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

evasion and time consistency in the taxation of capital income evasion and time inconsistency have been prominent concerns in discussions of capital income taxation both theoretical and applied this paper establishes a link between them suggesting a potentially useful role for evasion additional to those previously identified by committing to relatively lax enforcement the government may be able to alleviate the welfare loss implied by its inability to commit to the tax rate the scope for this role proves strikingly wide it is optimal for the government to facilitate the evasion of the capital income taxes that it chooses to impose whenever the time consistent tax rate exceeds that which would be optimal if the government could commit to it copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

expenditure taxes income taxes and time inconsistency abstract traditional welfare based comparisons of different tax structures implicitly assume that the government can precommit to its future optimal policy when optimal tax rates are time inconsistent however such comparisons may be misleading this paper uses a two period representative consumer optimal taxation model to study the implications of time consistency for the welfare rankings of expenditure and income taxation i show that the welfare rankings of optimal policies may not be preserved by time consistent ones

academic research underlying industrial innovations there has been no systematic study of the characteristics of the universities and academic researchers that seem to have contributed most to industrial innovation nor do we know how such academic research has been funded this paper based on data obtained from sixty six firms in seven major manufacturing industries and from over two hundred academic researchers sheds new light on the sources characteristics and financing of academic research underlying industrial innovation the findings should be of interest to economists concerned with technological change and to policymakers attempting to increase the economic payoff from the nation s academic research copyright 1995 by mit press

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

global and domestic utilization of industrial relevant science patent citation analysis of science technology interactions and knowledge flows abstract the development of science based technologies may draw heavily on codified and tacit outputs from both domestic research bases and foreign sources having a view of the scientific underpinnings of these technical innovations and related knowledge diffusion and utilization processes especially those concerning public financed basic research is of major importance to policymakers nowadays some of those scientific and technical inputs are pivotal to technical inventions and are acknowledged as such by explicit references citations to related research papers in the reference list on the corresponding patents this case study deals with citations to dutch authored research papers on uspto patents granted during the period 1987 1996 results of the citation analysis reveal several important features of contributions made by the dutch science base to dutch invented and or foreign invented patents such as 1 a marked overall increase of patent citations to dutch research papers and 2 significant differences between domestic and foreign citation patterns where 3 domestic citation links are dominated by author inventor self citations and patents originating from the large r d intensive multinational firms such as philips these findings provide new empirical evidence that patent citation analysis produces systemic quantitative data providing strategic background information regarding nation specific and sector specific factors in domestic and cross border science technology linkages and knowledge flows

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

large scale econometric models of national economies macroeconometric models are in continuous use in macroeconomic forecasting and policy analysis and are continuously developing part 1 of this paper focuses on some current developments in both economic theoretic and econometric aspects including supply side modelling the treatment of expectations dynamic specification and testing model comparisons and glasnost part 2 is a comparative study of the properties of five nordic models highlighting key structural contributions to their supply side responses differences in modelling approach rather than differences in the underlying economies explain most of the differences in overall model properties these then form an agenda for future comparative research

the culture of corruption tax evasion and economic growth this study uses a dynamic general equilibrium model to quantify the effects of corruption and tax evasion on fiscal policy and economic growth the model is calibrated to match estimates of tax evasion in developing countries the calibrated model is able to generate reasonable predictions for net tax rates the corruption associated with public investment projects and the negative correlation between corruption and tax revenue the presence of corruption and evasion is shown to have significant but not large negative effects on economic growth the relatively moderate effects help explain the absence of a robust negative correlation between growth and corruption in cross country data the model also implies that cracking down on tax evasion before addressing corruption can be a bad idea and that higher wages for public officials can improve welfare jel h3 o4

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

north south lending and endogenous domestic capital market inefficiencies abstract we develop an open economy model of intertemporal trade under asymmetric information capital market imperfections are endogenous and depend on a country s stage of economic development relative to the perfect information benchmark north south capital flows are dampened and possibly reversed and world interest rates are lower whereas riskless rates are equalized across borders the domestic loan rate is higher in poorer countries the model can be applied to a number of policy issues including the debt overhang problem the indexation of foreign public debts and the effect of income distribution on growth

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

tax competition when firms choose their organizational form should tax loopholes for multinationals be closed we analyze a sequential game between two symmetric countries when firms can invest in a multinational structure that confers tax savings governments are able to commit to long run tax discrimination policies before firms decisions are made and before statutory capital tax rates are chosen non cooperatively whether a coordinated reduction in the tax preferences granted to mobile firms is beneficial or harmful for the competing countries depends critically on the elasticity with which the firms organizational structure responds to tax discrimination incentives a model extension with countries of different size shows that small countries are likely to grant more tax preferences than larger ones along with having lower effective tax rates

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

capital taxation and production efficiency in an open economy we attempt to clarify the role of the production efficiency theorem in international capital taxation it is shown that a direct open economy analogue to the production efficiency theorem arises not in the small country case but in the more general setting of tax competition between a finite number of identical jurisdictions

in search of the european paradox an international comparison of europe s scientific performance and knowledge flows in information and communication technologies research abstract this article deals with the scientific performance of the european union eu in what is now perhaps the most important enabling technology worldwide information and communication technologies ict the performance measures are based on the stock and flows of scientific knowledge embodied in research papers published in international scientific and technical journals quantitative data derived from these papers are used to examine and compare the performance of the eu science base with the us and japan two leading scientific nations in ict research and major competitors in ict industries these bibliometric indicators characterize and compare these three ict research bases in terms of research output international scientific quality transnational knowledge flows and domestic and international cooperation patterns the analysis focuses on the key issue whether or not these data bear evidence of the perceived european paradox which is among others characterized by a strong eu public sector science base coupled to a relatively weak r d performance of eu firms the findings provide empirical confirmation for the existence of this paradox in both ict research domains under investigation computers and data processing and telecommunications

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

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

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

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

can partial fiscal coordination be welfare worsening a model of tax competition most work on tax competition argues that mobile factors tend to be undertaxed except if there is coordination of tax policies full coordination is not however always feasible and as a consequence some measures of partial coordination have been proposed such as minimal withholding taxes on interest income we show that partial coordination can be in some instances welfare worsening and that then no coordination is to be preferred

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

equilibrium political budget cycles political business cycle theories generally rely on nominal rigidities and voter myopia this paper offers an equilibrium theory that preserves some basic insights from earlier models though with significant refinements the political budget cycle emphasized here is in fiscal policy rather than output and inflation it arises via a multidimensional signal process one can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure copyright 1990 by american economic association

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

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

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

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

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

internationalization of r d a survey of some recent research this paper surveys the current state of the art concerning the management and economic impact of geographically decentralized research and development r d in multinational companies mncs this line of research has recently begun to attract renewed interest in reflection of not only critical new trends regarding the nature and conditions of technological change but also significant developments in the realm of economic and managerial theory the aim of this paper is first to outline the empirical and theoretical background and perspective of this new research agenda second it gives a summary and overview of prior research in the area third it outlines the content and structure of a number of recent studies based on these studies the paper identifies a number of trends and implications in terms of policy issues and critical areas for future research

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

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

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

comparative politics and public finance we propose a model with micropolitical foundations to contrast different political regimes compared to a parliamentary regime the institutions of a presidential congressional regime produce fewer incentives for legislative cohesion but more separation of powers these differences are reflected in the size and composition of government spending a parliamentary regime has redistribution toward a majority less underprovision of public goods and more rents to politicians a presidential congressional regime has redistribution toward powerful minorities more underprovision of public goods but less rents to politicians the size of government is smaller under a presidential regime this last prediction is consistent with cross country data

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

profit taxation and the mode of foreign market entry abstract this paper studies the role of profit taxation for an international firm s decision upon how to penetrate a foreign market through exports or through foreign direct investment fdi and local supply we show that with harmonized taxes the international firm may choose fdi even though this has welfare costs from a global point of view with tax competition the host country can enforce exporting instead of fdi this leads to a nash equilibrium associated with higher world welfare than harmonized taxes thus because of the effect on entry mode tax competition provides heretofore unexplored benefits as compared to tax harmonization

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

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

interjurisdictional competition with adverse selection abstract in this paper we study the welfare consequences of imposing alternative regimes of competition between two local governments that compete for mobile firms which have private information on their degree of mobility competition among jurisdictions raises the firms rents to higher levels than if jurisdictions were to cooperate therefore from the perspective of a utilitarian federation constitutional constraints on the competition process may be desirable we find that imposing a system of coarser policy instruments improves welfare relative to competition with discretionary instruments because it reduces the socially costly rents that are granted to firms in equilibrium we also find that the gains from constraining competition to uniform policy instruments are maximal when communities are identical but decline if the extent of asymmetry between locations in terms of local market size or technological complementarities increases

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

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

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

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

will destination based taxes be fully exploited when available an application to the u s commodity tax system abstract we develop a tax competition model that allows for the setting of both an origin based and a destination based commodity tax rate in the presence of avoidance and evasion in the presence of evasion jurisdictions will give cross border shoppers tax preferential treatment thus not fully exploiting the potential of destination based taxation moreover the divergence between origin based and destination based taxes is stronger when the incentives for consumers tax arbitrage opportunities increase the united states is one example of many such systems while sales taxes are due at the point of sale use taxes are due on goods purchased out of state we document that when able to set both rates a majority of jurisdictions levy destination based use taxes at a lower rate than origin based sales taxes in response to changes in state level policies that increase tax avoidance opportunities the results of the empirical model broadly confirm our theory

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

the effects of tax competition when politicians create rents to buy political support abstract we set up a probabilistic voting model to explore the hypothesis that tax competition improves public sector efficiency and social welfare in the absence of tax base mobility distortions in the political process induce vote maximising politicians to create rents to public sector employees allowing tax base mobility may be welfare enhancing up to a point because the ensuing tax competition will reduce rents however if tax competition is carried too far it will reduce welfare by causing an underprovision of public goods starting from an equilibrium where tax competition has eliminated all rents a coordinated rise in capital taxation will always be welfare improving for plausible parameter values it will even be welfare enhancing to carry tax coordination beyond the point where rents to public sector workers start to emerge

modelling relative price variability and aggregate inflation in the united kingdom the relationship between relative price variability and aggregate inflation in the uk is used to illustrate a number of issues in econometric modelling methodology the rigorous evaluation of models especially testing for congruence and encompassing is emphasized the valuable role of recursive estimation methods in assessing model adequacy is demonstrated attention is drawn to the potential limitations of single equation and univariate analysis of time series data and a recently proposed modelling strategy for analyzing nonstationary variables with cointegrating relationships based on sequential reductions of a congruent var is applied to a small system involving inflation and relative price variability

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

modelling economic series readings in econometric methodology part i introduction to part i edward e leamer let s take con out of econometrics michael mcaleer adrian r pagan paul a volker what will take the con out of econometrics trevor s breusch simplified extreme bounds adrian r pagan paul a volker thomas f cooley stephen f leroy what will take the con out of econometrics a reply to mcaleer edward e leamer sensitivity analysis would help adrian pagan three econometric methodologies a critical appraisal david f hendry grayham e mizon procrustean econometrics or stretching and squeezing data christopher a sims macroeconomics and reality part ii alternative methodologies introduction to part ii ray fair macroeconomic methodology richard m todd improving economic forecasting with bayesian vector autoregression edward e leamer a bayesian analysis of the determinants of inflation arnold zellner bayesian analysis in econometrics part iii lse methodology introduction to part iii christopher gilbert professor hendry s econometric methodology david f hendry jean francois richard on the formulation for empirical models in dynamic econometrics aris spanos towards a methodology of econometric modelling part iv model evaluation and selection introduction to part iv halbert white model selection y chong d f hendry econometric evaluation of linear macro economic models

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

large firms in the production of the world s technology an important case of non globalisation us patenting by 686 of the world s largest manufacturing firms shows that their share of the world s production of technology is less than their share of r d activities and varies greatly amongst sectors in most cases the technological activities of these large firms are concentrated in their home country the characteristics of which influence the volume and trends in their technological activities much more strongly then the international component of these activities at the same time these large firms are major elements in the volume and the pattern of sectoral specializations in their home countries technological activities

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

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

taxation of investment and savings in a world economy the equilibrium of capital and equilibrium market prices are derived for a world economy with a unified securities market mobile capital no uncertainty and varying tax rates on different sources of income in each country the paper then characterizes optimal tax rates for a small country in this setting focusing on the peculiar incentives created when the before tax rate of return differs among securities due to differences in their typical tax treatment copyright 1986 by american economic association

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

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

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

fiscal competition and the pattern of public spending much attention has been given to the impact of fiscal competition on the level of public expenditure but relatively little to the impact on its composition using a broadly familiar and reasonably rich model of fiscal competition in the presence of mobile capital this paper establishes a systematic bias in public spending patterns starting from the non cooperative equilibrium and holding tax rates constant welfare would be improved by a coordinated reduction in the provision of local public inputs and a corresponding increase in the public provision of local public goods benefiting immobile consumers c 1997 elsevier science s a

why do most countries set high tax rates on capital abstract we consider tax competition in a world with tax bases exhibiting different degrees of mobility modeled as mobile and immobile capital an agreement among countries not to give preferential treatment to mobile capital results in an equilibrium where mobile capital is nevertheless taxed relatively lightly in particular one or two of the smallest countries measured by their stocks of immobile capital choose relatively low tax rates thereby attracting mobile capital away from the other countries which are then left to set revenue maximizing taxes on their immobile capital this conclusion holds regardless of whether countries choose their tax policies sequentially or simultaneously in contrast unrestricted competition for mobile capital results in the preferential treatment of mobile capital by all countries without cross country differences in the taxation of mobile capital nevertheless our main result is that the non preferential regime generates larger expected global tax revenue despite the sizable revenue loss from the emergence of low tax countries by extending the analysis to include cross country differences in productivities we are able to resurrect a case for preferential regimes but only if the productivity differences are sufficiently large