do lower taxes reduce informality evidence from brazil abstract we exploit a unique large scale formalization program in brazil to estimate the effects of reducing the costs of formality on firm formalization we rely on both firm level administrative data and individual panel data to show that reducing taxes once registration costs have already been eliminated reduces firm informality this effect comes from the formalization of existing informal firms and not from the creation of new formal businesses nor greater formal firm survival the implied formalization elasticity is otherwise low and our cost benefit analysis indicates that the program led to net losses in tax revenues

tax competition between developed emerging and developing countries same same but different abstract this paper analyzes tax competition between countries which differ in their country specific risks we show that the outcome of asymmetric tax competition crucially depends on the ability of multinational firms to shift profits with high costs of profit shifting higher risk countries set lower tax rates than lower risk countries whereas the opposite is true if the costs of profit shifting are low the results provide an explanation for the patterns observed in the corporate income tax policies across countries differing in their level of development moreover for intermediate costs of profit shifting we show that countries absolute risk level plays an important role in tax rate setting these results carry important implication for the empirical tax competition literature

labor earnings dynamics in a developing economy with a large informal sector abstract we study labor earnings dynamics in a developing economy with a large informal sector we use nationally representative brazilian panel data that cover both formal and informal workers we document large disparities in earnings fluctuations faced by these segments of the labor market as well as the high frequency of transitions between them informality is associated with more volatile earnings while workers in the formal sector are subject to significant downside risk transitions between formal and informal employment bring large asymmetric earnings shocks and have a frequency that depends on age and the initial earnings level

endogenous markups and the effects of income taxation theory and evidence from oecd countries abstract existing studies on the effects of fiscal policy under imperfect competition typically treat each firm s price cost markup as fixed this paper examines the implications of endogenising the markup in a simple model of income taxation under monopolistic competition it is demonstrated that an increase in income tax reduces the number of firms lessens competition among surviving firms and raises the optimal markups in the new steady state through this channel the effects of income taxation on the key macroeconomic variables as well as on consumer welfare are unambiguously enlarged the simple model prediction is largely supported by cross section regressions with data from oecd countries

the rule 415 experiment equity markets rule 415 allows a firm to register all the securities it reasonably expects to sell over the next two years and then at the management s option to sell those securities over these two years whenever it chooses this paper examines whether equity offerings made under rule 415 shelf offerings differ in issuing costs from equity offerings not sold under this rule we find that shelf offerings cost 13 less for syndicated issues and 51 less for nonsyndicated issues we also investigate the empirical relevance of the market overhang argument which suggests that shelf registrations depress the price of the registering firm s shares more than traditional registrations our data does not support the market overhang argument the securities and exchange commission s sec rule 415 which was permanently adopted for large firms in november 1983 allows a firm to register all the securities that it reasonably expects to sell over the next two years and then sell those securities whenever it chooses this procedure is known as shelf registration investment bankers securities regulators and corporate issuers vigorously debate the effect of rule 415 on firms issuing cost for new securities some mostly investment bankers argue that rule 415 increases new issue costs while others mostly issuers argue that rule 415 decreases new issue costs in addition many investment bankers argue that placing common stock on the shelf depresses the price of a firm s outstanding shares of stock most issuers

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

coming out of the shadows estimating the impact of bureaucracy simplification and tax cut on formality in brazilian microenterprises abstract this paper evaluates the impact of a program of bureaucracy simplification and tax reduction on formality among brazilian microenterprises the simples program we document an increase of 13 percentage points in formal licensing among retail firms created after the program when compared to firms in ineligible sectors the impact on retailers is robust to a series of tests we find no impact on construction transportation services and manufacturing sectors

informality and development in developing countries informal firms account for up to half of economic activity they provide livelihood for billions of people yet their role in economic development remains controversial some like hernando de soto 1989 2000 see informal firms as an untapped reservoir of entrepreneurial energy held back by government regulations in this view unleashing this energy by reducing entry regulations or improving property rights would fuel growth and development others like levy 2008 take a more cynical view stressing the advantages enjoyed by informal firms and workers from avoiding taxes and regulations a report from the mckinsey global institute describes informal firms as parasites competing unfairly with law abiding formal firms farrell 2004 in this view informality should be suppressed not unleashed still others follow the development tradition of lewis 1954 harris and todaro 1970 and more recently rauch 1991 and see informality as a byproduct of poverty from this dual perspective formal and informal firms are fundamentally different productive formal entrepreneurs pay taxes and bear the cost of government regulation to reach new customers raise capital and access public goods these entrepreneurs are often educated and find it more profitable to run bigger formal firms rather than the smaller informal ones in contrast informal entrepreneurs are typically uneducated and unproductive and they run small businesses producing low quality products for low income customers using little capital and

the effect of capital structure on a firm s liquidation decision abstract a firm s liquidation can impose costs on its customers workers and suppliers an agency relationship between these individuals and the firm exists in that the liquidation decision controlled by the firm as the agent affects other individuals the customers workers and suppliers as principals the analysis in this paper suggests that capital structure can control the incentive conflict problem of this relationship by serving as a pre positioning or bonding mechanism appropriate selection of capital structure assures that incentives are aligned so that the firm implements the ex ante value maximizing liquidation policy

monopolistic competition as a foundation for keynesian macroeconomic models a general equilibrium macroeconomic model based on monopolistic competition is presented the model exhibits a traditional multiplier in the short run but due to free entry the multiplier disappears in the long run by construction all agents are fully rational the keynesian results are a consequence of the assumption of monopolistic competition which creates a divergence between optimal private behavior and optimal social behavior

can imperfect competition explain the difference between primal and dual productivity measures estimates for u s manufacturing it is well known that under the assumptions of constant returns to scale perfect competition and the absence of factor hoarding primal and dual productivity measures should be highly correlated the apparent lack of correlation is usually attributed to fixed factors of production in this paper i propose an alternative explanation by relaxing the assumption of perfect competition by controlling for the presence of a markup component i demonstrate that both productivity measures are in fact highly correlated for u s manufacturing the analysis also provides an alternative method of estimating a markup of prices over marginal cost that avoids certain difficulties inherent in some existing methods of estimation

informality over the life cycle abstract in developing countries informality is mainly concentrated among younger and older workers and low skilled workers in this study we propose a dual labor market theory that highlights how frictions and taxation in the formal sector and educational choices interact to shape the informality rate over the life cycle we develop a life cycle model with search frictions skill heterogeneities and endogenous educational choices we carry out a numerical analysis and show that our model reproduces remarkably well the life cycle patterns of informality non employment and formal employment in argentina we analyze several public policies and show that an educational grant reduces both informality and non employment and may be fully financed by the extra tax revenues generated by the increase in formal employment and wages lowering taxes may achieve similar results but is detrimental to the government budget despite increasing the base on which they are levied

empirical research on accounting choice abstract we review research from the 1990s that examines the determinants and consequences of accounting choice structuring our analysis around the three types of market imperfections that influence managers choices agency costs information asymmetries and externalities affecting non contracting parties we conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge we discuss opportunities for future research recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters

does entry regulation hinder job creation evidence from the french retail industry are product market and entry regulation key sources of low employment growth in many european countries we investigate this question in the context of the french retail trade industry since 1974 approval by regional zoning boards has been required for the creation or extension of any large retain store in france we exploit a unique database that provides time and region specific variation in boards approval decisions we show that stronger deterrence of entry by the boards increased retailer concentration and slowed down employment growth in france

corporate compliance with debt covenants in this paper i present and test a model of corporate compliance with the debt covenant requiring payment of a current obligation this study adds to the empirical literature on forecasting financial distress by showing conditions under which debt default may be a rational economic decision by the firm s shareholders this analysis departs from empirical financial distress studies which are often not linked to an underlying economic theory the focus on covenant default also extends the literature which has modeled bankruptcy bulow and shoven 1978 and liquidation decisions titman 1984 but which has not considered a common first symptom of financial distress covenant default briefly the model examines the costs that influence shareholders decision to comply with or violate a particular debt covenant payment of a current obligation these costs include those associated with bondholders reaction to possible default the model predicts that shareholders will default when holding other factors constant i interest rates have declined relative to coupon rates stated in the debt issue ii the probability of paying future obligations is high and iii the cost of obtaining funds to pay the obligation is high the model also predicts when stockholders and bondholders will renegotiate the debt contract and the amount of wealth transferred in the renegotiation finally the

the equilibrium approach to fiscal policy this paper lays out a simple model for the purpose of bringing together the various strands of the analysis of fiscal policy in an optimizing competitive equilibrium model the discussion centers on the critic al assumptions lying behind the ricardian equivalence proposition th e role of the time profile and composition of public expenditure and the timing of distortional taxation copyright 1988 by ohio state university press

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

the default rate experience on high yield corporate debt recent 1978 83 net returns on high yield low rated debt have been impressive averaging 490 to 580 basis points above the long term government bond index but low rated junk bonds pose a risk of default not present in the higher rated segment of the bond market the authors divided the par value of defaulting debt by total low rated straight debt outstanding to arrive at an estimate of the default rate for high yield bonds excluding johns manville which had the only defaulting debt rated investment grade just prior to the default date for the 1974 84 period this averaged 1 52 per cent or 152 basis points annually year to year variations in the rate were substantial furthermore default experience differed across various industry segments railroads and reits were particularly vulnerable to default in the past although they are unlikely to represent a large portion of future defaults retailer electronic computer airline and oil and gas defaults have become more common in recent years losses from default are actually lower than the default rate alone implies defaulted bonds traded on average at 41 per cent of par shortly after default after accounting for the bonds retained value and the loss of interest the average reduction in return to the investor who had purchased the bonds at par would have been in the range of 96 to 100 basis points annually

dynamic analysis of an endogenous growth model with public capital this paper develops an endogenous growth model with productive public capital along with private capital in a spirit similar to that of r j barro 1990 since the authors model includes two stock variables it has transitional dynamics unlike most of the previous studies on endogenous growth including barro s where concerns are restricted to the steady state analysis first they show that the transitional path is unique and stable second the character of the transitional path is explored third the authors show that the optimal tax rate is smaller than the rate that maximizes the national growth rate with a log linear utility function copyright 1993 by the editors of the scandinavian journal of economics

imperfect competition and the fiscal multiplier the impact of fiscal policy in an economy with a monopolistic output market but a perfectly competitive labor market is examined both in the short run with a fixed number of firms and in the long run with free entry the main innovation of the paper is the generality of the assumptions about preferences and technology which enable the authors to examine the robustness of the relationship between the degree of monopoly and the fiscal multiplier found by r startz 1989 n g mankiw 1988 and h d dixon 1987 the specific results of these papers are found to rest on two assumptions constant returns and cobb douglas preferences copyright 1996 by the editors of the scandinavian journal of economics

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

the missing missing middle the notion that the distribution of firm size in poor countries is characterized by a bimodal distribution with a missing middle is a widely accepted fact in development economics for example see krueger 2013 the idea of the missing middle is that there are a large number of small firms some large firms but very few medium sized firms the purported fact about the missing middle is cited as evidence for two broad stories of why many countries are poor perhaps surprisingly these models look for the cause of the missing middle in two fundamentally different places one approach suggests that small firms are disfavored in low income countries for example by a lack of access to financial capital and thus face difficulties in growing to become middle sized firms the other approach posits a dual economy of large high productivity firms and small low productivity firms and then suggests that larger firms are disfavored in low income countries for example by having to bear large fixed costs of regulation which make it difficult for middle sized firms to become established we begin by reviewing these theories of development based on the purported fact of a missing middle we then explore the evidence on distribution of firm sizes in more detail and challenge the presumption that a missing middle occurs at all we present three main facts first there is in fact no evidence of a missing middle in detailed and comprehensive data on the size of manufacturing firms in india indonesia or mexico regardless of how we slice the data to be sure there

does formality improve micro firm performance evidence from the brazilian simples program abstract this paper exploits an extensive brazilian micro enterprise survey and the 1996 introduction of a business tax reduction and simplification scheme simples to examine three questions first do high tax rates and complex tax regulations really constitute a barrier to the formalization of micro firms second does formalization improve firm performance measured along several dimensions including revenues employment and capital stock third what are the channels through which this occurs we find that simples led to a significant increase in formality in several dimensions moreover newly created firms that opt for operating formally show higher levels of revenue and profits employ more workers and are more capital intensive only for those firms that have employees the channel through which this occurs is not access to credit or contracts with larger firms rather it appears that the lower cost of contracting labor leads to adopting production techniques that involve a permanent location and a larger paid labor force

entry regulation and business start ups evidence from mexico the authors estimate the effect on business start ups of a program that significantly speeds up firm registration procedures the program was implemented in mexico in different municipalities at different dates authors estimates suggest that new start ups increased by about 4 percent in eligible industries and the authors present evidence that this is a causal effect most of the effect is temporary concentrated in the first 10 months after implementation the effect is robust to several specifications of the benchmark control group time trends the authors find that the program was more effective in municipalities with less corruption and cheaper additional procedures

beliefs and arbitrage pricing abstract this paper investigates the necessary restriction on investor beliefs implied by a no arbitrage price system in addition stone s theorem is invoked to study the existence of equivalent probability measures and to relate our approach to the existing literature