do r d tax credits work evidence from a panel of countries 1979 1997 this paper examines the impact of fiscal incentives on the level of r d investment an econometric model of r d investment is estimated using a new panel of data on tax changes and r d spending in nine oecd countries over a 19 year period 1979 1997 we find evidence that tax incentives are effective in increasing r d intensity this is true even after allowing for permanent country specific characteristics world macro shocks and other policy influences we estimate that a 10 fall in the cost of r d stimulates just over a 1 rise in the level of r d in the short run and just under a 10 rise in r d in the long run

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

the significance of tax law asymmetries an empirical investigation this study uses tax return data for u s nonfinancial corporations for the period 1971 1982 to estimate the importance of restrictions on the ability of firms to use tax credits and to obtain refunds for tax losses our results suggest that the incidence of such unused tax benefits increased substantially during the early 1980s though we do not find these increases attributable to increased investment incentives during that period we present estimates of the marginal tax rate on interest payments which take into account unused tax benefits and emphasize the importance of distinguishing current tax payments from marginal tax rates in estimating the incentive to invest

partisan bias and expressive voting abstract we conduct an experiment to characterize the expressive voting behavior of political partisans we find that participants who are asked to vote on the answer to factual questions tend to offer more partisan responses than those who must answer as decisive individuals we further test whether voters exploit corrective information that sometimes challenges their partisan views when information is available we observe smaller partisan gaps and more correct responses especially when the information is free when information is costly to acquire we find that voters generally choose to remain uninformed consistent with the downsian theory of rational ignorance

research and development with asymmetric firm sizes this article presents a theoretical model of research and development r d competition among firms the goal of the model is to simultaneously explain two empirical observations pertaining to the persistence of dominantfirms small firms make a disproportionate share of major innovations while largefirms tend to spend more in absolute terms on r d than smallfirms do in the model here firms choose investment levels and r d project riskiness in equilibrium a large firm invests more than a smaller firm but by choosing safer r d projects makes fewer major innovations

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

the effect of the expansion of the voting franchise on the size of government this paper examines the claim that expansion of the voting franchise has been an important factor in the growth of government state government spending and state and local spending are explained using a panel of 46 states for 1950 88 elimination of poll taxes and literacy tests led to higher turnout particularly among the poor and a poorer pivotal voter as predicted we find that these changes a fall in the income of voters relative to state income and the ouster of republicans from state government led to a sharp rise in welfare spending but no change in other spending

rational choice and turnout turning out to vote is the most common and important act of political participation in any democracy voting is also less well understood and explained empirically than other political acts engaged in regularly by citizens turnout however presents a special problem for rational choice theories of politics for it is taken to be the paradigmatic example of the problem of collective action in which although all may benefit from voting it is rarely in the individual s self interest to vote this paper begins by examining the problem of explaining turnout a basic form of rational choice models of turnout is developed basic in the sense that it is common to all such models this basic model is shown to be incomplete and the two most important models the calculus of voting and the minimax regret model are illustrated as alternative ways to complete this basic model along with mention of game theoretic models their strengths and weaknesses are then assessed the remainder of the paper argues that rational choice accounts of turnout are possible the first step is to argue that turnout is not an especially problematic version of the collective action problem because it is for many a low cost low expected benefit decision a strategic politicians account of turnout and campaigns is examined next a reinterpretation of the intrinsic benefits of voting is then considered and is used to examine the most important substantive problem in the turnout literature its decline these steps i argue make theories of ordinary political decisions at once both more political and more integrated into the politics of the larger system

to vote or not to vote the paradox of nonvoting one paradox of voting states that in a general election in which many citizens vote the probability that a single voter can affect the outcome is so small that in general citizens have no rational reason for voting however if all citizens accept this reasoning then none will vote and so each vote has a large probability of affecting the outcome hence all should vote after all the adoption of mixed strategies resolves this paradox if each citizen adopts a certain small probability of voting then the actual number of citizens voting will be just enough to make it worth those citizens while to vote a nash equilibrium point thus occurs here we compute nash equilibria for the simple case of majority voting for the more complicated case of composite voting for example as in a presidential election we draw certain qualitative inferences

corporate taxation and the size of new firms evidence from europe using a novel country industry level panel database with information on newly incorporated firms in 17 european countries between 1997 and 2004 we study how taxation of corporate income affects the size of entrants at the country industry level our results that are robust to changes in several assumptions suggest that a reduction in the effective corporate income tax rate leads to a significant reduction of the capital size of entrants and to a decrease in their capital labor ratio

a note on price and quantity competition in differentiated oligopolies abstract in this note we show that the results developed in n singh and x vives 1984 rand j econ 15 546 554 are sensitive to the duopoly assumption if there are more than two firms prices may be higher under price competition than under quantity competition this will be the case if quality differences are large and goods are complements if goods are substitutes high quality firms may earn higher profits under price competition than under quantity competition hence it is not evident which kind of competition is more efficient journal of economic literature classification numbers d43 l13

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

generalised r based and s based taxes under uncertainty this paper considers the relationship between two general neutral business tax structures which we label the firm tax and the shareholder tax the well known r based and s based cash flow taxes analysed by meade 1978 are special cases of these two taxes we demonstrate the neutrality of both taxes in the presence of uncertainty and characterise the tax rules required in the event of default and wind up our analysis provides the first proof of the neutrality of the s based cash flow tax and the allowance for corporate equity ace corporation tax under uncertainty we also discuss implementation and tax avoidance issues

commercialization of patents and external financing during the r d phase abstract using a unique database on swedish patents owned by small firms and individuals survival models estimate how different factors influence the decision to commercialize the patents such an analysis has seemingly never previously been undertaken since the owners know more about the patents than potential external financiers problems related to asymmetrical information are present to overcome these problems when inventors and small technology based firms need financing sweden has for a long time relied on government support rather than private venture capital firms the empirical results show that the larger is the share of patent owners costs covered by government financial support during the r d phase the lower is the probability of patents being commercialized this lower degree of commercialization is likely to depend on 1 the soft terms of the government loans where the patent owner can avoid paying back the loan if the patent is never commercialized and or 2 that the government is not able to select promising projects the first explanation is related to moral hazard and the second one to adverse selection the policy suggestion is for government to change the design of the loans to base them on firms rather than projects

are political statements only expressive an experiment abstract many forms of political communication are thought to be expressive rather than instrumental we present evidence suggesting the presence of a perceived instrumental benefit of individual political communication subjects may send a sometimes costly comment on another person s choice of how to donate to two rival political groups subjects who may comment before the choice is made when they may have some persuasive impact are more than twice as likely to comment as those who may only send a message after the decision when the timing of the messages pre or post decision remains fixed but the experimenter alone receives the message there is no difference in the proportion of messages sent pre and post decision moreover most of the comments made to the decision maker prior to the decision use an imperative construction while few do so after the decision is made or when writing to the experimenter alone taken together these results indicate that political expression is both expressive and instrumental

expressive voting and government redistribution testing tullock s charity of the uncharitable models of expressive voting postulate that voters will consume ideological stances on issues by voting for them even when they are against the voter s own narrow selfinterest if the probability of being a decisive voter is low when a voter is unlikely to sway the outcome the odds that avoter will incur any real personal cost a higher tax burden for example from her own expressive vote is small we testand find support for tullock s straightforward empiricalimplication of this model that government welfare transfer payments are inversely related to the probability of being thedecisive voter

the behavioural economics of climate change this paper attempts to bring some central insights from behavioural economics into the economics of climate change in particular it discusses i implications of prospect theory the equity premium puzzle and time inconsistent preferences in the choice of discount rate used in climate change cost assessments and ii the implications of various kinds of social preferences for the outcome of climate negotiations several reasons are presented for why it appears advisable to choose a substantially lower social discount rate than the average return on investments it also seems likely that taking social preferences into account increases the possibilities of obtaining international agreements compared to the standard model however there are also effects going in the opposite direction and the importance of sanctions is emphasized

foreign direct investment in a world of multiple taxes abstract governments impose multiple taxes on foreign investors though studies of the effect of tax policy on the location of foreign direct investment fdi focus almost exclusively on corporate income taxes this paper examines the impact of indirect non income taxes on fdi by american multinational firms using affiliate level data that permit the introduction of controls for parent companies and affiliate industries indirect tax burdens significantly exceed the foreign income tax obligations of foreign affiliates of american companies estimates imply that 10 higher local indirect tax rates are associated with 7 1 lower affiliate assets which is similar to the effect of 10 higher income tax rates affiliate output falls by 2 9 as indirect taxes rise by 10 while higher income taxes have more modest output effects high corporate income tax rates depress capital labor ratios and profit rates of foreign affiliates whereas high indirect tax rates do not these patterns reveal the impact of indirect taxes and suggest the mechanisms by which direct and indirect taxes affect fdi

everyone likes a winner an empirical test of the effect of electoral closeness on turnout in a context of expressive voting under instrumental voting closer elections are expected to have higher turnout under expressive voting however turnout may increase with decreasing closeness when voters have a preference for winners an empirical test using data on belgian municipal elections supports this we find that turnout reaches a local maximum when the largest party in the election obtains just over 52 of the seats and then falls supporting the instrumental closeness argument there is however another turning point the presence of a highly dominating party receiving at least two thirds of the votes stimulates turnout despite the fact that dominance implies lower closeness

rational moralists the role of fairness in democratic economic politics in this paper we empirically test for the influence of fairness considerations on the willingness to redistribute income in private and in democratic decisions in contrast to standard explanations of income redistribution our theory takes into account that prices shift decisively as we move from the sphere of private contributions to politics at the polls it is nearly costless to observe social norms therefore we expect individuals to behave more fairly in the political sphere than in the market place we present experimental evidence which is consistent with this hypothesis in distributive struggles social norms moderate the inclination of human beings to behave like gangsters

portfolio choice in research and development we analyze the effects of a winner take all patent mechanism on the riskiness of the research strategies chosen by competingfirms as well as on thefirms incentives to duplicate research projects nash equilibrium choices are compared with the social optimum in a oneshot simultaneous move game in which competitors choose the riskiness or correlation of their research performances we show that neither society nor firms have any preference for correlation per se while the divergence between social and privately optimal levels of risk depends on skewness characteristics of the probability distribution over discovery dates and on levels of risk aversion

why is the corporate tax rate lower than the personal tax rate in many oecd countries statutory corporate tax rates are lower than personal income tax rates this tax rate difference is often particularly large for small firms the present paper argues that a reduction of the corporate tax rate below the personal tax rate is an optimal tax policy if there are problems of asymmetric information between investors and firms in the capital market the reduction of the corporate tax rate below the personal tax rate encourages equity financing and thus mitigates the excessive use of debt financing induced by asymmetric information our main theoretical result stands in marked contrast to the traditional view of corporate taxation and corporate finance theory according to which there is a tax disadvantage to equity financing more recent empirical evidence on this issue however is in line with our result

an experimental study of expressive voting in this paper we report results of an initial attempt to test the theory of expressive voting our experiment involves requiring subjects to vote between receiving a in cash or having b donated to charity on their behalf across subjects we vary the probability that their vote will decide which disbursement is made as the probability of being decisive is lowered the opportunity cost of giving expression to charitable sentiment decreases hence the likelihood of voting in accordance with such sentiment is expected to increase we find weak support for the hypothesis but the results do not replicate when we alter the parameter settings limitations of our design are discussed

when votes are words not deeds some evidence from the nuclear freeze referendum according to our empirical results voting patterns in the nfr were consistent with the central thesis of an expressive model that moral expression dominates consequentialist behavior when choice is costless while consequentialist theory would predict that owners of capital would favor nuclear weapons capital owners could afford to vote contrary to their interests and in line with common morality because the costs of moral expression in the nfr were so low just as the capital ownership variables do not work in the direction predicted by our consequentialist model neither does income does this mean that wealthy voters cast votes diametrically opposed to their self interest not at all the expressive model contends that when voting is costless people do not have interests but rather moral judgments which now cost very little to express indeed when votes involve words not even individuals interests in government expenditure can be detected