basket cases tax incentives and international joint venture participation by american multinational firms abstract this paper examines the impact of the u s tax reform act of 1986 tra on international joint ventures by american firms the tra mandates the use of separate baskets in calculating foreign tax credits on dividends received from each foreign corporation owned 50 or less by americans which greatly reduces the attractiveness of joint ventures especially those in low tax foreign countries since the effect of the tra on joint ventures varies with foreign tax rates the country level pattern of subsequent joint venture activity illustrates the sensitivity of organizational form to tax considerations the evidence indicates that american participation in international joint ventures fell sharply after 1986 particularly in low tax countries moreover joint ventures in low tax countries use more debt and pay greater royalties to their american parents after 1986 reflecting their incentives to economize on dividend payments

governance of competitive transmission investment in weak institutional systems despite progress in economic analysis in recent years transmission investment governance still poses policy design challenges in competitive electricity systems the degree of regulatory intervention in allocating investment costs is a central issue scholars tend to agree that centralized solutions are almost inevitable mainly due to free riding and coordination problems in systems with weak institutional endowments and pressures of distributive politics however there is an increased likelihood of regulators acting opportunistically or imposing arbitrary changes to the cost allocation rules which makes centralized solutions less desirable we provide some examples from argentina el salvador and peru and suggest that a two tier governance scheme composed of a self governing forum of transmission stakeholders with regulation as a subsidiary measure may be a more adequate design to restraint undue government interference the expected outcome is twofold a better match with users preferences and a restraint to government opportunism and arbitrariness measuring the robustness of this scheme in minimizing the risks for either too much or too little investment will certainly require further research

special tax regimes and the choice of organizational form evidence from the european tonnage taxes abstract tax systems often discriminate among the various organizational forms of doing business and may therefore affect the choice of organizational form this paper studies how special tax regimes shape the organizational form choice although the full effects depend on the way that firm level special tax regimes are designed special regimes generally tend to favor pass through firms over non pass through firms the tonnage tax a tax incentive for international shipping firms available in many countries worldwide is examined to understand these effects employing european firm and country level data the impact of the tonnage tax on organizational form choice is studied empirically the results are consistent with the theoretical model shipping firms are less likely to incorporate if the tonnage tax is also available for firms that have adopted pass through organizational forms

predatory versus productive government the case of u s agricultural policies this essay will argue that agricultural policy in the united states has led to both the enhancement of efficiency through productive policies and the transfer of wealth and income to special interests through redistributive or predatory policies these two activities can be labeled as pests and perts pest policies or political economic seeking transfers are meant to redistribute wealth from one social group to another and are not explicitly concerned with efficiency in contrast perts or political economic resource transactions are intended to correct market failures or to provide public goods these policies have neutral distributional effects at least in design a review of the history of public policy in agriculture reveals not only tension between the pert and pest roles of the public sector but also some coordination between these two types of activities as different interest groups pressure the political process the government trades off pests and perts in its attempts to acquire balance and secure political power at times this has led to combinations of programs that appear incoherent in such a world the challenge for economists is to design and advocate policies that are both economically productive and politically sustainable

the incidence and efficiency costs of corporate taxation when corporate and noncorporate firms produce the same good one difficulty confronting harberger s celebrated model of the corporate income tax is how to treat noncorporate production in primarily corporate sectors and corporate production in primarily noncorporate sectors the paper presents a two good model with corporate and noncorporate production of both goods the incidence of corporate tax in our mutual production model can differ markedly from that in the harberger model the difference between the two models in deadweight loss is also striking with losses in the mutual production model many times larger than those in the harberger model

all displaced workers are not created equal the political economy of worker adjustment assistance in france this paper analyzes the political economy of adjustment assistance benefits paid to selected groups of displaced workers several competing theories of income redistribution are discussed including social insurance motives and political support motives a dichotomy laid out by hillman 1988 and baldwin 1989 the becker 1983 hypothesis concerning the role of dead weight loss factors is addressed based on descriptive and empirical analysis of an original french data set it is argued that the politico economic characteristics that render an industry and its workforce more likely to receive these benefits are those associated with the olson 1982 model of the logic of collective action some evidence is found however that social insurance factors play a partial role the pattern of income redistribution does not appear to be strongly influenced by the deadweight loss factors that becker stresses

the impact of the corporate income tax evidence from state organizational form data abstract by taxing the income of corporate firms at a different rate than non corporate firms taxes can play an important role in a firm s choice of organizational form the sensitivity of the organizational form decision to tax rates provides a key indicator of the distortion created by the corporate income tax this paper uses new cross sectional data on organizational form choices across states compiled in the census of retail trade to estimate this sensitivity the results document a significant impact of the relative taxation of corporate to personal income on the share of real economic activity that is done by corporations and that the impact is many times larger than has been found in the previous empirical literature based on time series data the results show little impact however on the actual operations of firms such as their labor intensity wages and the like they do indicate that firms are able to exploit the progressivity of the corporate income tax system by dividing into numerous firms

how burdensome are capital gains taxes abstract this paper uses capital gain realization data from individual tax returns to evaluate recent claims that sophisticated portfolio strategies permit investors to avoid capital gains taxes the results suggest important investor heterogeneity twenty percent of taxpayers with capital gains or losses face binding loss offset constraints another significant group of investors evades the capital gains tax prior to recent legislative changes forty percent of capital gains were unreported finally about forty percent of capital gains accrue to investors who report capital gains and face significant tax burdens as the traditional analysis of the capital gains tax suggests

corporate tax incidence and inefficiency when corporate and noncorporate goods are close substitutes i introduction in 1992 the treasury department released a study of corporate tax integration stressing the potential welfare gains of reducing or eliminating the differentials between taxation of capital in the corporate and noncorporate sector while this study was not accompanied by a specific tax recommendation such proposals have been made in the past and are likely to be made in the future for example the 1984 treasury proposals for tax reform included a partial dividend deduction and corporate tax integration was considered by the carter administration until recently the standard model used to study the corporate tax was the harberger 1962 model an important deficiency in this model is its inability to consider both corporate and noncorporate production of the same good empirical applications of the harberger model assume all firms producing a particular good or collection of goods face the same tax on capital namely the average tax on capital of firms actually producing the good collection of goods in question this procedure accommodates differential taxation of capital used in the production of different goods collections of goods but it totally ignores the differential taxation of capital of corporate and noncorporate firms producing the same good collection of goods hence the harberger approach precludes analysis of within industry substitution of noncorporate for corporate production in response to the corporate income tax such within industry substitution has potentially major implications for both the excess burden and incidence of the corporate tax the first rigorous critique of the harberger model was that of ebrill and hartman 1982 who point out that in the harberger model corporate firms cannot compete with noncorporate firms in producing the same good in the presence of the corporate income tax the common finesse in empirical work using the harberger model is to assume that all firms in a sector are identical and face the average rate of taxation in the industry since some corporate firms operate in the noncorporate sector and some noncorporate firms operate in the corporate sector the difference between these average tax wedges will typically be smaller than the actual corporate tax wedge in the extreme case where both industries are equally corporate intensive the tax wedge would be zero even though a corporate tax exists and corporate firms within an industry face a tax not faced by noncorporate firms secondly this approach does not allow within industry substitution of capital between corporate and noncorporate firms in a numerical application of his model harberger 1966 classifies industries into a noncorporate sector composed of housing agriculture and oil and gas that was subject to relatively low taxes and a corporate sector composed of the remaining industries that was subject to relatively high taxes gravelle and kotlikoff 1989 show that these two aggregated sectors are characterized by a mix of corporate and noncorporate production as well as a significant change in shares over time in the so called noncorporate sector 6 percent of output in 1957 and 20 percent of output in 1982 was produced by corporate firms oil and gas although classified in the noncorporate sector by harberger was and is primarily corporate it is however subject to low tax burdens because of very generous tax breaks similarly in the so called corporate sector 24 percent of output in 1957 and 14 percent of output in 1982 was produced by noncorporate firms two recent responses to this critique of the harberger model are gravelle and kotlikoff 1989 and fullerton and henderson 1989 fullerton and henderson simply introduce two capital inputs corporate capital and noncorporate capital in the production function of each industry these capital inputs along with labor are substitutable while this approach introduces some substitutability between corporate and noncorporate capital it is an ad hoc approach and does not model the separate production in each sector that actually occurs

extending the bargaining power model explaining bargaining outcomes among nations mnes and ngos participants in international bargaining include different types nation states mnes ngos and multilateral organizations and different numbers of these actors our theoretical contribution is to extend the bargaining power paradigm with a framework that models bargaining in this complex environment as a network the configuration of supports and constraints among all participating actors in the bargaining environment is captured in the structure of the network antecedents of an actor s bargaining influence in the network include the actor s basis of power network position bargaining outcome preferences and motivation to influence bargaining the network bargaining power nbp model uses network theory to build upon and integrate insights from previous literature in a way that allows us to simultaneously apply these different insights to explain bargaining outcomes these insights include effects of coalitions strategies of less powerful actors leveraging more powerful allies integration of international and domestic politics and applicability to mne related issues beyond fdi finally we illustrate nbp in a scenario of privatized utilities in the dominican republic in which the bargaining power outcome predicted by nbp differs from that of the canonical bargaining power perspective

taxes organizational form and the deadweight loss of the corporate income tax abstract by changing the relative gain to incorporation corporate taxation can play an important role in a firm s choice of organizational form general equilibrium models have shown that substantial shifting of organizational form in response to tax rates implies a large deadweight loss of taxation this paper estimates the impact of taxes on organizational form using data from 1900 1939 the results indicate that the effect of taxes is significant but small a corporate rate increase of 0 10 raises the non corporate share of capital 0 002 0 03 the implied deadweight loss of the corporate income tax is around 5 10 of revenue

the political economy of ec protectionism national protectionism based on article 115 treaty of rome this paper investigates the trade policy of the ec based on art 115 treaty of rome it is shown that politicians and bureaucrats take advantage of the significant discretion the procedure allows political and bureaucratic self interest are the underlying motives for national trade barriers against non member countries based on art 115 the empirical results support this hypothesis

the political economy of administered protection trade restrictions are hardly ever voted directly by congress though the threat of direct congressional action is frequently present pressure for protection is usually applied through the major instruments for the administrative regulation of imports the antidumping and countervailing duty procedures and the escape clause mechanism in this paper we will examine these instruments for the administrative regulation of imports the form of the paper is not novel a theory of how these mechanisms work is developed then operational implications of this theory are deduced and tested over the record of countervailing duty antidumping and escape clause cases decided from 1975 through 1979 this is the period over which the trade act of 1974 was in force because the nature of these mechanisms is relatively unfamiliar a relatively large amount of institutional information is provided

tax distortions to the choice of organizational form income from corporate and noncorporate firms is treated very differently under the tax law in theory given existing tax law the noncorporate sector should consist of very profitable firms owned by low tax bracket investors and firms with tax losses owned by high tax bracket investors but the degree to which firms change their form of organization in response to taxes and the resulting excess burden depends as well on nontax factors given the role of taxes we estimate what size the nontax advantage to incorporating must take in each industry so that the forecasted choices for organizational form aggregated over investors in different tax brackets are consistent with the aggregate evidence while the estimated nontax costs are large in some industries noncorporate activity tends to be concentrated where the costs are small leading to little excess burden from the tax distortion to organizational form

the politics of regulation in the turkish electricity market abstract turkey began reforming the electricity market in 2001 the regulatory reform aimed to liberalize the market however the institutional and political structure was not ready for creating an efficiently working competition the independent regulator did not have both experience and will to direct the industry to a more competitive environment currently the reform has slowed down and political preferences drive the industry this paper studies the reasons for the slowdown in the reform efforts by focusing on the relationships between the government judiciary and the independent regulator we conclude that strategic behaviors of players in the market including the judiciary the government and the regulator have made the introduction of competition to the market more costly

the corporation as a tax shelter evidence from recent israeli tax changes abstract shifting of income between the corporate and the personal income tax bases in response to tax incentives is the premise of the literature on taxation and organizational form empirical evidence of income shifting is however merely circumstantial using a unique panel of high frequency vat data from israel we trace the footprints of income shifting through incorporation by high income individuals who convert their labor income into less taxed dividends a rise in the personal income tax rates resulted in more than 4500 companies a 5 addition to the corporate sector being registered in the 12 months following the tax change mainly by self employed professionals in the industries of business activities and health services behavioral response to taxation was found only in the top percentile of the income distribution

deregulating with no regulator is the german electricity transmission regime institutionally correct abstract from 1998 to 2005 the german transmission grid has been put under a self regulated arrangement it seems hard to believe that transmission lines can be opened to third party access only with a negotiated access regime and no regulator supervision it seems contradictory with the notion of ex post contractual hazards promoted by v goldberg and o williamson if a weak institutional arrangement is implemented one might assume that it has to be harmful to network and market access if it is not to be inefficient why and how could it work when looking at rules and prices for accessing the transmission network and the corresponding wholesale markets in germany the club arrangement for transmission opening does not appear so harmful accordingly we have to reconsider the ex ante and ex post institutional mechanism of such a club arrangement ex ante we first reconsider skills and strengths of industrial consumers and german business associations in defining and assessing rules of transmission access we underline that incomplete vertical and horizontal integration of german electricity companies impeded extensive cartel collusion ex post we first look at a strong competition authority backing then we discover that ex ante and ex post dimensions are much more mixed and reinforced in an open cumulative pro competition process framed by the competition authority

planes ships and taxes charging for international aviation and maritime emissions international aviation and maritime transport account for a significant and growing share of global carbon emissions yet they are not only excluded from the kyoto agreement and all current carbon pricing schemes but do not even pay fuel excises of the type standard for other transport activities moreover each sector benefits from preferential tax treatment failure to charge vat on international aviation and the application of tonnage tax regimes rather than the normal corporate tax in maritime this paper considers the design of fuel charges in these sectors to address these distortions and quantifies their impact on emissions revenue and welfare showing amongst other things that the gain from offsetting the pre existing tax distortions may be as significant as those from reducing emissions it shows too how compensation schemes can be designed to protect the poorest countries a key ingredient in the politics of the issue given the practical need for wide applicability of such charges the real challenge is to amass the degree of international cooperation required especially strong for maritime failure of which to some degree explains their current under taxation and unsurprisingly to decide who gets the money technically these charges should if anything be rather easy to implement michael keen ian parry and jon strand

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

will destination based taxes be fully exploited when available an application to the u s commodity tax system abstract we develop a tax competition model that allows for the setting of both an origin based and a destination based commodity tax rate in the presence of avoidance and evasion in the presence of evasion jurisdictions will give cross border shoppers tax preferential treatment thus not fully exploiting the potential of destination based taxation moreover the divergence between origin based and destination based taxes is stronger when the incentives for consumers tax arbitrage opportunities increase the united states is one example of many such systems while sales taxes are due at the point of sale use taxes are due on goods purchased out of state we document that when able to set both rates a majority of jurisdictions levy destination based use taxes at a lower rate than origin based sales taxes in response to changes in state level policies that increase tax avoidance opportunities the results of the empirical model broadly confirm our theory

taxes financial decisions and organizational form evidence from publicly traded partnerships abstract publicly traded partnerships ptps also known as master limited partnerships are similar to u s corporations yet they are not subject to corporate taxes given their mixture of corporate and partnership characteristics ptps provide an experiment for studying taxation and firm financial decisions this paper compares the financial structure and dividend policies of ptps and corporations in the oil and gas exploration industry the results are consistent with hypotheses about taxes and financial decisions controlling for other factors ptps pay more dividends and borrow less than similar corporations

how much do taxes discourage incorporation the double taxation of corporate income should discourage firms from incorporating we investigate the extent to which the aggregate allocation of assets and taxable income in the united states between corporate and noncorporate firms responds to the size of this tax distortion during the period 1959 1986 in theory profitable firms should shift out of the corporate sector when the tax distortion is large and conversely for firms with tax losses our empirical results provide strong support for these forecasts and imply that the resulting excess burden equals 16 percent of business tax revenue one of the most basic distortions created by the double taxation of corporate income in the united states is the disincentive to incorporate even in most countries with integrated or partially integrated tax systems there are differential taxes across organizational forms however obvious this distortion may be most articles investigating the distortions created by the corporate tax have taken as exogenous a firm s choice whether or not to incorporate assuming for example that some industries are inherently corporate while others are inherently noncorporate a variety of nontax factors described below can certainly influence a firm s choice of organizational form causing some to favor incorporating and others not but are these nontax factors so dominant that taxes do not in practice influence a firm s choice of organizational form as gravelle and kotlikoff 1989 1993 emphasize tax induced changes in firms choices of organizational form in principle can create large excess burdens the size of these excess burdens in practice depends on the extent to which firms respond to these tax incentives in this article we calculate how the tax distortion discouraging firms from incorporating has varied over time then estimate the extent to which the allocation of assets and taxable income between corporate and noncorporate

institutions and commitment the thrust of this paper is that to understand the roles institutions play in society a deep analysis of opportunism and its implications is necessary for that purpose a transactions costs cum positive political theory approach is developed with a focus on the role of institutions and their implications for regulatory commitment a major issue is restraining political opportunism countries that have succeeded in developing a healthy private sector are those that have developed institutions that restrain governmental decision making but such restraining is itself a political choice countries with electoral and legislative systems that bring about decentralized government have stronger chances of developing equilibria where government discretion is restrained copyright 1996 by oxford university press