic model is extended to allow for size differences between the two countries and to incorporate a third outside country

tax competition with parasitic tax havens we develop a tax competition framework in which some jurisdictions called tax havens are parasitic on the revenues of other countries the havens use real resources to help companies camouflage their home country tax avoidance and countries use resources in an attempt to limit the transfer of tax revenues to the havens the equilibrium price for this service depends on the demand and supply for such protection recognizing that taxes on wage income are also evaded we solve for the equilibrium tax rates on mobile capital and immobile labor and we demonstrate that the full or partial elimination of tax havens would improve welfare in non haven countries in part because countries would be induced to increase their tax rates which they have set at inefficiently low levels in an attempt to attract mobile capital we also demonstrate that the smaller countries choose to become tax havens and we show that the abolishment of a sufficiently small number of the relatively large havens leaves all countries better off including the remaining havens