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

globalization veto players and welfare spending this article examines the role of globalization and its interaction with domestic political institutions veto players in shaping welfare spending in 18 advanced industrial countries from 1960 to 2000 first the author evaluates how integrated world markets have influenced welfare expenditures results suggest that globalization increased welfare spending in this sample second the author studies how domestic political institutions mediate the impact of globalization on welfare spending with a new data set on veto players for the years 1960 to 2000 the author finds that as the number of and ideological distance among veto players increases the upward pressure of globalization on welfare spending is reduced the results show that globalization has pressured states to expand welfare spending but the extent to which states have responded to pressure critically depends on the number of and ideological distance among veto players whose agreement is required to change welfare policy

do elections affect the composition of fiscal policy in developed established democracies this paper investigates the impact of elections on the level and composition of fiscal instruments using a sample of 19 high income oecd democracies during the period 1972 1999 we find that elections shift public spending towards current expenditures at the cost of public investment although we find no evidence for an electoral cycle for government deficit and overall expenditures we find a negative effect of elections on revenue attributed to a fall in direct taxation our results apply for predetermined electoral periods while endogenous elections seem to increase deficit and leave the composition of fiscal policy unaffected

dependency revisited international markets business cycles and social spending in the developing world while increased exposure to the global economy is associated with increased welfare effort in the organization for economic cooperation and development oecd the opposite holds in the developing world these differences are typically explained with reference to domestic politics tradables unions and the like in the developing world are assumed to have less power or interests divergent to those in the oecd interests that militate against social spending i claim that such arguments can be complemented with a recognition that developed and developing nations have distinct patterns of integration into global markets while income shocks associated with international markets are quite modest in the oecd they are profound in developing nations in the oecd governments can respond to those shocks by borrowing on capital markets and spending countercyclically on social programs no such opportunity exists for most governments in the developing world most of which have limited access to capital markets in tough times more significant incentives to balance budgets and as a result cut social spending at the times it is most needed thus while internationally inspired volatility and income shocks seem not to threaten the underpinnings of the welfare state in rich nations it undercuts the capacity of governments in the developing world to smooth consumption and particularly consumption by the poor across the business cycle the author would like to thank steph haggard kristin bakke wongi choe tim jones and seminar participants at duke university penn state university washington university mit and the university of new mexico for their helpful comments nancy brune mark hallerberg and rolf strauch and nita rudra were very generous in providing their capital account oecd fiscal and potential labor power data respectively

tax policy in an era of internationalization explaining the spread of neoliberalism i offer an explanation for the widespread diffusion of neoliberal tax policies in the developed democracies after accounting for the policy influences of commonly experienced domestic and international forces i consider several plausible paths of diffusion of neoliberal tax structure my central argument is that the highly visible 1980s market conforming tax reform in the united states should be especially important in shaping subsequent tax policies in other polities there are substantial reasons to believe however that domestic political and institutional forces will shape policymaker assessment of the benefits and costs of neoliberal reforms the strength of right parties and the degree to which the median voter has moved right should condition adoption of neoliberal tax policy the institutions of national and sector coordinated capitalism should also slow the enactment of neoliberal tax reforms i assess these arguments with empirical models of 1981 98 tax rates on capital in sixteen nations i find that changes in u s tax policy influence subsequent reforms in other polities in the long term all nations move toward the u s neoliberal tax structure analysis also shows however that the short term responsiveness to u s tax reforms is notably greater where uncoordinated market institutions are dominant theory and extensive qualitative and quantitative evidence indicate that pressures to compete for mobile assets as balanced against the economic and political costs of adoption anchor the process of diffusion of neoliberal tax policy there is little evidence for the view that systematic policy learning or social emulation drove tax policy diffusion earlier versions of this article were presented at the center for european studies and weatherhead center for international affairs harvard university center for international studies ucla and yale university as well as the 2002 annual meetings of the american political science association an earlier version was published as minda de gunzburg center for european studies harvard university working paper 120 i thank alex hicks rob franzese torben iversen andy martin cathie jo martin participants in the yale ucla and harvard conferences especially geoffrey garrett helen milner dennis quinn and beth simmons and two anonymous referees and the editors of international organization for helpful comments i also gratefully acknowledge the contribution of sven steinmo that comes by way of our past collaborative work on tax policy

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

nonlinear strategies in dynamic duopolistic competition with sticky prices abstract we discuss nonlinear strategies in an infinite horizon duopoly game with sticky prices where firms maximize their discounted sum of profit we construct a stationary feedback equilibrium without guessing value functions and feedback strategies that solve the hamilton jacobi equation for this purpose we study the auxiliary equation that is derived from the hamilton jacobi equation we show that the domain of the state space plays an crucial role in characterizing feedback equilibria and discuss several implications of this observation in particular we find that when the upper bound of the state space is not very high previously unknown feedback equilibria emerge

internationalization institutions and political change many analysts associate internationalization of markets with wide ranging changes in domestic politics an open polity approach shows how extant domestic institutions mediate in this relationship between internationally induced changes in domestic actors policy preferences on the one hand and national policy and institutional outcomes on the other the nature of labor unions and formal political institutions often results in political outcomes that differ significantly from those that would ensue if outcomes simply mirrored preference changes in addition while existing institutions may sometimes constrain governments from pursuing policies that would improve long term economic performance governments will often fail to change these institutions because of short term political considerations

long term covered interest parity evidence from currency swaps abstract this paper constructs long term arbitrage conditions using a now well developed mechanism for hedging long term currency positions the currency swap using the arbitrage conditions bond yields denominated in different currencies are compared across the onshore markets of canada japan germany switzerland the united kingdom and the united states and within the euromarket the evidence indicates that long term financial capital is as mobile across these markets as is short term capital this appears to be the case both within the euromarket and across political jurisdictions

subgame perfect reaction function equilibria in discounted duopoly supergames are trivial abstract this paper is concerned with infinitely repeated duopoly games with discounting a question which has been open since friedman s rev econ stud 35 1968 257 272 reaction function article is settled for a general class of games the question is wheter nontrivial reaction function equilibria can be subgame perfect this question is answered in the negative such equilibria must be trivial in the sense of prescribing the stage game noncooperative equilibrium actions in every period independent of prior history

varieties of capitalism in an internationalized world domestic institutional change in european telecommunications this article examines how internationalization affects domestic decisions about the reform of market institutions a developing literature argues that nations maintain different varieties of capitalism in the face of economic globalization because of diverse domestic settings however in an internationalized world powerful forces for change applying across border scan affect decision making within domestic arenas the article therefore analyzes how three factors transnational technological and economic developments overseas reforms and european regulation affected institutional reform in a selected case study of telecommunications regulation in britain france germany and italy between the 1960s and 2002 the author argues that when different forms of internationalization are strong and combined they can overwhelm institutional inertia and the effects of different national settings to result in rapid change and cross national convergence in market institutions hence different varieties of capi

international competition in corporate taxation evidence from the oecd time series despite numerous studies controversy remains about the impact of economic globalization on corporate taxation theoretical models of tax competition generate different predictions about trends in the level of tax burdens and the degree of convergence in tax burdens across countries in this paper we present a purely empirical analysis of the evolution of tax burdens across oecd countries since the 1950s issues of measurement and methodology have contributed to the inconclusive character of studies to date so we begin with an assessment of alternative measures of the burden problems with some commonly used measures of the tax burden are considered and the most plausible measures identified descriptive analysis of these time series reveals no evidence of a competitive race to the bottom in corporate taxation and little evidence of even a harmonization of the tax burden many inferential studies of corporate taxation base their conclusions on cross sectional analysis in contrast we adopt an explicitly time series method to what are essentially time series questions cointegration methodology originally developed to study issues of convergence of living standards is applied and fails to reveal evidence of convergence of tax burdens for the oecd and europe as a whole it does however indicate that there has been some harmonization within smaller groups of countries mainly in northern europe important questions remain about the effectiveness and impact of corporate taxation in an increasingly open and integrated global economy but we find little evidence to support fears that the burden of taxation is being lifted from corporations kenneth stewart and michael webb

remodeling the competition for capital how domestic politics erases the race to the bottom this paper proposes and tests a new formal model of the competition for capital using the analogy of a tournament as a substitute for the race to the bottom model our key insight is that political costs that accompany legislating have both direct and indirect effects on the likelihood and scale of reforms while countries with higher political costs are less likely themselves to enact reforms the presence of these costs also reduces competing countries incentives to reform regardless of their own political costs domestic politics therefore mitigates the pressures for downward convergence of tax policy despite increased capital mobility we examine the capital tax policies in oecd countries during the period from 1980 to 1997 and find that states are sensitive to tax reforms in competitor countries although their responses to reforms are mediated by their own domestic costs to reform we define two potential sources of political costs of reform transaction costs due to the presence of multiple veto players in the legislative process and constituency costs due to ideological opposition to policy changes that benefit capital our evidence reveals that a reduction in these costs either domestically or abroad increases the likelihood that a country enacts tax reforms hat are the policy consequences of the elimination of various barriers to international capital and labor mobility robert frost in mending wall instructed that good fences make good neighbors scholars have increasingly expressed this sentiment s converse i e the pessimistic viewpoint that as the mobility of factors of production increases international competition assumes a beggar thy neighbor character when fences separate countries and make it difficult for factors of production to move from country to country governments can operate essentially as monopolistic suppliers of services governments can extract a price from the owners of productive resources in the form of taxes or can place regulatory restrictions on production without fear that factors of production will emigrate when the fences fall and governments must compete with each other for the same resources a state s or country s ability to tax or regulate diminishes in the extreme countries lose sovereignty over domestic policymaking e g andrews 1994 and lee and mckenzie 1989 the model that most scholars employ implicitly or explicitly to understand international or interstate competition is known commonly by its central prediction the race to the bottom e g oates 1972

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

the impact of collective and competitive veto points on public expenditures in the global age this study examines the determinants of public expenditures in advanced market economies by simultaneously assessing the impact of domestic political institutions and globalization a distinction is made between collective veto points and competitive veto points demonstrating that not all veto points have restrictive effects it is shown that public expenditures are significantly and positively affected by collective veto points whereas the oppositeis true for competitive veto points thereby indicating that not all veto points are created equal in addition to veto points the effects of globalization are also assessed revealing that globalization is exerting little reform pressures on the welfare state with strong evidence indicating that more globalization buoys public expenditures current disbursements and social transfers are both positively influenced by globalization these findings suggest that domestic political institutions continue to shape policy trajectories in this purported global age

multiparty government and economic policy making multiparty government has often been associated with poor economic policy making with distortions like lower growth rates and high budget deficits one proposed reason for such distortions is that coalition governments face more severe common pool problems since parties use their control over specific ministries to advance their specific spending priorities rather than practice budgetary discipline we suggest that this view of multiparty government is incomplete and that we need to take into account that coalitions may have established certain control mechanisms to deal with such problems one such mechanism is the drafting of a coalition agreement our results when focusing on the spending behavior of cabinets formed in 17 western european countries 1970 1998 support our claim that coalition agreements matter for the performance of multiparty cabinets in economic policy making more specifically we find clear support for an original conditional hypothesis suggesting that coalition agreements significantly reduce the negative effect of government fragmentation on government spending in those institutional contexts where prime ministerial power is low

price stability and central bank independence discipline credibility and democratic institutions despite mixed empirical evidence in the past two decades central bank independence cbi has been on the rise under the assumption that it ensures price stability using an encompassing theoretical approach and new yearly data for de jure cbi seventy eight countries 1973 2008 we reexamine this relationship distinguishing the role of printing less money discipline from the public s beliefs about the central bank s likely actions credibility democracies differ from dictatorships in the likelihood of political interference and changes to the law because of the presence of political opposition and the freedom to expose government actions cbi in democracies should be directly reflected in lower money supply growth besides being more disciplinarian it also ensures a more robust money demand by reducing inflation expectations and therefore inflation empirical results are robust and support a discipline effect conditioned by political institutions as well as a credibility effect

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

institutions and investors the politics of the economic crisis in southeast asia the most dramatic development in the international political economy during the 1990s the asian economic crisis deserves our attention given that asia s rapid economic rise spawned so many debates in the literature it is peculiar that a radical interruption to asia s economic development has not engendered more theoretical argument among political scientists economists have engaged in furious and productive debate but have been unable to deal with the political dimensions of the crisis in this article i make a strong claim about the importance of politics in explaining one of the big puzzles in the overall saga why the investment reversal was greater in some countries than in others i argue that a tight focus on political institutions yields a remarkable degree of analytic purchase in explaining why some countries coped better than others during the crisis specie cally i stress the distribution of veto authority highlighting the way this shaped the overall character of the policy environment and in turn affected investors i identify two policy syndromes rigidity and volatility that are at opposite ends of a continuum and are severely suboptimal for investors particularly during times of crisis i show that these two syndromes can be directly linked to the institutional framework of government the wider the dispersal of veto authority the greater the risk of policy rigidity conversely the tighter the concentration of veto authority the greater the risk of policy volatility these two policy syndromes bear directly on the differing responses of governments to the crisis much of the best literature on the asian crisis has come from economists and falls into one of three theoretical clusters variants of e rst generation currency crisis models that emphasize imbalances in macroeconomic fundamentals variants of

tax incidence majority voting and capital market integration we re examine from a political economy perspective the standard view that higher capital mobility results in lower capital taxes a view in fact that is not confirmed by the available empirical evidence we show that when a small economy is opened to capital mobility the change of incidence of a tax on capital from capital owners to owners of the immobile factor may interact in such a way with political decision making so as to cause a rise in the equilibrium tax this can happen whether or not the immobile factor labour can be taxed and whether or not savings can be subsided under capital mobility d 2005 published by elsevier b v

understanding interdependence the macroeconomics of the open economy list of figureslist of tablesintroduction1the endogeneity of exchange rate regimes32exchange rate behavior under alternative exchange rate arrangements343panel one money for how many 844exchange rates prices and external adjustment in the united states and japan1075the dynamic optimizing approach to the current account theory and evidence1696international capital mobility in the 1990s2017a retrospective on the debt crisis2628trade liberalization in disinflation2919inflation and growth in an integrated approach31310panel the outlook for stabilization and reform in central and eastern europe36811international cooperation in the making of national macroeconomic policies where do we stand 39112the political economy of monetary union44813what do we need to know about the international monetary system 509conference participants531author index535subject index543

tax competition in wilhelmine germany and its implications for the european union the twenty five german states from 1871 to 1914 present a useful data set for examining how increasing economic integration affects tax policy after german unification the national government collapsed six currencies into one and liberalized preexisting restrictions on capital and labor mobility in contrast the empire did not directly interfere in the making of state tax policy while states transferred certain indirect taxes to the central government they maintained their own autonomous tax and political systems through world war i this paper examines the extent to which tax competition forced the individual state tax systems to converge from 1871 to 1914 in spite of a diversity of political systems tax competition did require states to harmonize their rates on mobile factors like capital and high income labor but it did not affect tax rates on immobile factors in states where the political system guaranteed agricultural dominance taxes on land were reduced while in states with more open systems tax rates remained higher one unexpected result is that tax rates on capital and income converged upward instead of downward the most dominant state prussia served as the lowest common denominator state but pressure from the national government especially to increase expenditures forced all states to raise their tax rates these results suggest possible ways for the european union to avoid a forced downward convergence of member state tax rates on capital and mobile labor

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

domestic saving and international capital movements in the long run and the short run the evidence and analysis in this paper support the earlier findings of feldstein and horioka 1980 that sustained increases in domestic savings rates induce approximately equal increases in domestic rates of investment new estimates for the post opec period 1974 79 imply that each extra dollar of domestic saving increases domestic investment by approximately 85 cents in a sample of 17 oecd countries an explicit analysis of the problems of identification and simultaneous equations bias suggests that the regression estimates are more relevant as a guide to the long run response of international capital flows than to their short run behavior coefficient estimates based on annual variations in savings and investment are subject to potentially severe simultaneous equations bias that is not present when annual observations are averaged over a decade or more and the regression is estimated with a cross country sample of these averages a portfolio model of international capital allocation that is presented in the paper indicates that the short run change in the rate of net foreign investment in response to a sustained increase in domestic saving is likely to be substantially greater than the ultimate steady state response this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

spatial effects in dyadic data political units often spatially depend in their policy choices on other units this also holds in dyadic settings where as in much of international relations research analysis focuses on the interaction or relation between a pair or dyad of two political units yet with few exceptions social scientists have analyzed contagion in monadic datasets only consisting of individual political units this article catego rizes all possible forms of spatial effect modeling in both undirected and directed dyadic data where it is possible to distinguish the source and the target of interaction for example exporter0importer aggressor0victim and so on this approach enables scholars to formulate and test novel mechanisms of contagion thus ideally paving the way for studies analyzing spatial dependence between dyads of political units to illus trate the modeling flexibility gained from an understanding of the full set of specifi cation options for spatial effects in dyadic data we examine the diffusion of bilateral investment treaties between developed and developing countries building and extend ing on elkins guzman and simmons s 2006 study however we come to different conclusions about the channels through which bilateral investment treaties diffuse rather than a capital importing country being influenced by the total number of bits signed by other capital importers as modeled in their original article we find that a capital importing country is more likely to sign a bit with a capital exporter only if other competing capital importers have signed bits with this very same capital exporter similarly other capital exporters bits with a specific capital importer influ ence an exporter s incentive to agree on a bit with the very same capital importer

entry sunk costs and market structure typically models that study the role of sunk costs suppose that incumbent firms face entry by a single firm each period in this paper the set of equilibrium market structures that result when all firms are free to enter or exit and set prices each period are characterized the effect of sunk costs on the market structure is examined and it is shown that sunk costs can take on various forms each having a different effect on the set of equilibrium market structures costs that are sunk due to the existence of product specific capital do not in general deter entry rather entry deterrence is a necessary outcome only when costs are sunk due to the time it would take to leave the market

politics institutions and welfare spending in industrialized democracies 1960 82 electoral turnout as well as left and center governments increase welfare effort that the welfare efforts of governments led by particular types of parties show significant differences and vary notably with the strength of oppositional and junior coalitional parties and that relatively neocorporatist centralized and traditionalistic polities are high on welfare effort overall our findings suggest that contrary to many claims both partisan and nonpartisan facets of democratic politics and political institutions shape contemporary social welfare effort

optimal taxation capital mobility and tax evasion the problem of capital flight and tax evasion is of paramount concern to many countries the fear is that capital mobility may lead to capital flight from high to low tax countries in such large amounts that it deprives a nation of its tax base and as a consequence its welfare system today s international climate where bank secrecy laws protect foreign investors anonymity in addition to substantial differences in national tax rates makes this fear a reality capital flight and tax evasion are also of concern from an equity as well as an efficiency point of view to the extent that labor cannot evade taxation as easily as capital labor is subject to higher effective tax rates than capital the presence of capital flight therefore imposes a higher tax burden on immobile factors and creates inequality giovannini 1989 and razin and sadka 1991 have recently studied the welfare effects of capital flight both studies are undertaken from the extreme assumption that foreign savings cannot be taxed and hence that tax evasion is undetectable and costless although evidence suggests that governments have difficulties taxing foreign source income governments derive positive tax revenue from foreign source income this paper thus adopts a different perspective capital flight and tax evasion are viewed as problems of tax enforcement the purpose of the paper is to analyze the intertemporal savings decision of an individual who can allocate consumption between two periods by borrowing and lending abroad and domestically it is assumed that foreign savings can evade taxation with a certain probability depending on the amount of money the government allocates to tax enforcement within this setting we investigate how taxes on foreign and domestic savings should be set optimally and how much money if any the government should allocate to tax enforcement

election or disaster support in this study i explore whether the public spending provided in response to a natural disaster is affected by upcoming elections the theory on retrospective voting argues that politicians are kept responsible by the electorate for the damage caused by a natural catastrophe at the same time voters reward government officials when they react promptly by taking actions that limit the negative consequences thus disaster support in the aftermath might not always only be provided to improve the economic situation after a disaster but also for political purposes my estimates seem to confirm this idea since roughly 10 per cent of the disaster related public spending provided in an election year is attributed to rent seeking rather than need it turns out that the existence of these election cycles can partly be explained by cross country differences for instance elections have a stronger effect in countries that are characterised by fewer checks and balances presidential system and majority elections one interesting result is that the role of media in electoral manipulation changes when a disaster has happened in the year before

globalization and capital taxation in consensus and majoritarian democracies this article contributes to the growing literature on the role that domestic political institutions play in mediating globalization pressures by arguing that the capital tax constraints arising from international economic integration are the most severe for countries with majoritarian political institutions in doing so the author solves a tax puzzle that challenges conventional thinking about how institutions condition the relationship between economic globalization and domestic politics he presents a formal game theoretic model to sharpen the basic logic of his argument and then tests some of the model s predictions empirically using both quantitative and qualitative evidence

the cyclical behavior of marginal cost and price the author examines the cyclical behavior of price marginal cost margins for u s manufac turing after 1956 short run marginal cost is markedly procyclical this is primarily due to procyclical overtime payments incurred beca use employment is not perfectly flexible in most industries output price fails to respond to the cyclical movement in marginal cost so price marginal cost margins are markedly countercyclical the res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing they support theories that explain low production in a recession by the inability of firms to sell their output copyright 1987 by american economic association

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

veto points veto players and international trade policy much of the literature on foreign economic policy focuses on the preferences of societal groups to explain policy decisions here however the author emphasizes the effects of domestic political i

institutions partisanship and inequality in the long run it has been widely suggested by political scientists and economists based on empirical evidence for the period since 1970 that the institution of centralized wage bargaining and the presence of a government of the left are associated with lower levels of income inequality the authors make use of new data on top income shares as well as long run series on wage inequality to examine the effects of partisanship and wage bargaining over a much longer time period nearly the entire twentieth century their empirical results provide little support for the idea that either of these two factors is correlated with income inequality over this period they then show that a closer look at the introduction of centralized wage bargaining in individual countries during the middle part of the twentieth century reveals that in countries that moved to centralize wage bargaining income inequality had already been trending downward well before the institutional change that the move to centralized bargaining did not alter this trend and that these changes in income inequality were also observed in countries that did not adopt centralized wage bargaining at this time the results suggest that there were alternative institutional paths to reduced income inequality during most of the twentieth century this raises the possibility that either structural economic changes or commonly shared economic and political events such as world wars and economic crises may ultimately be more important for understanding the evolution of income inequality than are the institutional or partisan characteristics commonly considered to be decisive by political scientists

subgame perfect equilibrium with continuous reaction functions abstract earlier efforts by friedman examined infinite horizon oligopolies trying and failing to show existence of subgame perfect nash equilibria with the firms strategies being continuous reaction functions here in a typical game theoretic model with discounting we prove the existence of such equilibria the equilibrium strategies mimic trigger strategies in their method of operation but are continuous so that small defections from equilibrium actions result in small per period punishments we prove our results by constructing equilibria in a fashion analogous to that found in proofs of folk theorems in repeated games

designing tax policy in federalist economies an overview abstract the emerging economic federations of the european union russia and south africa along with the established federations in australia canada and the united states confront the task of designing the institutions for federal fiscal policy this paper reviews the literature on the design of tax policy in federalist economies we conclude that taxation by lower level governments can lead to significant economic inefficiencies and inequities the usual assignment view of federalis recommends central government policies for example resident based taxation or grants in aid to correct these failures these recommendations assume that the central government will act as a benevolent social planner the political economy view of federalism suggests that this assumption is in error and that additional federalist institutions must be considered alternative legislative structures and constitutional rules are considered

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

on continuous reaction function equilibria in duopoly supergames with mean payoffs abstract continuous reaction function equilibria are studied in supergames in which the stage game resembles a standard duopoly game and the evaluation relations are according to the limit of the means it is proven that collusive i e single period game non nash equilibrium stationary outcomes are supported in subgame perfect equilibrium by linear reaction function pairs conversely it is shown that linear reaction equilibria are in essence typical in the class of subgame perfect continuous reaction equilibria further the multiple equilibrium problem of the folk theorem is shown to be significantly diminished in restricting attention to subgame perfect linear reaction equilibria

mobile capital domestic institutions and electorally induced monetary and fiscal policy the literature on global integration and national policy autonomy often ignores a central result from open economy macroeconomics capital mobility constrains monetary policy when the exchange rate is fixed and fiscal policy when the exchange rate is flexible similarly examinations of the electoral determinants of monetary and fiscal policy typically ignore international pressures altogether we develop a formal model to analyze the interaction between fiscal and monetary policymakers under various exchange rate regimes and the degrees of central bank independence we test the model using data from oecd countries we find evidence that preelectoral monetary expansions occur only when the exchange rate is flexible and central bank independence is low preelectoral fiscal expansions occur when the exchange rate is fixed we then explore the implications of our model for arguments that emphasize the partisan sources of macroeconomic policy and for the conduct of fiscal policy after economic and monetary union in europe

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

savings investment and international capital flows abstract the high correlation between national savings and domestic investment rateshas been interpreted as evidence that capital is not internationally mobile this paper surveys the theory and evidence on the relationship between savings and investment in a sample of 23 oecd countries a positive correlation between savings and investment rates is found in both the short and long runs however a wide variety of models generate such co movements in savings and investment in response to exogenous disturbances even under conditions of complete financial markets thus the savings investment correlation provides little evidence on the question of international capital mobility

the political economy of high income taxation capital taxation path dependence and political institutions in denmark denmark s income tax burden as the percentage of gdp is larger than the total tax burden of the united states and it has increased further after 1980 how can this be explained given increasing tax competition and widespread views that strong reliance on regressive taxes was conducive to building and maintaining large tax and welfare states the article highlights three factors first large income taxes are feasible if the capital tax burden is moderated within the income tax second the effective capital income tax burden that had developed up to the early 1980s was extremely low so that subsequent tax reforms could cut marginal tax rates on mobile types of capital income while increasing tax revenue third drastic changes in the legal structure of the income tax and stability in aggregate tax policy outcomes were facilitated by proportional representation and legislative majority rule

globalization taxation and burden shifting in latin america most researchers interested in the relationship between global markets and public policy focus on advanced industrial democracies in contrast we examine competing hypotheses as to globalization s effect on governments by expanding the scope of the discussion to include developing nations more specifically we investigate the relationship between international market integration and the evolving burden of taxation on capital as well as the subsequent response of markets to shifts in tax policy in latin america since the late 1970s consistent with our theoretical expectations we find that global market forces are more constraining vis a vis tax policy in latin america than in the world s wealthiest nations despite these market based pressures however national politics continue to influence tax policy in latin america in a manner consistent with findings on advanced industrial democracies as such developing nations continue to have some room to manipulate policy though within the context of a more strictly neoliberal context than their counterparts in advanced industrial democracies

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

the impact of cyclical demand movements on collusive behavior recent work by rotemberg and saloner 1986 investigates the effect of the business cycle on optimal collusive pricing by specifying that demand is subject to i i d shocks an implication of the i i d assumption is that firms expectations on future demand are unrelated to the current level of demand we put forth a model that allows for both the level of current demand and firms expectations on future demand to change over time thus it captures two important properties of the business cycle our analysis reveals that while the gain to deviating from a collusive agreement is greatest during booms firms find it most difficult to collude during recessions as the forgone profits from inducing a price war are relatively low an implication of this effect for pricing behavior is that at the same level of demand price is lower when demand is declining than when demand is rising consistent with previous theoretical work we find that firms price countercyclically for a range of values for the discount factor however numerical simulations reveal a greater tendency for firms to price countercyclically during recessions than during booms

the productivity slowdown the oil shocks and the real cycle f ive facts stand out about economic performance in the united states since world war ii the first is that for most of the postwar period the u s has had a slower rate of economic growth than the other major developed democracies except great britain and much lower rates of growth than germany japan and italy the gap between the growth of per capita income of the united states and comparable countries has however tended to diminish over time and the united states has lately grown at about the same rate as most other developed countries the second outstanding fact is that the united states has fallen far behind in many mass production industries in which it used to lead the world whereas it is ahead of other nations in many new and especially high technology industries in automobiles steel tires household appliances and earth moving and farm equipment for example u s production has fallen dramatically in relation to output in most comparable countries and the country has become a net importer of most such products by contrast in newer industries such as computers jet aircraft sophisticated weaponry and high technology in general the united states is often dominant both as producer and exporter the third outstanding fact is that most of the older heartland of american industry roughly the area north and east of an arc drawn from baltimore to st louis to milwaukee has declined dramatically in comparison with the south and the west this change in regional fortunes has been due in large part to migration motivated by differences in economic prospects from the declining to the advancing