on the conditions for precautionary saving abstract this paper shows that if the signs of the first three derivatives of the utility function are assumed to be invariant in the consumption level then nonsatiation and risk aversion are sufficient conditions for the presence of precautionary saving moreover a similar set of assumptions ensures that the necessary conditions for decreasing absolute risk aversion and for decreasing absolute prudence are automatically satisfied journal of economic literature classification numbers d11 e21

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

profit shifting and investment effects the implications of zero taxable profits abstract recent empirical research documents a tendency of multinational enterprise affiliates to bunch around zero reported profit we set up a theoretical model of multinational firm behavior in which we allow for corner solutions in the choice of the optimal transfer price due to insufficient profits or losses of affiliates such constraints in the choice of the transfer price induce bunching and generate investment effects in the low tax as well as the high tax country in equilibrium affiliates might overinvest and the investment effects generate a tendency for too high profit taxes the analysis provides a micro foundation for the investment effects that result from transfer pricing the finding stands in contrast to the existing literature where transfer pricing choices are unconstrained

what is to be done for third world commodity exporters an evaluation of the stabex scheme third world economies largely dependent on commodity exports other than oil have been the principal victims of the world recession attempts at restructuring international commodities regimes through the creation of the common fund have met with little success accordingly the possibility of helping commodity exporters through the provision of compensatory finance has attracted increasing attention one possible model for a new international compensatory facility is the eec s stabex scheme established as part of the lome convention however rather than operating automatically and without interfering with market mechanisms as its proponents suggest the administration of stabex has depended on discretionary judgments on the part of the eec commission and the scheme has introduced distortions into trade between the eec and its partners in the lome convention transfers under the stabex scheme have had only a minor impact on the economies of recipient countries especially on the sectors affected by fluctuations in export earnings stabex is an unsatisfactory model for a new compensatory facility additional finance to compensate ldcs for losses in export earnings might most feasibly be made available through further liberalization of the imf s compensatory financing facility

asymmetric international minimum quality standards and vertical differentiation this paper develops a two country model of a vertically differentiated duopoly that spans two countries which are not integrated without additional costs equilibrium qualities prices profits and consumer s surplus are compared when 1 minimum quality standards are identical and 2 standards differ across countries both markets turn out to be connected by the quality choices of the two firms both firms prices in the two countries and their profits are lower whereas consumer s surplus and the two offered qualities are higher in both countries if no firm is forced out of the country s market with the more demanding minimum quality standard copyright 1995 by blackwell publishing ltd

policies and international trade agreements on technical compatibility for industries with network externalities abstract the paper considers a country home in which consumers have heterogeneous preferences over ex ante incompatible domestic and imported products and benefit from a network externality we analyze the cases with trade under perfect competition and the international duopoly in which both governments strategically use policies toward compatibility but cannot use conventional trade policies in both cases the equilibrium outcome of the non cooperative game depends upon the strength of the network externality effect and involves either an excessively high equilibrium level of compatibility in combination with either too much or too little trade or very low equilibrium levels of both compatibility and trade the paper concludes with the analysis of the international agreements on policies toward compatibility and evaluates the existing provisions in the wto legal system aimed at minimizing the trade inhibiting impact of standards and regulations in the area of technical compatibility

the fifth credit tranche abstract this paper asserts that for all practical purposes the compensatory financing facility cff of the imf has been abolished except in the name by an imf decision of 14 september 1983 since cff was originally intended to finance temporary and reversible deficits resulting from export shortfalls due to factors beyond a country s control drawings were usually authorized within a month at low conditionality the 1983 decision does away with this semi automaticity thereby accommodating cff to the high conditional upper credit tranches this development is symptomatic of a general tendency to limit the fund to high conditional financing regardless of circumstances

taxing foreign profits with international mergers and acquisitions a large part of border crossing investment takes the form of international mergers and acquisitions in this article we ask how optimal repatriation tax systems look like in a world where investment involves a change of ownership instead of a reallocation of real capital we find that the standard results of international taxation do not carry over to the case of international mergers and acquisitions the deduction system is no longer optimal from a national perspective and the foreign tax credit system fails to ensure global optimality the tax exemption system is optimal if ownership advantage is a public good within the multinational firm however the cross border cash flow tax system dominates the exemption system in terms of optimality properties

hegemonic stability theory and 19th century tariff levels in europe although the theory of hegemonic stability has attracted an impressive array of adherents current formulations leave many conceptual issues unresolved existing formulations also fail to draw from the theory any implications concerning the process by which a hegemonic state creates and maintains a regime as an example great britain is generally agreed to have been hegemonic in the nineteenth century but britain s behavior was generally inconsistent with that implied by a theory of hegemonic stability i advance an alternative set of explanations for changes in international tariff levels based on the notion of a political business cycle

testing theories of regime change hegemonic decline or surplus capacity two theories explain changes in the international regimes for major economic sectors a theory of hegemonic stability explains sectoral change as a consequence of ebbing hegemony a theory of surplus capacity attributes regime shifts to a serious global problem with excess production capacity in the sector the history of the world automobile industry shows that surplus capacity offers the better prediction and explanation for the timing of regime changes however a synthesis of the two theories is even more satisfactory hegemonic decline is a necessary but not sufficient condition for change surplus capacity in the absence of a hegemon creates the conditions necessary for change

capital income and profit taxation with foreign ownership of firms abstract this paper establishes optimal rules for capital income and profits taxation in the open economy with or without foreign ownership of domestic firms we show that if there are constraints on the feasibility of profits taxation both saving and investment taxes generally enter the optimal tax package if instead profits can be fully taxed then source based investment taxes vanish if domestic firms are in part owned by foreigners then source based investment taxes can be used to shift income away from these to domestic citizens and they may even be used to finance lump sum transfers to domestic residents

welfare implications of non scale r d based growth models non scale r d based growth models imply that the decentral and the socially optimal long run growth rate coincide nonetheless the distortions inherent in a market economy bias both the r d investment share and the saving rate as a result the level of the balanced growth path may differ substantially between the two types of solution implying a dramatic loss in welfare the present paper explores the sources and magnitude of this gap in addition the consequences of public policies are examined distinguishing between isolated policy measures from an overall policy programme

endogenous transfer pricing and the effects of uncertain regulation abstract a scenario is constructed under which a multinational firm mnf faces a threat of a penalty the probability of which is based on the mnf s transfer price given this scenario the mnf s optimum transfer price could be in the interior and simultaneous interaction of the transfer price and real variables exists increased surveillance of the transfer price makes the mnf move its transfer price towards the arm s length price and checks fiscal abuses but it worsens the international allocation of resources even though the cost advantage of the exporting country increases still the impact on global welfare is ambiguous

simple rules for the optimal taxation of international capital income in this paper we reconcile and extend previous results on the collectively optimal taxation of international investment income the weighted average rule of horst 1980 for example is shown to rest on unattractive assumptions on the set of instruments available ruling out any need for distorting taxes the principal contribution is to establish a new and strikingly simple weighted average rule encompassing the other key result in this area for the general case in which lump sum taxes are unavailable the ability to tax pure profits is perhaps restricted and distorting taxes on both domestic and border crossing capital income are optimally deployed

corporate tax systems multinational enterprises and economic integration abstract multinational firms are known to shift profits and countries are known to compete over shifty profits two major principles for corporate taxation are separate accounting sa and formula apportionment fa these two principles have very different qualities when it comes to preventing profit shifting and preserving national tax autonomy most oecd countries use sa in this paper we show that a reduction in trade barriers lowers equilibrium corporate taxes under sa but leads to higher taxes under fa from a welfare point of view the choice of tax principle is shown to depend on the degree of economic integration

the taxing task of taxing transnationals financial and real investment flexibility tax competition and superior economic information by transnationals both create a rationale for corporate income taxation and limit the effectiveness of such taxation while these factors have led to a variety of transnational tax policies such as deferral double taxation apportionment and trade rules very few of these institutional features have been integrated into tax competition and agency models in this paper i show how the integration of investment flexibility tax competition and agency issues is crucial to our understanding of corporate tax policies

gradualism in tax treaties with irreversible foreign direct investment bilateral international tax treaties govern the host country taxation for the vast majority of the world s foreign direct investment fdi of particular interest is the fact that the tax rates used under these treaties are gradually falling although the treaties themselves do not specify any such reductions since there is no outside governing agency to redress treaty violations such reductions must be both mutually beneficial and self enforcing furthermore the optimal tax rates must be less than those initially set otherwise no reductions would be necessary to explain such behavior we model a two country setting with two way capital flows in particular only part of fdi is immediately reversible as the extent of irreversibility increases the likelihood of pareto optimal tax rates obtaining as a self enforcing outcome in the initial period is reduced more modest tax reductions from the non treaty levels are still possible these limited tax reductions generate an increase in bilateral fdi as countries increase the stock of capital in one another further reductions in taxes become self enforcing depending on the extent of irreversibility and asymmetry pareto optimal tax rates may be obtainable in the long run thus the amount of inbound investment a country can attract may be related to the commitment to which its outbound investment binds it this final insight provides an additional rationale for the observed pattern of capital flows in which those countries with the greatest outbound capital flows are also those with the highest inbound flows

cross border tax effects on affiliate investment evidence from european multinationals recent studies suggest that multinational firm activities at home and abroad are positively correlated which may be due to the use of common inputs like marketing patents etc then a cost shock at one location may lead to reduced activity in all other locations within the firm in this paper we theoretically and empirically analyze national corporate tax policy in such a setting our main hypothesis is that corporate taxation at the parent location not only reduces the parent s capital stock but also lowers capital stocks at affiliates abroad using micro data on european multinational firms we confirm the hypothesis showing that a 10 percentage point increase in corporate tax rates is associated with a 5 6 decrease in the affiliate s capital stock from a welfare point of view this cross border tax effect on the capital stock gives rise to a negative fiscal externality of corporate taxation which is empirically shown to compensate a substantial fraction of the well known positive externality due to profit shifting

evading auditing and taxing the equity compliance tradeoff tax evasion and auditing are analyzed in a model of linear income taxation taxpayers minimize expected tax payments including penalty for underreporting while the tax administration sets its audit policy to maximize expected net revenue under the restriction of only two audit rates per class of taxpayers given the reaction of taxpayers and tax administration we derive the optimal income tax that the government should adopt to maximize social welfare there are several classes of taxpayers each characterized by a given distribution of pretax income and specific audit policy parameters

shifting mne taxation from national to global profits a radical reform long overdue the current separate accounting taxation of corporations gives governments the right to tax the national incomes of firms operating within their borders however multinational and increasingly digital business models beg the question what is national taxable income we argue that a radical rethink of the corporate taxation moving away from a separate taxation of national corporate income to a taxation of global corporate income allocated via formula apportionment is long overdue global corporate income as a basis for taxation is supported both by recent theoretical developments and corroborating empirical evidence with the eu and emerging economies including china already considering its adoption nor is it new as we relate formula apportionment of global corporate income was used a century ago before commercial and political interests promoted separate accounting thereby providing both precedent and experience to inform its re adoption

the marginal cost of public funds hours of work versus labor force participation this paper extends the theory and measurement of the marginal cost of public funds mcf to account for labor force participation responses our work is motivated by the emerging consensus in the empirical literature that extensive participation responses are more important than intensive hours of work responses in the modelling of extensive responses we argue that it is crucial to account for the presence of non convexities created by fixed work costs in a non convex framework tax and transfer reforms give rise to discrete participation responses generating first order effects on government revenue these revenue effects make the marginal cost of funds higher and we show numerically that the implications for mcf tend to be substantial

a comparative institutional analysis of agreements on product standards abstract the wto and the eu have chosen two different agreements on product standards while the wto s approach is primarily based on a national treatment nt principle the eu s approach crucially relies on a principle of mutual recognition mr this paper offers a first look at the comparative performance of these two principles we show that standards are imposed for levels of externalities that are too low under nt and too high under mr this suggests that nt should be preferred to mr when the amount of trade in goods characterized by high levels of externalities is large

the choice of apportionment factors under formula apportionment thispaperinvestigatesthechoiceofapportionmentfactorsunderacorporatetaxsystemofformulaapportionment in contrast to perceived wisdom we show that the apportionment formula contains both mobile capital and immobile labor factors regardless of whether the formula is determined decentrally by jurisdictions or centrally by a central planner the central planner uses the formula as a corrective instrument to internalize fiscal externalities we calibrate the model to the european union and show that replacing the current system of separate accounting by formula apportionment would substantially increase tax revenue and welfare under both centralized and decentralized formula choices

coveting thy neighbor s manufacturing the dilemma of state income apportionment abstract this paper investigates the economic impact of the apportionment formulae used to divide corporate income taxes among the states most apportionment formulae by including payroll turn the state corporate income tax at least partially into a payroll tax using panel data from 1978 1994 the results show that this distortion has an important effect on state level employment for the average state reducing the payroll weight from one third to one quarter increases manufacturing employment around 1 1 concentrated in durable goods manufacturing and with larger effects in the long run the results also suggest that apportionment changes have important negative externalities on other states on average the aggregate effects of apportionment formula changes are close to zero

trade gaps analytical gaps regime analysis and international commodity trade regulation studies of international regimes have sought to describe international collaborative arrangements in more systematic terms than in the past and to analyze their development in terms of major schools of international relations theory this article refines the commonly used definition of regimes and elucidates the major hypotheses of one theoretical school structural realism the strength and nature of the international commodity trade regime are systematically described and their development is analyzed in terms of the major hypotheses of structural realism in large part these hypotheses are supported by the analysis of what is a relatively weak international regime

national treatment in the gatt the national treatment nt clause is the first line defense in the gatt and in most other trade agreements against opportunistic exploitation of the inevitable incompleteness of the agreement this paper examines the role of nt as it applies to internal taxation under the gatt it is shown that despite severely restricting the freedom to set internal taxes nt may improve government welfare but it will not completely solve the incomplete contract problem it is meant to remedy furthermore it requires a high degree of economic sophistication on behalf of trade negotiators in order for this beneficial effect to materialize

company tax reform with a water s edge this paper analyzes the effects of switching from a corporate tax system based on separate accounting sa towards a system in which two countries form a formula apportionment fa union while a third country sticks to sa water s edge our analysis draws a positive picture on the water s edge regulation in the short run for given tax rates the transition from sa to fa is likely to reduce profit shifting from the fa union to non fa tax havens in a long run tax competition analysis we find a negative water s edge externality under fa that tends to be less detrimental than the profit shifting externality under sa and may offset other externalities under fa

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

the european commission s proposal for a common consolidated corporate tax base the european commission is currently preparing a proposal for a directive on the introduction of a common consolidated corporate tax base ccctb this paper reviews the current state of the european commission s preparation of the ccctb proposal and discusses the implications for efficiency and fairness of the tax system the analysis concludes that more evidence of significant economic benefits from introducing a ccctb would be required to generate widespread support for the project

allowing firms to choose between separate accounting and formula apportionment taxation this paper analyzes the effect on firm behavior and national tax revenues of allowing multinational firms to choose to be taxed under separate accounting rules or an apportionment formula separate accounting always generates more profitable output and conditional labor demand distortions from tax differentials while either method can generate a more profitable income shifting distortion both low cost and high cost firms can prefer separate accounting while medium cost firms prefer formula apportionment with symmetric countries a firm s preferred method generates greater tax revenues in the country with the lower tax rate with asymmetric countries a firm s preferred method need no longer generate greater tax revenues in the lower tax rate country due to the fact that countries and firms now value tax base distortions differently with this misalignment of preferences some firms can choose the preferred method of both countries at fixed tax rates

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

formula apportionment vs separate accounting a private information perspective abstract in 2002 the european commission recommended that member countries use formula apportionment procedures to tax multinational companies this departure from the standard separate accounting transfer pricing approach is an attempt to reduce the costs and distortions associated with auditing transfer prices unfortunately apportionment formulas create their own economic distortions and contrary to popular belief they do not eliminate distortions due to asymmetric information between the multinational and the national tax authorities in this paper i explicitly model the role of private information in two tax competition games one in which tax liabilities are calculated under formula apportionment and one in which tax liabilities are calculated under separate accounting and transfer prices are audited switching to a formula apportionment system affects the after tax profit of multinationals and the tax revenues paid by both domestic and foreign firms the direction and magnitude of the changes depend on the accuracy of the auditing technology and non monotonically on multinational costs the switch will have different effects on the tax receipts from domestic and foreign firms

tax evasion fiscal competition and economic integration abstract this paper examines the implications of tax evasion for fiscal competition and tax harmonization policies in an economic union first for symmetric countries it proves that the equilibrium values of the tax and audit rates are less than optimal tax harmonization alone will also lead to a less than optimal audit rate second for asymmetric countries the paper shows that integration may turn an honest country into an evading one it argues that tax harmonization alone may be a bad policy in that it can make both countries worse off it may also cause an otherwise honest country to turn to evasion

coordination in heterogeneous federal systems abstract we compare centralized and decentralized policy making in a federation in which policy heterogeneity is inherently costly and preferences vary across jurisdictions all jurisdictions agree that some harmonization is desirable but no one agrees on the direction of harmonization this type of collective choice problem arises when members of a federal system have to coordinate nonbudgetary policies such as laws regulations standards or diplomatic policies contrary to the common wisdom decentralization becomes optimal when coordination becomes very important when coordination costs are symmetric decentralization dominates centralization irrespective of the magnitude of externalities and the heterogeneity of preferences in the case of discontinuous network effects standardization never pareto dominates decentralization

exploring the role delaware plays as a domestic tax haven abstract we examine whether delaware is a domestic tax haven we find that taxes play an economically important role in determining whether u s firms locate subsidiaries in delaware and that a delaware based state tax avoidance strategy lowers state effective tax rates by between 0 7 and 1 1 percentage points on average the tax savings represent a 15 24 decrease in the state income tax burden and translate to an increase in net income of 1 04 1 47 however we find that the tax benefits of delaware tax strategies are diminishing over time in response to initiatives by state governments to limit multistate tax avoidance

domestic policies national sovereignty and international economic institutions to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world this question is at the center of the debate over the future role of the wto formerly gatt in the realm of labor and environmental standards in this paper we establish that the market access focus of current wto rules is well equipped to handle the problems associated with choices over labor and environmental standards in principle with relatively modest changes that grant governments more sovereignty not less these rules can deliver globally efe cient outcomes i introduction to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world at a broad level this question probes the limits of any international economic institution whether geared toward real or e nancial concerns that is designed to promote global efe ciency while respecting national sovereignty naturally the answer depends upon the particular problem that the institution is meant to solve in other words the answer depends upon the inefe ciency that would arise under unilateral policy choices at a more specie c level this question is at the center of the debate concerning the appropriate scope of the world trade organization wto formerly gatt recently member countries have considered ways to broaden the wto s orientation beyond conventional trade policy measures to include labor and environmental standards there are now initiatives to introduce the issue of labor standards directly onto the negotiating agenda of the wto with the purpose of creating a wto social clause the social clause would specify a set of minimum international labor standards and then permit restrictions to be placed against imports from countries not complying with these minimum standards with regard to environmental policies a wto committee on trade and environment has been established to identify the relationships between trade and environmental measures and to

regulation asymmetric information and auditing this article analyzes a model of a regulated firm that is better informed about its cost function than is the regulator by auditing at a cost however the regulator is assumed to be able to observe the realized cost of the firm if the regulator finds that the firm had misrepresented its costs at the time at which prices were set he can order a refund to consumers in the optimal policy the regulator audits when the firm reports for pricing purposes that its costs will be high and orders a refund when the auditfinds that realized costs are lower than anticipated given the original report a separation result that obtains for an important case indicates that the initial pricing decision is independent of the auditing decision the auditing decision however depends on the price that was initially set the optimal auditing strategy is characterized and the nature of the welfare gains are identified the methodology used in the analysis involves the characterization of an equilibrium of a revelation game with an ex post observable

tax revenue losses through cross border loss offset an insurmountable hurdle for formula apportionment abstract this paper analyzes the relevance of firm losses for tax revenues and welfare when switching from separate accounting to a system of tax base consolidation with formula apportionment we find that a system change unambiguously decreases tax revenues in the short run in which neither firms nor governments can adjust their behavior due to the cross border loss offset inherent in formula apportionment in the medium run in which only firms can adjust their strategies tax revenues are still lower under formula apportionment if the probability of incurring losses or the costs of profit shifting are sufficiently small however in the long run where firms and governments can adjust their behavior a switch from separate accounting to formula apportionment is beneficial under the aforementioned conditions furthermore we show that a higher weight on input shares in the apportionment formula may mitigate tax competition and thus increase tax revenues because contrary to output factors input factors provide a backstop against a shortfall of tax revenues due to loss making subsidiaries

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

is there a case for non discrimination in the international protection of intellectual property abstract we evaluate the case for non discrimination in international patent protection when trade is not subject to any frictions barriers requiring national treatment nt does not affect the rate of innovation and welfare since unfavorable discrimination suffered abroad by innovators in the absence of nt is fully offset by favorable discrimination enjoyed by them at home when trade barriers exist however such international offsetting in patent protection is incomplete and innovation incentives are actually lower under nt by lumping domestic and foreign patent protection together nt blunts the overall effectiveness of patent protection in incentivizing innovation in the presence of trade barriers

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

income misattribution under formula apportionment abstract alternatives to the current system of separate tax accounting such as the proposed common consolidated corporate tax base in europe would apportion a firm s worldwide profits using formulas based on the location of employment capital or sales this paper offers a new method of evaluating the accuracy of these apportionment rules and the ownership distortions they create evidence from european company accounts indicates that apportionment formulas significantly misattribute income since employment and other factors on which they are based do a very poor job of explaining a firm s profits for example the magnitude of property employment and sales explains less than 22 of the variation in profits between firms and the prediction estimates from using such a formula exceed half of predicted profits 64 of the time and exceed twice predicted income 11 of the time as a result the use of formulas rewards or punishes international mergers and divestitures by reallocating taxable income between operations in jurisdictions with differing tax rates the associated ownership distortion is minimized by choosing factor weights to minimize weighted squared prediction errors for which based on the european evidence labor inputs should play little if any role in allocation formulas but even a distortion minimizing formula creates large incentives for inefficient ownership reallocation due to the enormous variation in profitability that is unexplained by formulary factors implying that significant resource allocation costs would accompany european adoption of formulary apportionment methods

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

the effect of international environmental institutions how we might learn more analysts of international politics can measure and explain the effect of international environmental institutions on the behavior of states and other actors and on the natural environment in three steps first we measure the outcome to be explained in terms of goal attainment defined as the difference over time or across cases between actor behavior or the state of the natural environment on dimensions identified by institutional goals and certain end points determined by institutional goals second we assess the effect of an institution in terms of the extent to which the existence or operation of the institution contributes ceteris paribus to variation in goal attainment we transform these two variables into a score of institutional effectiveness to indicate the degree to which institutions contribute to the resolution of the environmental problems that motivate their establishment third we analyze the relationship between institutional effectiveness and specific dimensions of institutional design such as decision making rules membership and access conditions and the compliance system

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

company taxation and tax spillovers separate accounting versus formula apportionment it is observed in the real world that taxes matter for location decisions and that multinationals shift profits by transfer pricing the us and canada use so called formula apportionment fa to tax corporate income and the eu is debating a switch from separate accounting sa to fa this paper develops a theoretical model that compares basic properties of fa to sa the focal point of the analysis is how changes in tax rates affect capital formation input choice and transfer pricing as well as on spillovers on tax revenue in other countries the analysis shows that a move from sa to fa will not eliminate such spillovers and will in cases identified in the paper actually aggravate them

corporate profit tax capital mobility and formula apportionment abstract the paper develops an analytical framework in which regional governments strategically determine the structure of the corporate profit tax system when an apportionment formula determines the proportion of the firms income subject to regional taxation the conclusions can be summarized as follows i regional governments subsidize capital through the corporate tax system ii tax rates become higher and the portion of capital costs that can be deducted from taxable income becomes smaller as the formula weighs more production shares iii the regionally provided good may be below or above the efficient level iv the extent of the distortion depends on the particular formula put into practice v regional governments strictly prefer a formula that exclusively weighs the production proportion to any other alternative

standardization policy and international trade abstract we analyze governments incentives to recognize foreign standards when there are potentially both network effects and conversion costs when government policy is limited to either recognizing all foreign standards or not recognizing any foreign standard recognition is always the outcome we then consider a setting in which countries can form standardization unions when conversion costs are relatively large two countries can increase their welfare by forming a standardization union that does not recognize the standard of the third nonmember country when network effects are significant all countries mutually recognize all standards and have no incentives to form standardization unions

why the european union should adopt formula apportionment with a sales factor using a two country tax competition model with a multinational enterprise mne this paper addresses the question of whether the european union should replace separate accounting sa in corporate income taxation by formula apportionment fa and if so which apportionment factors should be used our main result is that fa with a sales factor may mitigate or even eliminate fiscal externalities caused by the countries tax policy hence our analysis provides a microfoundation for the sales apportionment factor in an empirical calibration to the eu 15 we show that the transition from sa to fa with a sales only formula raises average tax rates by 2 and average tax revenues by 1 billion euros or 0 1 of gdp these effects result in an increase of welfare