governmental behavior in representative democracy a synthesis of the theoretical literature what is the impact of bureaucratic behaviors on tax rates what is preferable a bureaucrat or a partisan politician does a flypaper effect occur when lobby groups influence public policies this article tries to answer these questions by analyzing and comparing six different models of public choice 1 the median voter model 2 the leviathan model 3 the slack maximizing model 4 a general model of bureaucracy 5 the partisan politicians model and 6 a general model of lobbying among several results it is shown that the median voter s income and tax share almost always play a significant role in the design of the public good tax package even if the government does not explicitly try to maximize the median voter s utility the article also provides a synthesis of the positive analysis of the flypaper effect

distortionary taxes and the provision of public goods economists have long been concerned with finding an efficient level of public expenditure the classic statement of the problem was given by paul samuelson 1954 an optimal level of expenditure is where the sum of the marginal rates of substitution between the public good and a reference good equals the marginal rate of transformation between the public good and the reference good mrs mrt however samuelson s formula assumes that all of the revenue needed to finance public goods can be raised with lump sum taxes since this is not generally possible the formula must be modified to account for the distortionary effects of the tax system an appropriate modification is to multiply the cost side of the equation by a term that is commonly called the marginal cost of public funds mcf in the case of samuelson s formula where government is entirely financed with lump sum taxes the mcf would be exactly 1 0 in the traditional view of economists distortionary taxes cause the mcf to be greater than one thus raising the cost of providing public goods in this paper we discuss some cases where the mcf may be less than one we will illustrate this possibility using numerical examples for labor taxes

does competition for capital discipline governments decentralization globalization and public policy competition among countries or regions within them to attract mobile capital is often thought to discipline their governments motivating them to invest more in infrastructure reduce waste and corruption and spend less on non productive public goods the result should be convergence on business friendly policies we argue that this requires an assumption units start out very similar that is often unrealistic if units are heterogeneous in natural resources geographical location inherited human capital or infrastructure capital mobility often weakens discipline on the poorlyendowed units this may help explain disappointing results of liberalizing capital flows within russia and sub saharan africa jel f36 h73 h87

reassessment of the tiebout model abstract the tiebout model has been the reference point for the classical approach to fiscal federalism its emphasis on mobility benefit taxation and the advantages of fiscal competition have informed fiscal federalism since the seminal contributions of musgrave and oates this paper reviews the influence that the tiebout model has had on fiscal federalism and argues that while its insights remain relevant for local government it is far from compelling as a positive description of or a normative prescription for fiscal federalism at the state level some aspects of alternative approaches are presented which lead to different perspectives than tiebout inspired ones

competition in taxes and performance requirements for foreign direct investment abstract tax incentives offered to attract firms engaged in foreign direct investment are often tied to performance requirements such as domestic content restrictions or adherence to environmental standards the tax competition literature has repeatedly shown that competition between municipalities for mobile firms tends to drive taxes to low levels one would expect a comparable result for burdensome performance requirements despite this the evidence suggests that while taxes have indeed been driven down performance requirements are as popular as ever we explain this seeming conundrum by showing that in the presence of spillovers binding performance requirements can act as a coordination device for firms in equilibrium municipalities choose performance requirements which maximize joint surplus from investment competition between municipalities then transfers this surplus to firms via tax subsidies

the value added tax its causes and consequences almost unknown in 1960 the value added tax vat is now found in more than 130 countries raises around 20 percent of the world s tax revenue and has been the centerpiece of tax reform in many developing countries this paper explores the causes and consequences of the remarkable rise of the vat a key question is whether it has indeed proved as its proponents claim an especially effective form of taxation to address this it is first shown that a tax innovation such as the introduction of a vat reduces the marginal cost of public funds if and only if it also leads an optimizing government to increase the tax ratio this observation leads to the estimation on a panel of 143 countries for 25 years of a system of equations describing both the probability of vat adoption and the revenue impact of the vat the results point to a rich set of determinants of vat adoption this being more likely for example if a country has a program with the imf and the less open it is to international trade in the revenue equation the presence of a vat does indeed have a significant impact but also a complex one with a negative intercept effect counteracted by positive effects that are greater the higher are per capita income and more tentatively openness while the sign of the revenue impact of the vat is thus in general ambiguous most countries that have adopted a vat seem to have gained a more effective tax instrument in doing so though this is less apparent in subsaharan africa and most without it seem likely to gain from its adoption

designing economic instruments for the environment in a decentralized fiscal system designing economic instruments for the environment when external effects are important markets will be inefficient and economists have considered several broad classes of economic instruments to correct these inefficiencies however the standard economic analysis has tended to neglect important distinctions and interactions between the geographic scope of pollutants the enforcement authority of various levels of government and the fiscal responsibilities of the levels of government for example externalities generated in a particular local area may be confined to the local area or may spill over to other jurisdictions also local governments may be well informed about how best to regulate or enforce pollution control within their jurisdiction but they may not consider the effects of their actions on other jurisdictions finally the existence of locally generated waste emissions affects the appropriate assignment of both expenditure and tax responsibilities among levels of government the standard analysis therefore focuses mainly upon an aggregate or national perspective it typically ignores the possibility that the externality may be created and addressed by local governments and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems this paper examines the implications of decentralization for the design of corrective policies that is how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services as well as to choose tax instruments that can both finance these expenditures and correct the market failures of externalities

foreign direct investment intra firm trade and ownership structure abstract asymmetric information about true opportunity cost in trade between a multinational and its foreign affiliate can alleviate the hold up problem in foreign direct investment selling shares in the affiliate to locals is also beneficial because it increases the parent multinational s information rent that is protected from a host government s confiscatory taxation

speculative trading in mean reverting markets mean reversion is a feature largely recognized for the price processes of many financial securities and especially commodities in the literature there are examples where some simple speculative strategies before transaction costs were devised to earn excess returns from such price processes actually the gain opportunities of mean reversion must be corrected to account for transaction costs which may represent a major issue in this work we try to determine sufficient conditions for the parameters of a mean reverting price process as a function of transaction costs to allow a speculative trader to have positive expectations when deciding to take a position we estimate the mean reverting parameters for some commodities and correct them for transaction costs to assess whether the potential inefficiency is actually relevant for speculative purposes

does tax competition tame the leviathan abstract we study the impact of tax competition on equilibrium taxes and welfare focusing on the jurisdictional fragmentation of federations in a representative agent model of fiscal federalism fragmentation among jurisdictions with benevolent tax setting authorities unambiguously reduces welfare if however tax setting authorities pursue revenue maximization fragmentation by pushing down equilibrium tax rates may under certain conditions increase citizen welfare we exploit the highly decentralized and heterogeneous swiss fiscal system as a laboratory for the estimation of these effects while for purely direct democratic jurisdictions which we associate with relatively benevolent tax setting we find that tax rates increase in fragmentation fragmentation has a moderating effect on the tax rates of jurisdictions with some degree of delegated government our results thereby support the view that tax competition can be second best welfare improving by constraining the scope for public sector revenue maximization

tiebout with politics capital tax competition and constitutional choices this paper examines how capital tax competition affects jurisdiction formation we describe a non cooperative locational model of public goods provision choices where the levels of taxation and the local public good varieties provided within jurisdictions are selected by majority voting and where equilibrium jurisdictions consist of consumers with similar tastes we show that interjurisdictional tax competition results in an enlargement of jurisdictional boundaries and even in the absence of intrajurisdictional transfers can raise welfare for all members of a jurisdiction

an ols approach to computing ramsey equilibria in medium scale macroeconomic models abstract this note describes a general procedure for solving for the steady state and the dynamics implied by the ramsey equilibrium of medium scale macroeconomic models the procedure yields an exact numerical solution for the steady state and second order accurate dynamics it introduces a novel projection based approach to calculating exact solutions to the steady state of ramsey equilibria

a political economy theory of partial decentralization we revisit the classic problem of tax competition in the context of federal nations and derive a positive theory of partial decentralization a capital poor median voter chooses to use redistributive capital taxes to provide public goods the expectation of high capital taxes however results in a small capital stock which lowers returns to redistribution the median voter therefore wants to commit to a lower level of capital taxes she does so by setting a partial degree of decentralization in the constitution the equilibrium degree of decentralization balances the positive effect of tax competition on capital taxes with the loss in redistribution that results we show that the degree of decentralization is nonmonotonic in inequality increasing in the redistributive efficiency of public good provision and decreasing in capital productivity when public goods are heterogeneous in their capacity to transfer funds all voters agree that goods with high redistributive capacity should be decentralized

new keynesian phillips curve with bertrand competition and endogenous entry abstract we derive a new keynesian phillips curve under calvo staggered pricing and endogenous market structures with bertrand competition both strategic interactions and endogenous business creation strengthen the nominal rigidities price adjusters change their prices less when there are more direct competitors that do not adjust which reduces the slope of the phillips curve current and future firms entering in the markets decrease current inflation because they reduce markups and the welfare based price index endogenous entry amplifies the impact of both monetary and supply shocks we also characterize the optimal social planner allocation that can be replicated with a labor subsidy and a dividend tax both decreasing in the number of firms and zero producer price inflation the optimal ramsey allocation implies zero inflation tax in steady state

tax competition and income redistribution an empirical analysis for switzerland tax competition is supposed to lead to thecollapse of the welfare state because first it willbecome difficult for a single jurisdiction to levy aredistribution tax upon the rich and mobile andsecond such a policy if undertaken in onejurisdiction will attract poor individuals from otherjurisdictions and erode internal redistributionpolicies in this paper the impact of personal incometaxes and transfers on residence decisions oftaxpayers is analyzed with swiss subfederal data therelationship of tax competition and the erosion of theswiss welfare state is tested with aggregate data onincome redistribution

leviathan and competition among jurisdictions the case of benefit taxation abstract this paper shows that interjurisdictional competition for mobile factors of production forces the government to raise the efficiency of the public sector and thus helps to tame leviathan governments however this result is derived under some restrictive assumptions concerning the kind of tax policy used by the government in the case of benefit taxes e g user charges a leviathan may be tamed by interjurisdictional competition whereas this is not necessarily true in the case of lum sum taxes

tax evasion and public expenditures on tax revenue services in an endogenous growth model abstract this paper analyzes the relationship between tax evasion and the two main policy instruments affecting tax compliance namely the announced tax rate and the share of tax revenues allocated to tax monitoring mechanisms for doing so we adopt a simple one sector endogenous growth model modified under tax evasion following the roubini and sala i martin 1995 analysis on income taxes and tax compliance our model confirms barro s 1990 theoretical finding stating that the optimal tax rate is equal to the elasticity of public capital however introducing a welfare function where governments care also about the degree of fiscal corruption in the economy the effective tax rate is lower than the output elasticity of public capital in line with futagami et al 1993 and turnovsky 1997 theoretical results finally our model is calibrated using data on tax evasion from 35 oecd and 110 non oecd countries for 2011 simulation results suggest that both tax evasion and output growth are decreasing with the share of tax revenues allocated to monitoring expenses while government s utility maximization imply an announced tax rate lower from the elasticity of public capital for both groups of countries

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

laffer paradox leviathan and political contest this paper considers a political contest model wherein self interested politicians seek rents from the public budget while general voters make political efforts to protest against politicians rent seeking directly for example through voting in referendums such as the passage of proposition 13 or indirectly for example through donating money to organized groups such as the national taxpayer union we show that the political contest may ironically lead to the laffer paradox that is rent seeking politicians may intend to set the tax rate higher than the revenue maximizing rate for taming leviathans political protests may not be as effective as competition among governments

ghg emissions control and monetary policy this paper examines the optimal environmental and monetary policy mix in a new keynesian model embodying pollutant emissions abatement technology and environmental damage the optimal response of the economy to productivity shocks is shown to depend crucially on the instruments policy makers have available the intensity of the distortions they have to address i e imperfect competition costly price adjustment and negative environmental externality and the way they interact

capital tax competition under a common currency abstract we re examine the view that capital taxes are too low when capital is mobile across tax jurisdictions we do so by emphasising a previously neglected implication of decentralised capital tax setting when jurisdictions share a common currency namely capital taxes give rise to a vertical externality by affecting the revenues of the over arching central bank from issuing the common currency this externality may lead ceteris paribus to too high regional capital taxes and may more than offset the usual effects of tax competition in this case and contrary to conventional wisdom decentralised capital taxes will be too high

interjurisdictional capital mobility fiscal externality and a corrective subsidy abstract recent studies emphasize that local property taxation may result in inefficiently small amounts of local public spending this paper shows that the inefficiency can be traced to a fiscal externality when one jurisdiction increases its taxes it causes a flow of capital to other jurisdictions that increases their tax revenues the inefficiency can be corrected with a subsidy that internalizes the externality key empirical parameters determining the magnitude of the externality are identified illustrative calculations indicate that subsidy rates on the order of 40 might be required to achieve efficiency

nation states vs united empire effects of political competition on economic growth is political fragmentation i e nation states more favorable to economic growth than political unification i e a united empire this study develops an endogenous growth model to analyze the growth effects of fragmentation versus unification under unification the economy is vulnerable to excessive leviathan taxation and possibly subject to the costs of unifying heterogeneous populations under fragmentation the competing rulers are constrained in taxation but spend excessively on military defense if capital mobility is above below a threshold then fragmentation unification would favor growth and this threshold is increasing in the degree of defense competition and decreasing in the costs of heterogeneity

does tax competition really promote growth abstract this paper considers the relationship between tax competition and growth in an endogenous growth model where there are stochastic shocks to productivity and capital taxes fund a public good which may be for final consumption or an infrastructure input absent stochastic shocks decentralized tax setting two or more jurisdictions maximizes the rate of growth as the constant returns to scale present with endogenous growth implies extreme tax competition stochastic shocks imply that households face a portfolio choice problem which dampens down tax competition and may raise taxes above the centralized level growth can be lower with decentralization our results also predict a negative relationship between output volatility and growth with decentralization

on the marginal welfare cost of taxation this paper develops a rigorous partial equilibrium analysis of the determinants of margin al welfare cost mwc of taxes on labor earnings it shows that four key parameters interact to determine the magnitude of mwc using aggregate data and plausible ranges of values for the parameters mwc can vary from under 10 percent to more than 300 percent of marginal tax revenue intermediate parameter values sugge st mwc is in the 25 50 percent range however the more extreme estimates cannot be ruled out on the basis of available evidence suggesting that mwc cannot yet be copyright 1987 by american economic association

interaction between federal taxation and horizontal tax competition theory and evidence from canada the aim of this paper is to determine to what extent and how federal taxes affect local tax decisions testing the impact of an increase in the federal tax on horizontal tax competition with canada us data for 1984 1994 it finds evidence that an increase in federal tax makes horizontal tax reactions weaker this is because an increase in federal tax raises the cost in terms of utility of income of a unit increase in the province s tax rate on the methodological side it is possible to estimate the impact of the federal tax on the fiscal policy of the province without neglecting control for year effects which cannot be used in the empirical literature because they are perfectly collinear with the federal tax

fiscal decentralization in rentier regions evidence from russia summary the paper argues that governments in regions that rely heavily on intergovernmental transfers and natural resource rents face serious distortions in their incentive structure as a result such regions tend to have more fiscally centralized governments than the regional characteristics would suggest data on russian regions in the late 1990s early 2000s support this hypothesis advancing intraregional fiscal decentralization in rentier regions could reduce policy distortions and make the subnational environment more supportive of economic development

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

policy cooperation among benevolent governments may be undesirable this paper presents a simple counterexample to the belief that policy cooperation among benevolent governments is desirable it also explains circumstances under which such counterexamples are possible and relates them to the literature on time inconsistency since the work of hamada 1976 investigating the effects of increasing policy cooperation among countries has been a major topic in international economics a standard conclusion of this work is that increasing policy cooperation among countries is desirable in a seminal paper rogoff 1985 has challenged this view using a simple monetary model rogoff shows that cooperation among policy makers can lead to a lower level of welfare than noncooperation does rogoff s result has caused much consternation among those who advocate policy cooperation and his work has been criticized along several dimensions for example some authors including canzoneri and henderson 1988 have noted that a key assumption in rogoff s model is that the objective function of each country s policy maker does not coincide with the objective function of its residents indeed if in his model policy makers maximize the welfare of their country s residents the counterexample is overturned and cooperation strictly dominates noncooperation this feature leads some to interpret rogoff s result as simply saying that if policy makers form a coalition against the private sector they may be worse off than if they do not others such as neck and dockner 1988 have claimed that rogoff s result depends on private agents acting strategically under this interpretation rogoff s result is relevant to say economies with a large trade union but not to economies with a large number of competitive private agents in a somewhat different vein persson 1988 and especially devereux 1986a b have questioned the significance of welfare comparisons across different institutional regimes in a model without a solid foundation for the behavioural relationships this paper presents a simple model in which governments are benevolent but cooperation is still undesirable the model is a two country version of fischer s 1980 optimal tax model in it private agents are competitive in that each agent takes both prices and government policies as uninfluenced by his actions and each government maximizes the welfare of its country s residents in the paper the two different regimes cooperative and noncooperative

tax competition and tax coordination in a median voter model this paper analyzes the welfare effects of capital tax coordination in a simple model of fiscal competition where fiscal policy is subject to majority voting and households differ with respect to their labor and capital income it turns out that a coordinated capital tax increase may raise or reduce welfare depending on the relative magnitude of i economic distortions induced by a labor tax and ii political distortions resulting from the influence of the median voter on fiscal policy decisions a negative welfare effect is more likely the smaller the marginal excess burden of the labor tax and the smaller the ratio of the median voter s labor income to average labor income we also use empirical estimates of the marginal excess burden of taxation to determine the welfare effects of tax coordination it turns out that a negative welfare effect of coordinated tax increases may emerge in our model for empirically reasonable parameters

pairs trading performance of a relative value arbitrage rule we test a wall street investment strategy pairs trading with daily data over 1962 2002 stocks are matched into pairs with minimum distance between normalized historical prices a simple trading rule yields average annualized excess returns of up to 11 for self financing portfolios of pairs the profits typically exceed conservative transaction cost estimates bootstrap results suggest that the pairs effect differs from previously documented reversal profits robustness of the excess returns indicates that pairs trading profits from temporary mispricing of close substitutes we link the profitability to the presence of a common factor in the returns different from conventional risk measures wall street has long been interested in quantitative methods of speculation one popular short term speculation strategy is known as pairs trading the strategy has at least a 20 year history on wall street and is among the proprietary statistical arbitrage tools currently used by hedge funds as well as investment banks the concept of pairs trading is disarmingly simple find two stocks whose prices have moved together historically when the spread between them widens short the winner and buy the loser if history repeats itself prices will converge and the arbi

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

the political economy of tax coordination as a bargaining game between bureaucrats and politicians in the public finance literature the view prevails that taxcompetition among countries gives rise to an underprovision ofpublic goods and that coordinated tax increases are thereforedesirable public choice arguments in contrast suggest thattax coordination may not be in the interest of thetaxpayers citizens because imperfections of the politicalprocess political distortions may lead to a waste of taxmoney according to this view tax competition is a desirablecheck on the power to tax whereas tax coordination would onlyrelax the budget constraint of an inefficient public sector the present paper integrates the underprovision argument andthe public choice view into a common theoretical framework the government is assumed to consist of politicians andbureaucrats with diverging interests fiscal policy ismodelled as the outcome of a bargaining game between thebureaucrats and the politicians it turns out that coordinatedtax increases always raise the provision of public goods butalso increase the cost of political distortions the effect onthe welfare of the representative citizen may be positive ofnegative depending in particular on the distribution ofbargaining power between bureaucrats and politicians

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

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

the structure of interdependence in international stock markets abstract this study investigates the dynamic structure of nine major stock markets using an error correction model and directed acyclic graphs dag the dag representation provides a structure of causality among these markets in contemporaneous time building on this contemporaneous structure and the estimated error correction model innovation accounting techniques are applied the results show that the japanese market is among the most highly exogenous and the canadian and french markets among the least exogenous in our nine market study the us market is highly influenced by its own historical innovations but it is also influenced by market innovations from the uk switzerland hong kong france and germany the us market is the only market that has a consistently strong impact on price movements in other major stock markets in the longer run

international tax coordination regionalism versus globalism tax competition for mobile capital can undermine the attempts of governments to redistribute income from rich to poor i study whether international tax coordination can alleviate this problem using a general equilibrium model synthesizing recent contributions to the tax competition literature the model highlights the crucial distinction between global tax coordination and regional coordination with high capital mobility between the tax union and the rest of the world the welfare gain from regional capital income tax coordination is only a small fraction of the gain from global coordination even if the tax union is large relative to the world economy

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

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

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

vertical tax competition in brazil empirical evidence for icms and ipi in the period 1995 2009 abstract the main objective of this study is to quantify the impact caused by changes in federal tax on the tax policy of the brazilian states considering the presence of horizontal tax competition between states using panel data covering 26 brazilian states plus the federal district during the period 1995 2009 two models were estimated representing the average reaction of the states in response to changes in federal tax rates in the first model both levels of government act simultaneously whereas in the second model reaction is sequential with the federal government acting as the leader in defining its effective tax rates the results indicate a positive and significant response of states to increases in the federal tax rate resulting in an over taxation of the common tax base and higher tax rates additional tests show that the first model is the most suitable to represent the problem analysed

tragedy of the fiscal common fiscal stock externalities in a leviathan model of federalism the paper deals with vertical tax competition between self interested governments in a dynamic environment in a federation competition between the federal and the state governments arises when tax sources are not separated but pooled since dynamic inefficiencies will be stressed the focus is on fiscal stock externalities rather than on flow externalities the paper shows that the leviathans in a federation tax the fiscal common resource more extensively than the single leviathan in a unitary state furthermore the positive impact of political stability on public consumption of the fiscal common will be discussed

commodity tax competition between member states of a federation equilibrium and efficiency we first describe regional market equilibria whereupon consumers of each region allocate their purchases of private goods between domestic and nondomestic ones according to the structure of relative prices taxes and transportation costs next regional optimal tax levels and public good quantities are derived the tax of the other region being held constant fiscal competition arises from the ability of one region in choosing its tax to alter the tax base of the other

vertical tax externalities and the composition of public spending in a federation abstract dividing tax power between different levels of government in a federation is shown to lead not only to overtaxation but also distorts the composition of state and federal public spending

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

how large are the welfare costs of tax competition abstract competition among regional governments may lead to suboptimal levels of capital taxation as governments ignore the external benefits of capital flight to other regions however there have been few attempts to quantify the magnitude of the resulting efficiency losses this paper presents extensive calculations of the efficiency costs over a wide range of parameter scenarios and assumptions about government behavior using various generalizations of wildasin journal of urban economics 25 1989 193 213 the efficiency costs tend to be fairly moderate under most though not all scenarios and particularly when allowance is made for the possibility of leviathan and non competitive government behavior

market size and tax competition abstract with international externalities different country sizes imperfect competition and trade costs tax competition for mobile firms is efficiency enhancing with respect to the free market outcome under both scenarios the resulting inefficiencies in international specialization and trade flows vanish when trade costs are low enough otherwise only international tax coordination can implement the efficient spatial distribution of firms

the role of financial market structure and the trade elasticity for monetary policy in open economies the degree of international risk sharing matters for how monetary policy should optimally be conducted in an open economy this is because risk sharing afiects the way in which monetary policy is afiected by terms of trade considerations in a standard twocountry model with monopolistic competition and nominal rigidities i consider difierent assumptions on international flnancial markets complete markets flnancial autarky and a bond economy and a large region for the crucial parameter of the trade elasticity there are three main results one the prescription of producer price stability as the optimal policy is obtained only as a special case while in general it is optimal to deviate from a strictly zero in ation rate two while gains from international policy coordination are generally small they do become substantial when international risk sharing is poor and wealth efiects from shocks across countries are large and three when international flnancial markets are incomplete there are also sometimes considerable gains over the exible price allocation achievable

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

the welfare effects of tax competition reconsidered politicians and political institutions the views on the welfare effects of tax competition differ widely some see the fiscal externalities as the cause for underprovision of public goods while others see tax competition as the means of reducing government inefficiencies using a comparative politics approach we show that tax competition among presidential congressional democracies is typically welfare improving while harmful among parliamentary democracies if under the latter public goods are sufficiently valued the results hold when politicians seek re election because of exogenous benefits of holding office by contrast when politicians hold office only to extract rents tax competition is harmful if politicians are sufficiently patient in the debate on tax competition two extreme views dominate both in the academic literature and in the policy arena in the canonical tax competition model benevolent governments set tax rates without taking into account the effect national tax policy has on other countries tax bases as a result a fiscal externality arises that makes competition harmful in the sense that tax rates are set too low and public goods are under

accountability and decentralisation in government an incomplete contracts model this paper approaches the question of the appropriate level of decentralisation of power in government as a problem in the allocation of control rights under incomplete contracts the model of the paper compares allocations of power to local central and regional government as alternative means of motivating governments to act in the interests of citizens centralisation allows benefits from policy coordination but has costs in terms of diminished accountability which can be precisely defined as the reduced probability that the welfare of a given region can determine the re election of the government the model is extended to allow for conflicts of interest within regions and externalities between central and local governments in a federation it is also applied to determining levels of fiscal transfer between localities and to circumstances where governments may act as leviathans appropriating resources for their own use

fiscal centralization versus decentralization growth and welfare effects of spillovers leviathan taxation and capital mobility abstract this paper develops an endogenous growth model with spillovers of public goods leviathan taxation and mobile capital to examine the relative merits of centralized and decentralized fiscal systems for economic growth and social welfare we show that a decentralized system dominates a centralized system in terms of economic growth however the difference in social welfare between a decentralized and a centralized system is non monotonic and displays a hump shaped relationship with respect to capital mobility since higher capital mobility induces stronger tax competition this finding implies that there is an optimal degree of tax competition some tax competition is desirable but fierce tax competition may be harmful we also show that there is a critical level of spillovers of public goods above which centralization dominates decentralization in terms of social welfare as in previous studies however if spillovers are below this critical level capital mobility also matters in the welfare comparison between centralized and decentralized systems

labor market frictions and optimal steady state inflation in central theories of monetary non neutrality the ramsey optimal steady state inflation rate varies between the negative of the real interest rate and zero this paper explores how the interaction of nominal wage and search and matching frictions affect the policy prescription we show that adding the combination of such frictions to the canonical monetary model can generate an optimal inflation rate that is significantly positive specifically for a standard u s calibration we find a ramsey optimal inflation rate of 1 16 percent per year

delaying integration of immigrant labor for the purpose of taxation abstract delayed integration di is a rule for taxing migrants it requires that immigrants be taxed in the host country only after some period of transition conversely emigrants are released from the obligation to pay taxes only after a certain period di is an alternative to the employment principle and the home country principle the former governs the international taxation of labor the latter is a close substitute for the nationality principle on which us tax law is based the paper studies di in a setting which allows one to trade off the efficiency costs of distortionary taxation and of wasteful government

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

arbitragem estatistica estrategia long short pairs trading abordagem com cointegracao aplicada ao mercado de acoes brasileiro this article applies cointegration tests to identify stocks to be used in pairs trading strategy in addition to estimating long term equilibrium and model the resulting residual we use an indicator of profitability in in sample simulations to select stock pairs to compose a pairs trading portfolio we assessed the profitability of the strategy with data from the brazilian market between january 2005 and december 2009 considering we reached an average return of 17 49 per year sharpe ratio of 1 29 and low correlation with the market the results reinforce the use of cointegration in quantitative management statistical arbitrage circumvents the joint hypothesis dilemma of traditional market eciency tests because its definition is independent of any equilibrium model and its existence is incompatible with market eciency

human capital investment and globalization in extortionary states abstract this paper considers education investment and public education policy in closed and open economies with an extortionary government the extortionary government in a closed economy chooses an education policy in order to overcome a hold up problem of time consistent taxation similar to benevolent governments the two types of government differ in their education policies if highly productive labor is mobile extortionary governments incentives for a policy that stimulates higher private education efforts vanish instead they have incentives to prevent individuals from mobility increasing education investment tax competition therefore reduces hold up problems of time consistent extortionary taxation but introduces other distortions that reduce workers utility

how tame will leviathan become in institutional competition competition among governments in the provision of public goods this article critically examines thehypothesis of brennan and buchanan that competition amonggovernments in the provision of publicgoods can serve as a substitute forconstitutional constraints on governments since leviathan type governments withfree choice of tax instruments will be ableto escape competitive pressure by shiftingtaxes to immobile factors one could thinkof a rule of competition which prohibitstaxes on immobile factors indeed such arule leads to a nash equilibriumwhere the tax burden lies on the mobilefactor however net income of the citizensmay or may not increase as a result fromsuch a rule depending on a number ofvariables presented in this article acomplete substitution of constitutionalconstraints by the rule of competition may depending on the same variables evendecrease net income moreover somepotential for increases in net income maybe forgone since capital allocation andthe supply of public goods will usually beinefficient in equilibrium finally applying the rule in a real worldenvironment will be difficult and may evenlead to further serious inefficiencies forthese reasons such a rule will hardly everbe introduced hence competition amonggovernments cannot be viewed as a propersubstitute for constitutional constraints whoever is afraid of leviathan shouldthus not rely on competition amonggovernments alone

tacit collusion and international commodity taxation the paper employs a model of dynamic price competition to study how international commodity taxation affects the stability of collusive agreements when producers in an international duopoly agree not to export into each other s home market we consider both the choice of international tax principle and the harmonization of tax rates and differentiate between a setting where production costs differ between countries and a setting where exogenous tax rate differentials are the only asymmetry the conclusions derived from this model differ strongly from those obtained under the assumption of competitive product markets

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

distributive politics and the costs of centralization this paper studies the choice between centralization and decentralization of fiscal policy in a political economy setting with centralization regional delegates vote over agendas comprising sets of region specific projects the outcome is inefficient because the choice of projects is insufficiently sensitive to within region benefits the number of projects funded may be non monotonic in the strength of project externalities the efficiency gains from decentralization and the performance of constitutional rules such as majority voting which may be used to choose between decentralization and centralization are then discussed in this framework weaker externalities and more heterogeneity between regions need not increase the efficiency gain from decentralization

vertical tax competition and consumption externalities in a federation with lobbying abstract we consider a federation with two layers of government in which leviathan policy makers levy an excise tax on a consumption good that generates a negative externality and that is produced in an imperfectly competitive market when both layers of government are allowed to tax policy choices are affected also by vertical tax competition in this setting tax policy in general is not efficient we then examine how special interest groups may influence tax policy by lobbying the policy makers we find that depending on market structure and on the level of the externality lobbying can improve efficiency and that tax base sharing by two layers of government can be more efficient than taxation by a single layer

searching for leviathan an empirical study in several papers and a recent book geoffrey brennan and james buchanan 1977 1978 1980 have put forth a striking and controversial view of the public sector drawing by analogy on the conventional theory of monopoly in the private sector they envision a monolithic government that systematically seeks to exploit its citizenry through the maximization of the tax revenues that it extracts from the economy from this perspective they develop a fiscal constitution whose central purpose is to constrain leviathan by limiting in various ways its access to tax and other fiscal instruments while the leviathan hypothesis has been the source of lively debate and a wide range of policy proposals it has not been the subject of much systematic empirical work or testing this is a matter of some importance since the policy implications of the leviathan view are disturbing to put it mildly in particular brennan and buchanan virtually stand on their heads many of the basic theorems in public finance for an efficient and equitable tax system if in fact the leviathan view is an inaccurate depiction of the functioning of the public sector the introduction of their policy proposals is likely to make a sorry mess of the fiscal system the leviathan model does however have some straightforward implications for observable fiscal behavior it is the purpose of this paper to examine one of these testable implications brennan and buchanan stress that fiscal decentralization is itself a powerful constraint on leviathan competition among governments in the context of the interjurisdictional mobility of persons in pursuit of fiscal gains can offer partial or possibly complete substitutes for explicit fiscal constraints on the taxing power 1980 p 184 such competition among governments in a federal system that places heavy reliance on local fiscal decisions will greatly limit the capacity of leviathan to channel resources into the public sector in short as indicated by the epigraph to this paper the leviathan model implies that other things equal the size of the public sector should vary inversely with the extent of fiscal decentralization 2

tax competition rent seeking and fiscal decentralization abstract the present paper provides a basis for evaluating fiscal decentralization of expenditure and tax responsibilities by encompassing the literature on tax competition and rent seeking both tax and rent seeking competitions are conceived of as being wasteful and self defeating we find that rent seeking activities account for political distortions which may be mitigated in the process of fiscal decentralization while tax competition results in economic distortions associated with decentralization welfare evaluation should be based on the balance of the political gain and the economic cost