investment and coordination in oligopolistic industries we examine investment by firms in 24 chemical product industries to determine whether firms invest preemptively to achieve persistent increases in market share or whether there is evidence of behavior to maintain market share the data indicate that investment reduces the probability that rival firms will expand capacity but the effect is temporary large firms tend to maintain market share while smaller firms tend to invest simultaneously with rivals the role of preemptive investment is limited to that of permitting a firm to invest with a lower probability of redundant investment by rivals preemption does not allow a persistent increase in market share but instead acts as a means by which firms may coordinate capacity investment to help avoid episodes of industry overcapacity

innovation and imitation in a duopoly in a duopoly where one firm has the idea for a non patentable innovation the expected profits from the innovation will not be a monotonic function of the cost of innovating furthermore a costly innovation may be undertaken where an inexpensive one would not have been all other things being equal

optimal product launch times in a duopoly balancing life cycle revenues with product cost we present a model describing the demand dynamics of two new products competing for a limited target market the demand trajectories of the two products are driven by a market saturation effect and an imitation effect reflecting the product experience of previous adopters in this general setting we provide analytical results for the sales trajectories and life cycle sales of the competing products we use these results to study the impact of launch time on overall life cycle sales we consider the perspective of one of the competing products and model the trade off between the lost revenues resulting from a delayed launch and the lower unit production costs we find that the profit maximizing launch time exhibits a counterintuitive behavior in particular we show that a firm facing a launch time delay from a competing product might benefit from accelerating its own product launch as opposed to using the softened competitive situation to further improve its cost position we identify conditions under w

tax competition between developed emerging and developing countries same same but different abstract this paper analyzes tax competition between countries which differ in their country specific risks we show that the outcome of asymmetric tax competition crucially depends on the ability of multinational firms to shift profits with high costs of profit shifting higher risk countries set lower tax rates than lower risk countries whereas the opposite is true if the costs of profit shifting are low the results provide an explanation for the patterns observed in the corporate income tax policies across countries differing in their level of development moreover for intermediate costs of profit shifting we show that countries absolute risk level plays an important role in tax rate setting these results carry important implication for the empirical tax competition literature

tax motivated transfer pricing and us intrafirm trade prices abstract this paper analyzes monthly data on us international trade prices between 1997 and 1999 in order to investigate the impact of tax influences on intrafirm trade prices results indicate that there is substantial evidence of tax motivated transfer pricing in us intrafirm trade prices there is a strong and statistically significant relationship between countries tax rates and the prices of intrafirm transactions controlling for other variables that affect trade prices as country tax rates are lower us intrafirm export prices are lower and us intrafirm import prices are higher this finding is consistent with theoretical predictions regarding tax motivated income shifting behavior

innovations improvements and the optimal adoption of new technologies abstract this paper extends the literature on technology adoption by introducing a distinction between technological breakthroughs innovations and the engineering refinements improvements that follow such a breakthrough firms do not necessarily wait for a future technological breakthrough but instead have an incentive to delay the adoption of a new technology until it is sufficiently advanced we characterize a firm s adoption decision as the solution to a continuous time infinite horizon dynamic programming problem which gives rise to an ordinary differential equation that is highly non linear and does not have a closed form solution we thus employ projection techniques and show how these techniques can be applied to the analysis of optimal stopping problems

are corporate tax rates or countries converging abstract the statutory rate and effective tax rate imposed on corporation income as well as the dispersion of these rates began to decline in the 1980s is this due to changes in the domestic determinants of corporate taxation or increases in international pressures for tax competition this paper finds clear evidence that the corporate tax rate is insulated from a country s revenue needs across countries there is no association of the expenditure gdp ratio with the corporate statutory rate and only weak evidence of a positive association with the average rate there is suggestive but not definitive evidence that the domestic role of the corporate tax as a backstop to the individual income tax is important across countries there is indeed a strong association between the top individual rate and the top statutory corporate rate there is intriguing evidence about the role of international competitive pressures on corporate taxation measures of openness are negatively associated with statutory corporate rates although not with revenues collected as a fraction of gdp strikingly larger more trade intensive countries do collect more corporate tax but this may be because these countries are more attractive venues for investment

fiscal paradise foreign tax havens and american business the tax haven affiliates of american corporations account for more than 20 percent of u s foreign direct investment and nearly a third of the foreign profits of u s firms american companies report extraordinarily high profit rates on their tax haven investments in 1982 this behavior implies that the revenue maximizing tax rate for a typical haven is around 5 8 percent american and foreign investment in tax havens has an uncertain effect on u s tax revenue but since low tax rates encourage american companies to shift profits out of high tax foreign countries it is possible that low foreign tax rates ultimately enhance u s tax collections

endogenous market structures in international trade natura facit saltum abstract almost all of the large literature on international trade with imperfect competition assumes exogenous market structures the purpose of this paper is to develop a simple model that generates alternative market structures as nash equilibria for different parameterizations of the basic model equilibrium market structure is a function of the underlying technology familiar configurations such as a duopoly competing in exports or a single multinational producing in both markets arise as special cases small tax policy changes can produce large welfare effects as the equilibrium market structure shifts implying discontinuous jumps in prices quantities and profits

corporate taxation in the oecd in a wider context against the background of increased globalisation statutory corporate tax rates have shown a clear downward trend over the last two decades the sharp decline in these rates was accompanied by substantial tax base broadening and a comparable reduction in personal income tax rates only until the early 1990s this suggests that corporate tax competition is of increasing importance so far corporate tax revenues remain fairly stable but an analysis of corporate taxation in the context of the overall tax systems shows that a substantial shift towards value added taxes has taken place while the trends so far have been driven by smaller european countries recent tax reforms indicate that increasing tax competition is inducing a shift towards consumption even for larger economies

taxes tariffs and transfer pricing in multinational corporate decision making three interrelated aspects of u s multinational corporation activity are analyzed here the ability to shift profits from high tax countries to low tax countries the impact of host country taxes and tariffs on the distribution of real capital and the influence of these policies on international trade patterns of the united states and host countries the cross sectional empirical analysis indicates that the observed pattern of reported profits in high and low tax countries is consistent with income shifting behavior and that real investment responds to host country effective tax rates and tariffs the united states appears both to import more from and export more to low tax countries where mnc investment is greater but this bilateral focus must be amplified to consider multilateral effects if trade benefits are to be projected copyright 1991 by mit press

an empirical analysis of intergovernmental tax interaction the case of business income taxes in canada both federal and provincial governments in canada levy corporate taxes on busi nesses in their jurisdictions which potentially gives rise to horizontal and vertical tax exter nalities within the federation using a simple model of interdependent tax choices we estimate tax setting functions for the federal government ontario quebec and an aggregate of the remaining eight provinces we find evidence of significant vertical and horizontal tax inter actions provincial tax rates respond negatively to the federal tax rate while at least some provinces increase their tax rates in response to increases in the tax rates of other provinces

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

a spatial model of corporate tax incidence using a unique self compiled data set on international tax rates we explore the link between taxes and manufacturing wages for a panel of 66 countries over 25 years we find controlling for other macroeconomic variables that wages are significantly responsive to corporate taxation higher corporate tax rates depress wages using spatial modelling techniques we also find that tax characteristics of neighbouring countries whether geographic or economic have a significant effect on domestic wages we test for and reject spatial autocorrelation in our model using a modification of the moran i test statistic that accounts for country specific fixed effects in a panel data setting our article fits in with the new economic geography literature as well as the urban economics literature which attempt to explain the spatial distribution of wages

the effect of taxes on investment and income shifting to puerto rico the income of puerto rican affiliates of u s corporations is essentially untaxed by either puerto rico or the united states this lowers the tax penalty on investment there and also makes it attractive to shift reported taxable income from the u s parent corporation to the puerto rican affiliate this paper investigates these two interrelated impacts of taxation by developing a structural econometric model of the joint decisions regarding investment and income shifting and estimating the model using firm level data on the activity u s corporations in puerto rico the results suggest that the income shifting advantages are the predominant reason for u s investment in puerto rico

international tax competition and the deficit bias i analyze the dynamic effects of tax competition on public budget deficits i find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization when countries differ in terms of capital mobility further liberalization leads to external imbalances and diverging fiscal deficits while corporate tax rates converge consistent with theory i find that stronger tax competition increases deficits in a sample of oecd countries controlling for tax revenues and other standard determinants of fiscal deficits jel e62 f62

how responsive is business capital formation to its user cost an exploration with micro data abstract the response of business capital formation to its user cost is critical to evaluating tax reform deficit reduction and monetary policy evidence for a substantial user cost elasticity however is sparse most evidence has been based on aggregate data although several recent studies with firm level data report substantial effects with a particularly rich micro dataset containing over 26 000 observations this paper explores what can be learned about the user cost elasticity while the results depend to some extent on the specification and econometric technique various diagnostics lead us to prefer a precisely estimated but small elasticity of approximately 0 25 this paper is dedicated to the memory of robert eisner who labored early and ably on uncovering the determinants of investment spending and highlighting the importance of the question found in the title of this paper

the growth effects of tax rates in the oecd this paper explores the merits of macro and micro based tax rate measures within an open economy fiscal policy and growth model using annual data for 15 oecd countries we find statistically small non robust long run growth effects of macro based average tax rates on capital income and consumption but some evidence for average labor income tax effects changes in micro marginal income tax rates at both the personal and corporate levels yield statistically robust gdp responses of modest size both domestic and foreign corporate taxes appear relevant in general tax effects on gdp operate largely via factor productivity rather than factor accumulation

entrepreneurial innovations and taxation stimulating entrepreneurship is high on the policy agenda of many countries we study the effects of tax policies on entrepreneurs choice of riskiness or quality of an innovation project and on their mode of commercializing the innovation market entry versus sale limited loss offset provisions in the tax system induce entrepreneurs innovating for entry to choose projects with inefficiently little risk the same distortion does not arise when entrepreneurs sell their innovation in a competitive bidding process to an incumbent before the uncertainty is revealed tax systems which systematically favor market entry of entrepreneurs can thus lead to welfare losses due to inefficient quality choices despite leading to more competition in the product market

the new political economy of taxation in advanced capitalist democracies earlier versions of this paper were presented at the 1999 annual meeting of the american political science association september 1 5 atlanta ga and the 2000 annual meeting of the midwest political science association april 27 30 chicago il the authors thank steffen ganghof philip genschel mark hallerberg alex hicks william keech dennis quinn and the anonymous reviewers and editor of this journal for many helpful comments and dennis quinn for generously sharing data duane swank thanks the german marshal fund of the united states and marquette university for support of work incorporated in this paper data utilized in this paper are available from duane swank marquette edu

incentive compatible regulation of a foreign owned subsidiary abstract transfer prices are administered charges for intra firm transfers of factors of production for a multinational firm transfer prices for international transfers provide the means to redistribute costs and increase global profits given variations in national tax and profit repatriation policies local regulation of a subsidiary may thus be necessary to limit the welfare costs of strategic transfer pricing prusa journal of international economics 1990 28 155 172 characterizes the welfare maximizing regulations for a monopoly subsidiary that induce the firm to report transfer prices truthfully we show however that it can be more efficient to implement regulations that encourage the firm to misrepresent its true transfer costs

multinationals and industrial policy are there benefits to the host country from multinational investments does potential value from these investments make active industrial policy worthwhile we answer the first question affirmatively having reviewed economic principles and evidence concerning the effects of projects locating in or not being off shored from a country on the second policy can have a limited effect in influencing location decisions but it is doubtful that it is cost effective implementation faces lack of information risk of capture and in many cases non rigorous processes competition between jurisdictions means that much policy is investment diversion not investment creation there is a case for supra national controls as with eu state aid regulations for policy to be used only for well defined market failures and for better implementation and more rigorous ex ante appraisal and ex post evaluation copyright 2013 oxford university press

uncertainty competition and the adoption of new technology faced with the decision of whether or not to adopt a new technology whose economic value cannot be gauged with certainty the manager of the firm may elect to decrease the uncertainty by sequentially gathering information at a unit cost of c 0 updating his prior beliefs in a bayesian manner uncertainty regarding the actions of a competitor however cannot be reduced our model allows a manager to account for potential competition either substitute or complementary by inclusion of strategic considerations modelled in a game theoretic setting we show that the firm s best response mapping satisfies a dynamic programming recursion even when the one period reward function is unbounded providing management with a familiar tool to solve its problem best response behavior is characterized by a monotone sequence of pairs of threshold numbers which give rise to a cone shaped continuation region the continuation region is shown to shift up down with increases in the expected level of substitute complementary competition making the firm less more likely to adopt the innovation finally the existence of a nash equilibrium in cone shaped strategies is established

informality and development in developing countries informal firms account for up to half of economic activity they provide livelihood for billions of people yet their role in economic development remains controversial some like hernando de soto 1989 2000 see informal firms as an untapped reservoir of entrepreneurial energy held back by government regulations in this view unleashing this energy by reducing entry regulations or improving property rights would fuel growth and development others like levy 2008 take a more cynical view stressing the advantages enjoyed by informal firms and workers from avoiding taxes and regulations a report from the mckinsey global institute describes informal firms as parasites competing unfairly with law abiding formal firms farrell 2004 in this view informality should be suppressed not unleashed still others follow the development tradition of lewis 1954 harris and todaro 1970 and more recently rauch 1991 and see informality as a byproduct of poverty from this dual perspective formal and informal firms are fundamentally different productive formal entrepreneurs pay taxes and bear the cost of government regulation to reach new customers raise capital and access public goods these entrepreneurs are often educated and find it more profitable to run bigger formal firms rather than the smaller informal ones in contrast informal entrepreneurs are typically uneducated and unproductive and they run small businesses producing low quality products for low income customers using little capital and

mergers in fiscal federalism this paper analyzes mergers of regions in a two tier setting with both horizontal and vertical tax competition the merger of regions induces three eects on regional and local tax policies which are transmitted both horizontally and vertically i an alleviation of tax competition at the regional level ii a rise in the regional tax base and iii a larger internalization of tax externalities generated by cities it is shown that the merger of regions increases regional tax rates while decreasing local tax rates this nash equilibrium with mergers is then compared with the nash equilibrium with coalitions of regions

incumbent entry into new market niches the role of experience and managerial choice in the creation of dynamic capabilities increasingly technological innovation creates markets for new products and services to survive firms must respond to these new markets how do firms develop the capabilities necessary to succeed in such changing conditions some suggest that experience with previous entry builds such capabilities others suggest that capabilities arise from experience producing and selling to existing markets the role of managers is also debated some argue that experience with existing markets causes managers to miss entry opportunities others argue that managers enter new markets when their firm possesses the experience needed to compete effectively in this paper we explore these issues by investigating entry patterns in the disk drive industry we investigate the effect of experience in existing markets and experience with previous market entry we find that experience in previous markets increased the probability that a firm would enter a new market we show that this experience had greater value if the firm entered the new market we infer that managers chose to enter these markets to obtain this increase in value

how far away is an intangible services fdi and distance foreign direct investment fdi in services has grown significantly in recent years evidence of spatial relationships in fdi decisions have been provided for goods manufacturing by utilising physical distance based measures of trade costs this paper investigates spatial interactions for services fdi using several distance measures including physical distance genetic distance and transport time across different measures of distance the traditional determinants of outbound fdi activity remain valid for services we also find spatial interdependence for services fdi that is generally supportive of export platform fdi

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

leaning right and learning from the left diffusion of corporate tax policy across borders there is an increased focus in comparative politics and international relations on how choices of governments are dependent on choices made by other governments the authors argue that although the relationship between policy choices across countries is often labeled as either diffusion or competition in many cases the theoretical mechanisms underpinning these labels are unclear in this article the authors build a model of social learning with a specific application to the diffusion of corporate tax reductions the model yields predictions that are differentiable from existing models of tax competition specifically the authors argue that social learning is most likely in the wake of tax policy cuts by left governments they test the model using an existing data set of corporate tax rate changes and an author created data set of changes in tax legislation covering 20 organisation for economic co operation and development countries the authors empirical findings show that social learning is an important determinant of corporate tax policy making

tax competition and the distribution of income in this paper we provide a two country two class model of asymmetric capital tax competition we show formally that poor people living in small countries can benefit from capital tax competition and therefore they are in favor of it in order to benefit from capital inflow from larger countries poor people in smaller countries accept less within country income redistribution as a consequence between country income inequality is increased by tax competition

the determinants of municipal tax rates in british columbia in this paper we study the regional pattern of municipal business property tax rates in the province of british columbia reduced form tax setting equations produce some evidence that municipal governments respond to tax changes in neighbouring jurisdictions a joint investigation of the determinants of tax base and municipal taxation decisions however reveals that it is difficult to interpret this response as arising primarily out of competition over tax base there is also some evidence that municipal tax rates are sensitive to taxes set on the same base by super municipal bodies jel classification c33 h71 les determinants des taux d imposition municipale en colombie britannique dans ce memoire les auteurs etudient le pattern regional des taux d imposition municipale sur la propriete fonciere commerciale dans la province de la colombie britannique on montre a l aide d un modele en forme reduite d equations de definition des taux d imposition que les gouvernements municipaux reagissent aux changements dans les taux d imposition dans leur voisinage cependant un examen conjoint des determinants de la base d imposition et des decisions municipales montre qu il est difficile d interpreter cette reaction comme emanant d une concurrence fiscale on montre aussi que les taux d imposition municipale sont sensibles aux niveaux de fiscalite imposes sur la meme base par les autorites supra municipales

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

competition for foreign direct investments abstract this paper models international competition for foreign direct investment as a common agency problem using the theory of menu auctions developed by bernheim and whinston in the model national governments act as principals and a multinational corporation as the single agent governments are assumed to maximize the net wage income generated by the corporation s investment it is shown that in the equilibrium of this game a high wage country may be able to attract investment even though all countries use subsidies furthermore it is shown that a country may choose to pay the highest subsidies even if it attracts less investment than in the unsubsidized regime our framework can also be used to study interregional subsidy competition within a country

taxes and international risk sharing abstract we extend a standard model of international risk sharing to include an empirically plausible distortion taxes the tax inclusive theory implies even under full risk sharing a predictable relationship between consumption growth and the consumption and capital income tax rates both within and across countries we find strong empirical evidence in favor of this relationship while idiosyncratic output fluctuations account for substantially more of cross country consumption growth variability than do taxes trends in tax differentials are found to be informative about the dynamic evolution of international risk sharing in particular adjusting for capital taxes reveals a marked improvement in risk sharing over the last three decades that is absent in baseline measures this improvement has been driven by the convergence of average tax rates on capital income across oecd countries toward the united states average capital tax rate

do local government fiscal spillovers exist evidence from counties municipalities and school districts abstract numerous theories posit that the fiscal decisions of one jurisdiction influence the fiscal decisions of its neighbors the main contribution of this paper is to address empirical difficulties in testing for spillovers using a regression discontinuity design on a newly collected dataset i utilize close elections from this large dataset of local referenda in ohio to isolate the effect of exogenous increases in taxation and spending of one jurisdiction on neighbors fiscal decisions for all jurisdictional types and referenda revenue sources bonds income property and sales tax there is no evidence of spillovers and relatively small effects can be ruled out

correction to the paper optimal product launch times in a duopoly balancing life cycle revenues with product cost the aim of this note is to correct an error in the formulation of theorem 1 by savin and terwiesch savin s c terwiesch 2005 optimal product launch times in a duopoly balancing life cycle revenues with product cost oper res 53 1 26 47

why pay more corporate tax avoidance through transfer pricing in oecd countries this paper presents suggestive evidence of income shifting in response to differences in corporate tax rates for a large selection of oecd countries we use a new method to disentangle the income shifting effects from the effects of tax rates on real activity our baseline estimates suggest that a substantial share of the revenues from a unilateral increase in the corporate tax rate is lost because of a decline in reported income

fiscal decentralization and the size of government a european country empirical analysis this article is an original contribution to the understanding of the relationship between fiscal decentralization and government size using a panel data set of the eu 15 countries we analyse the effect of decentralization on aggregate national and subnational government sizes by separating the long run effects of decentralization from its short run dynamics in the long run tax autonomy reduces central expenditure but increases and to a greater extent subnational public expenditure leading to higher aggregate public expenditure we find also that vertical imbalances tend to increase the sizes of subnational national and aggregate governments

fiscal restraints and voter welfare this paper explores the logic of fiscal restraints in a political agency model with both moral hazard and adverse selection the role of the political process is both to discipline incumbents who may act against the public interest and to sort in those politicians who are most likely act in voters interests we use the model to examine the optimality of inefficient taxation limits on the size of government increasing transparency and yardstick competition some conclusions are surprising for example we show that some forms of fiscal restraint can only be desirable when incumbents are sufficiently likely to be benevolent

what drives corporate tax rates down a reassessment of globalization tax competition and dynamic adjustment to shocks we reassess the driving forces behind the recent decline of corporate tax rates in europe using data for up to 32 countries from 1983 to 2006 we analyze the roles of economic and financial openness as well as tax competition while allowing for dynamic adjustment to shocks and period specific and country specific effects while there is no evidence that countries that have become more open have reduced their tax rates more our findings suggest that countries strongly compete over statutory tax rates a simulation of tax rates in a scenario with no cross sectional dependence in tax setting suggests that in the absence of tax competition the mean statutory tax rate of western european countries in 2006 would have been about 12 5 percentage points above its actual level we conclude that the recent downward trend in corporate taxes is mainly a result of tax competition

cross border loss offset can fuel tax competition following recent court rulings cross border loss compensation for multinational firms has become a major policy issue in europe this paper analyzes the effects of introducing a coordinated cross border tax relief in a setting where multinational firms choose the size of a risky investment and host countries non cooperatively choose tax rates we show that coordinated cross border loss compensation may intensify tax competition when following current international practice the parent firm s home country bases the tax rebate for a loss making subsidiary on its own tax rate in equilibrium tax revenue losses may thus be even higher than is implied by the direct effect of the reform in contrast tax competition is mitigated when the home country bases its loss relief on the tax rate in the subsidiary s host country

transfer pricing rules and corporate tax competition abstract a multinational parent sells a non marketed commodity to a foreign subsidiary that uses the product as an input to produce a product it then sells the subsidiary is controlled by a local managing partner whose compensation consists of a lump sum payment plus a share of the subsidiary s profit the parent chooses an optimal transfer price taking into account incentives for the subsidiary s managing partner and taxes home and host governments impose corporate income taxes on the parent and subsidiary s respective profits subject to a transfer pricing rule e g cost plus price method or comparable profit method a nash equilibrium is derived for effective tax rates chosen by home and host governments we then examine harmonization and suggest that tax rates would be reduced

reforming an asymmetric union on the virtues of dual tier capital taxation the tax competition for mobile capital in particular the reluctance of small countries to agree on measures of tax coordination has ongoing political and economic fallouts within europe we analyse the effects of introducing a two tier structure of capital taxation where the asymmetric member states of a union choose a common federal tax rate in the first stage and then non cooperatively set local tax rates in the second stage we show that this mechanism effectively reduces competition for mobile capital between the members of the union moreover it distributes the gains across the heterogeneous states in a way that yields a strict pareto improvement over a one tier system of purely local tax choices we also discuss the effects of diverging capital endowments within the union and capital flows to third countries

capital market integration and fiscal sustainability abstract by constructing a two country endogenous growth model with a debt financing government this paper studies the relationship between the sustainability of public finance and increases in inter regional factor mobility to this end it identifies the minimum tax rate that ensures fiscal sustainability against the backdrop of capital tax competition and studies whether competition for mobile capital lowers or improves fiscal sustainability the main findings are as follows i when countries are symmetric increasing capital flows promotes economic growth through the expansion of romer type knowledge spillovers resulting in increased fiscal sustainability in all countries and ii when a marked difference exists between countries tax competition caused by capital movements might lower fiscal sustainability in a country with abundant capital and large outstanding debt

sequential market entries and competition modelling in multi innovation diffusions abstract the diffusion of innovations for simultaneous processes cannot take into account and properly explain systematic perturbations due to competition substitution effects if they are examined one by one a first aspect in simultaneous competing diffusions is the distinction between simultaneous market entries synchronic competition and sequential entries diachronic competition in the latter case the beginning of competition may upset the first entrant s diffusion a second important aspect in multiple competition is represented by the choice to model the word of mouth effect either at the category level balanced model or at the brand level separating the within brand effect from the cross brand one unbalanced model in this paper balanced models are studied and we propose a model that allows for a change in the parameter values of the first entrant as soon as the second one enters the market the resulting differential system has a closed form solution that enables through sales data an empirical validation of the assumptions underlying the model structure improving the forecasting accuracy an application to pharmaceutical drug competition is discussed

the economic consequences of corporate tax rates reductions in the eu evidence using a computable general equilibrium model in a globalised world governments are eager to attract foreign investors by lowering corporate tax rates recent trends point towards a revival of a race to the bottom in corporate income tax cit rates in developed economies eu countries have been active in this respect a generalised fall in cit rate could prove detrimental to tax revenues and trigger increase in other taxes to meet fiscal policy objectives however it could also spur investment and growth and prove to be a good fiscal policy strategy if as a result the corporate tax base increases the final economic and fiscal impact of a reduction in cit rates is therefore unclear using a cge model we find that uncoordinated tax reforms significantly impact national economies and third country effects can be significant when large countries implement cit rate cuts small countries are better off unilaterally reducing their cit rate at the expense of other eu countries we find that negative spillovers are mitigated when the country reducing its cit rate restores its budget balance by cutting either public expenditures or social transfers a larger degree of non eu capital mobility also tends to reduce the negative spillover effects of unilateral cit rate reductions

testing for strategic interaction among local governments the case of growth controls this paper helps to fill a gap in the public economics literature by providing empirical evidence on strategic interaction among local governments using the methodology of case et al journal of public economics 52 285 307 1993 the paper focuses on the adoption of growth control measures by cities in california and looks for evidence of policy interdependence in these choices the data are drawn from an elaborate survey of growth control practices in california cities conducted by glickfeld and levine regional growth local reaction lincoln institute of land policy cambridge ma 1992 the survey results are used to compute an index of the stringency of growth controls in each city which serves as the dependent variable for the study

do countries compete over corporate tax rates this paper tests whether oecd countries compete with each other over corporate taxes in order to attract investment we develop two models with firm mobility countries compete only over the statutory tax rate or the effective average tax rate while with capital mobility countries compete only over the effective marginal tax rate we estimate the parameters of reaction functions using data from 21 countries between 1983 99 we find evidence that countries compete over all three measures but particularly over the statutory tax rate and the effective average tax rate this is consistent with a belief amongst governments that location choices by multinational firms are discrete we also find evidence of concave reaction functions consistent with the model outlined in the paper

in search of yardstick competition a spatial analysis of italian municipality property tax setting this paper uses italian local government data to test for fiscal interaction arising from yardstick competition to discriminate yardstick competition from competing theories of strategic interaction we account for the incentives and constraints generated by the electoral system in particular for the presence of term limits and the size of the majorities supporting the mayors estimation of a local property tax setting equation uncovers positive spatial auto correlation in local tax rates of jurisdictions where the mayors run for re election in uncertain contests while interaction is absent where either mayors face a term limit or are backed by large majorities

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

strategic interaction in local governments industrial land supply evidence from china land is an important tool for local governments to attract investments and promote local economic growth in china based on panel data of chinese prefecture level cities from 2003 to 2012 this paper employs spatial panel data models to examine the strategic interaction among local governments in industrial land supply and to indentify its possible sources the empirical results show that there exists strategic interaction among local governments in industrial land leasing price local governments industrial land leasing price is significantly impacted by the action of neighbouring cities they mimic each other in terms of industrial land leasing price to attract outside investments empirical evidence reveals that the strategic interaction comes from both yardstick competition and resource flow effects local governments react more to their neighbours industrial land leasing price during political cycle periods

income shifting investment and tax competition theory and evidence from provincial taxation in canada abstract we study corporate income taxation when firms operating in multiple jurisdictions can shift income using tax planning strategies because income of corporate groups is not consolidated for tax purposes in canada firms may use financial techniques such as lending among affiliates to reduce subnational corporate taxes a simple theoretical model shows how income shifting affects real investment government revenues and tax base elasticities depending on whether firms must allocate income to provinces or not we then analyze data from administrative tax records to compare the behavior of corporate subsidiaries that may engage in income shifting to comparable firms that must use the statutory allocation formula to determine their taxable income in each province the evidence suggests that income shifting has pronounced effects on provincial tax bases according to our preferred estimate the elasticity of taxable income with respect to tax rates for income shifting firms is 4 9 compared with 2 3 for other comparable firms

do countries compensate firms for international wage differentials we address the role of labor cost differentials for national tax policies modeling a tax competition race between two countries competing for a population of mobile firms we show that in equilibrium the high wage country charges a lower tax than the low wage country moreover under tax competition the high wage country attracts more firms than in a setting without taxation exploiting exogenous variation in labor cost differentials induced by the breakdown of communism in eastern europe we find that tax policies are in line with the model prediction our most conservative estimates suggest that a one dollar increase in the compensation cost differential in prices as of 2000 triggers a cut of the statutory corporate income tax rate by about one percentage point

incumbent behavior vote seeking tax setting and yardstick competition this paper develops a model of the political economy of tax setting in a multijurisdictional world where voters choices and incumbent behavior are determined simultaneously voters are assumed to make comparisons between jurisdictions to overcome political agency problems this forces incumbents into a yardstick competition in which they care about what other incumbents are doing we provide a theoretical framework and empirical evidence using u s state data from 1960 to 1988 the results are encouraging to the view that vote seeking and tax setting are tied together through the nexus of yardstick competition

information acquisition and the adoption of new technology the profitability of a new technology is rarely known with certainty at its announcement date consequently prior to making an adoption decision it behooves the firm considering the adoption of this innovation to reduce the level of uncertainty associated with its profitability the firm accomplishes this by sequentially gathering information updating its prior estimate of profitability in a bayesian manner quantifying the uncertainty regarding the innovation permits application of dynamic programming techniques criteria are derived which tell the firm when to stop collecting information and make the adoption decision it will be shown that it is optimal for the firm to continue to collect information until its estimate of profitability crosses one of two thresholds upon crossing the upper threshold the firm adopts the technology whereas the firm rejects the technology if the lower threshold is crossed the model predicts that even the manager who behaves optimally will occasionally adopt unprofitable technologies and reject profitable ones

internationalization and changes in tax policy in oecd countries the importance of domestic veto players this article examines the role that economic and political factors played in tax reform in organization for economic cooperation and development oecd countries from 1986 to 1990 some writers argue that economic integration forced states to reform their tax systems the authors findings indicate that economic openness had an indirect effect on the level of change in marginal tax rates the institutional structure of a country was most important countries that had only one veto player or only one institution or party whose approval was necessary for a bill to become law enacted more sweeping reform than states that had more than one veto player these results suggest that even when international or domestic economic factors might dictate a change in policy reform will not be as sweeping in countries in which agreement among several institutions and or parties is necessary

when to adopt a service innovation nash equilibria in a competitive diffusion framework abstract we study the optimal timing of adoption of a service innovation that a new entrant firm brings to a market populated by two incumbent firms our analysis is based on a model of competitive diffusion dynamics that extends the monopolistic bass model to include customer churn processes as well as a potential market expansion driven by the innovation we obtain expressions for the time trajectories of the customer bases i e the numbers of customers that use old and new service processes for the competing firms as well as sharper closed form characterizations for the setting with a stable market and homogeneous imitation process in modeling competitive dynamics we consider settings where incumbents anticipate a potential failure of the innovation we use the trajectories for the customer bases to model an optimal adoption response problem faced by one of the incumbent firms when the adoption time for the other incumbent can be anticipated or is pre announced and analyze this problem in the absence of market expansion or intra generational customer churn using the optimal response results we provide the nash equilibrium analysis of the adoption decisions by competing incumbent firms and derive sufficient conditions for the now now now never and never never adoption equilibria we use the trading volume data from the foreign exchange markets to estimate the parameters of the competitive diffusion dynamics for our model and to conduct a numerical investigation of the impact of the uncertainty associated with the success of the innovation on the incumbents nash equilibrium adoption times

who benefits from partial tax coordination in this paper we investigate whether partial tax coordination is beneficial to countries within and outside a tax union in which countries are supposed to compete in taxes and infrastructure our results demonstrate that a subgroup of countries agreeing on a common tax rate can harm both member and nonmember states this is in contrast to the classical findings that partial tax harmonisation is pareto improving when a minimum tax rate is imposed within a tax union we demonstrate that it does not necessarily improve the welfare of the member countries moreover both the high tax and low tax countries can be worse off this conclusion is at odds with the classical result that a high tax country benefits from the imposition of a lower tax bound

how a race to the bottom can make you fat abstractthis article measures the effect of fiscal competition on obesity rates in the united states through education and health spending we hypothesize that fiscal competition to attract firms r

corporate income taxation of multinationals in a general equilibrium model abstract this paper contributes to the discussion on separate accounting versus formula apportionment in the corporate income taxation of multinational enterprises the innovation is that we consider a general equilibrium tax competition model with an endogenous interest rate in contrast to previous studies we show that tax rates are inefficiently low not only under separate accounting but also under formula apportionment moreover we identify a wide range of empirically relevant cases where formula apportionment is superior to separate accounting independent of the magnitude of the concealment cost of profit shifting the reason for the change in results is that one country s tax rate affects other countries additionally via changes in the interest rate

federalism partial prohibition and cross border sales evidence from recreational marijuana abstract marijuana is partially prohibited though banned federally it is available to 1 in 4 u s adults under state statutes we measure the size of the interstate trade generated by state level differences in legal status with a natural experiment oregon allowed stores to sell marijuana for recreational use on october 1 2015 next to washington where stores had been selling recreational marijuana since july 2014 using administrative data covering the universe of washington s sales and a differences in discontinuities approach we find retailers along the oregon border experienced a 36 decline in sales immediately after oregon s market opened we investigate the home location of recent online reviewers of marijuana retailers and find similar cross border patterns by the end of washington s 2018 fiscal year our results imply that washington had earned between 44 million and 75 million in tax revenue from cross border shoppers these cross border incentives may create a race to legalize

tax competition and tax coordination in an optimum income tax model abstract the paper uses the self selection approach of stiglitz 1982 to study tax competition and tax coordination in a many country optimum income tax model in the model the government can impose a non linear tax schedule on wage income and a source based tax on mobile capital in an uncoordinated equilibrium it turns out that countries can use the capital tax instrument to weaken the self selection constraint the paper presents examples where positive and negative capital taxes are optimal from a single country perspective if the production function is weakly separable between labor and capital it can be shown that the optimal capital tax is zero the paper also shows that contrary to the standard tax competition model the uncoordinated equilibrium can be efficient if the wealth distribution the endowments with capital among individuals is egalitarian a coordination of capital taxes does not affect welfare for non egalitarian wealth distributions a coordinated increase in capital taxes can raise or lower welfare depending on the redistributive impact of a higher capital tax

optimal entry timing in markets with social influence firms routinely face the challenging decision of whether to enter a new market where a firm s strong presence in an existing market has a positive influence the leverage effect on product adoption in the new market but the reciprocal social influence on the existing market is negative the backlash effect in this paper we show that a firm s optimal entry strategy in this situation cannot be characterized by the familiar now or never or now or at maturity strategies proposed in the literature we show that a strong leverage effect does not necessarily provide the justification for a firm to enter a new market and neither should a strong backlash effect necessarily deter a firm from embracing a new market the optimal strategy is predicated on a judicious trade off between the three factors of leverage backlash and patience thus an astute manager can always find the opportune time to enter the new market if she takes into account the dynamic and recursive nature of cross market interaction effects where leverage enhances the backlash but backlash weakens the leverage in a nonlinear dynamic fashion we illustrate that firms stand to benefit from explicit considerations of these effects in deciding whether and when to enter a new market furthermore we explore how the optimal time of entry into the new market relates to the time of peak sales for the existing market demonstrating that depending on the interactive effects of leverage and backlash entry could be optimal either before or after peak sales in the existing market

european tax harmonisation and production efficiency this paper analyses the impact on production efficiency of potential harmonisation of the taxation of income from capital in the european union it develops and applies a methodology for computing the cost of capital for transnational investments to assess the degree to which production efficiency holds in the eu it considers the impact of potential forms of corporation tax harmonisation the results indicate that some commonly advocated reforms e g harmonising tax rates or tax bases would not significantly move the tax system towards production efficiency but that other reforms which affect the taxation of cross border flows would have more impact

market incumbency and technological inertia this paper uses a case study and a simple mathematical model to study the link between the incumbency and incentives to innovate and introduce drastically new products it identifies the conditions under which fears of self cannibalization are particularly likely to lead incumbents to soft pedal such innovations

search costs and corporate income tax competition abstract if a small cost applies for learning the corporate tax rules in different countries this can completely eliminate tax competition this modified version of the diamond paradox and can also explain the empirically observed tax cuts cum base broadening

on the implications of introducing cross border loss offset in the european union abstract this article investigates a tax competition model where countries compete for capital and profits of multinational enterprises mnes through statutory tax rates and cross border loss offset provisions which allow a transfer of foreign subsidiaries losses to the parent company a joint implementation of full cross border loss relief is welfare maximizing because it ensures production efficiency and no profit shifting in equilibrium local governments choose zero level of the loss relief in a noncooperative equilibrium if only capital is mobile and relax the loss offset when mnes engage in profit shifting therefore allowing multinationals to undertake international tax planning activities may be welfare improving in our model

eu regional policy and tax competition the european union eu provides coordination and financing of trans european transport infrastructures i e roads and railways which link the eu member states and reduce the cost of transport and mobility this raises the question of whether eu involvement in this area is justified by inefficiencies of national infrastructure policies moreover an often expressed concern is that policies enhancing mobility may boost tax competition we analyze these questions using a model where countries compete for the location of profitable firms we show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition in contrast with regard to union periphery infrastructure the union has an interest in a coordinated reduction of investment expenditures here the effects on tax competition are ambiguous our results provide a rationale for eu level regional policy that supports the development of intra union infrastructure

industrial blackmail dynamic tax competition and public investment a dynamic model of intergovernmental competition for a large plant is presented when local productivity is uncertain one firm determines the location of its plant in each period by conducting an auction soliciting bids from local governments equilibrium subsidies from the local governments are derived the author also consider a two stage game where local governments first choose a level of costly infrastructure then participate in the sequential auction even when costs are identical across locations investing in different levels of infrastructure is a nash equilibrium moreover when infrastructure is endogenous in this manner it is chosen efficiently

a tiebout tax competition model abstract this paper analyzes a tiebout tax competition model where heterogeneity of consumer preferences is introduced into a standard tax competition framework following the modern tiebout tradition consumer sorting in the model is achieved through the activities of profit maximizing community developers once sorting is achieved the equilibrium is equivalent to that in a standard tax competition model with immobile but heterogeneous consumers a principal lesson of the analysis is that under capital taxation consumers with high public good demands are worse off than under a head tax regime in pursuit of high levels of public spending high demand communities impose high tax rates which drive away capital the analysis also establishes a number of other results

a race to the bottom in labor standards an empirical investigation abstract one of the concerns over globalization is that as nations compete for investment they relax labor standards to attract firms using spatial estimation on panel data for 135 countries over 17 years we find that the labor standards in one country are positively correlated with those elsewhere i e a cut in labor standards in other countries reduces labor standards in the country in question this interdependence is more evident in labor practices i e enforcement than in labor laws further while we find evidence of competition in both developed and developing countries it is strongest among developing countries with weak standards