re examination of uniform commodity taxes under a non linear income tax system and its implication for production efficiency abstract this paper shows that the result of uniform commodity tax under nonlinear income taxation by atkinson and stiglitz 1976 no longer holds if the production side of an economy is taken into the consideration in particular imposing a non uniform commodity tax can pareto improve welfare even under nonlinear income taxation in addition the paper shows that if the government uses a nonlinear income tax system for income redistribution then the introduction of distortions in the public sector can pareto improve welfare contrary to the results in diamond and mirrlees 1971

optimal democratic mechanisms for taxation and public good provision abstract we study the interdependence of optimal tax and expenditure policies an optimal policy requires that information on preferences is made available we first study this problem from a general mechanism design perspective and show that efficiency is possible only if the individuals who decide on public good provision face an own incentive scheme that differs from the tax system we then study democratic mechanisms with the property that tax payers vote over public goods under such a mechanism efficiency cannot be reached and welfare from public good provision declines as the inequality between rich and poor individuals increases

toilet cleaning and department chairing volunteering a public service abstract who will do a job that nobody wants but that someone has to do the search for a volunteer is modelled as a war of attrition in which everyone is tempted to just wait for someone else to do it we show that the volunteer will be ceteris paribus the individual for whom the benefit cost ratio of performing the public service is largest the one most impatient to consume it or the one who stands to benefit from it the longest

what does tax aggressiveness signal evidence from stock price reactions to news about tax shelter involvement abstract we study the stock price reaction to news about corporate tax aggressiveness we find that on average a company s stock price declines when there is news about its involvement in tax shelters we find some limited evidence for cross sectional variation in the reaction for example the reaction is more negative for firms in the retail sector suggesting that part of the reaction may be a consumer taxpayer backlash in addition the reaction is less negative for firms that are viewed to be generally less tax aggressive as proxied by the firm s cash effective tax rate we interpret this as being consistent with the market reacting positively to evidence that a firm is trying to reduce taxes when their financial reports would lead one to believe the firm is not tax aggressive

on the sign of the optimum marginal income tax this paper studies a central aspect of optimal income taxation as modelled in mirrlees original paper on the topic identical leisure consumption preferences qualitatively homogeneous skills in production namely whether given concave utilitarianism alone the optimal marginal income tax will be non negative a well known positive answer to this question in weak inequality form was given in the said paper which however we show requires additive separability of individual utility in the ordinal and cardinal senses our main result here is to derive the required strict positivity of the marginal tax under weak conditions slightly wider than noninferiority of consumption and leisure with preferences otherwise arbitrary

volunteering nonprofit entrepreneurial services abstract which member of a heterogeneous population will volunteer to provide the entrepreneurial services needed to found a nonprofit firm to privately provide a public good we develop a model of this decision the model predicts that nonprofit entrepreneurs will be those who incur relatively low private costs or get a relatively high private payoff less obviously they will tend to have a high discount rate and relatively long time horizons either due to their youth or due to their consideration of generations to come far into the future if the public good is one which individuals tend to contribute large amounts to such entrepreneurs will tend to be relatively wealthy if private contributions to the firm are relatively small the entrepreneur is more likely to come from the center of the wealth distribution

capital structure choice and company taxation a meta study this paper provides a quantitative review of the empirical literature on the tax impact on corporate debt financing synthesizing the evidence from 46 previous studies we find that this impact is substantial in particular the tax rate proxy determines the outcome of primary analyses measures like the simulated marginal tax rate graham 1996a avoid a downward bias in estimates for the debt response to tax moreover debt characteristics econometric specifications and the set of control variables affect tax effects accounting for misspecification biases by means of meta regressions we predict a marginal tax effect on the debt ratio of 0 3

the war of attrition in continuous time with complete information this paper provides a complete characterization of the nash equilibrium outcomes for the war of attrition when time is continuous and information is complete it allows for asymmetric payoffs and an arbitrary time horizon in addition to certain asymme tric pure strategy equilibria that always exist the authors establi sh the conditions under which there is also a continuum of mixed strategy equilibria these are most likely to exist when either the horizon is infinite or the game is symmetric copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

social labeling by competing ngos a model with multiple issues and entry in many settings firms rely on nongovernmental organizations ngos to certify prosocial attributes embodied in their products we provide a model of competition between ngos in the provision of labeling services competition between a fixed number of ngos features a race to the top in labeling standards but entry of ngos offering new labels pushes standards down in a wide range of settings ngo entry and competition results in too many labels being adopted with each label being too stringent compared to a setting in which firms can credibly communicate the social attributes of their products labels demand greater prosocial behavior than is desired by firms although with proliferation of the number of labels this discrepancy disappears in contrast to existing models firms may engage in excessive corporate social responsibility when they rely on an ngo as a certifying intermediary this paper was accepted by bruno cassiman business strategy

a silent battle over a cake the division of a cake by n players is modeled as a silent game of timing we show that such games admit a unique nash equilibrium

tax avoidance cost of debt and shareholder activism evidence from korea abstract this paper examines the impact of tax avoidance on the cost of debt and its interaction effect with shareholder activism using korean firms i find a negative relationship between tax avoidance and the cost of debt supporting the trade off theory further tests reveal that the negative relationship becomes stronger when the level of institutional ownership is high it becomes even stronger after 1998 when the shareholder rights of institutional investors were strengthened it suggests that the managerial opportunism theory has an additional explanation for tax avoidance activities my findings indicate that tax avoidance reduces the cost of debt through trade offs and creates a managerial rent diversion which is mitigated in firms with larger institutional holdings

public goods self selection and optimal income taxation using the self selection approach to tax analysis this paper derives a modified samuelson rule for the provision of public goods when the government deploys an optimal nonlinear income tax this approach gives a straightforward interpretation of the central result in this area generalises it and provides a simple characterisation of optimal policy in a wide range of circumstances the analysis also emphasises and clarifies the significance of the choice of numeraire for the optimality of decentralising public spending decisions it is well known that the famous samuelson rule for the provision of public goods may not be applicable when the tax revenues used to finance the public goods come from distorting taxes the principle was recognized as long ago as pigou 1947 long before the samuelson rule was devised pigou saw that in addition to the resource cost involved in transferring funds from the private to the public sector there was a deadweight loss involved from this insight he suggested that the criterion for providing public goods should be more stringent than the samuelson rule would later suggest in particular one might expect that the inclusion of the deadweight loss of taxes as part of the cost of providing a public good would lead to a reduction in its optimal provision relative to a situation in which lump sum taxes were available the problem was investigated more systematically by atkinson and stern 1974 who considered the case in which a public good is financed by a set of optimal commodity taxes all individuals were assumed to be identical so efficiency alone dictated the objective they found that no prima facie case could be made for the pigou position that the use of distortionary taxes called for a reduction in the supply of the public good their analysis clearly showed that there were two influences at work when the financing of a public good was by distorting taxes on the one hand

regulating altruistic agents altruism or regard for others can encourage self restraint among generators of negative externalities thereby mitigating the externality problem we explore how introducing impure altruism into standard regulatory settings alters regulatory prescriptions the optimal calibration of both quantitative controls and externality taxes is affected it also leads to surprising results on the comparative performance of instruments under quantity based regulation welfare is increasing in the propensity for altruism in the population under price based regulation the relationship is non monotonic price based regulation is preferred when the population is either predominantly altruistic or predominantly selfish quantity based regulation is preferred for cases in between

bargaining and reputation the paper develops a reputation based theory of bargaining the idea is to investigate and highlight the influence of bargaining postures on bargaining outcomes a complete information bargaining model a la rubinstein is amended to accommodate irrational types who are obstinate and indeed for tractability assumed to be completely inflexible in their offers and demands a strong independence of procedures result is derived after initial postures have been adopted the bargaining outcome is independent of the fine details of the bargaining protocol so long as both players have the opportunity to make offers frequently the latter analysis yields a unique continuous time limit with a war of attrition structure in the continuous time game equilibrium is unique and entails delay consequently inefficiency the equilibrium outcome reflects the combined influence of the rates of time preference of the players and the ex ante probabilities of different irrational types as the probability of irrationality goes to zero delay and inefficiency disappear furthermore if there is a rich set of types for both agents the limit equilibrium payoffs are inversely proportional to their rates of time preference

learning and payoff externalities in an investment game abstract this paper examines the interplay of informational and payoff externalities in a two player irreversible investment game each player learns about the quality of his project by observing a private signal and the action of his opponent i characterize the unique symmetric equilibrium in a timing game that features a second mover advantage allowing for arbitrary correlation in project qualities despite private learning the game reduces to a stochastic war of attrition in contrast to the case of purely informational externalities all investments happen at the same real time instant irrespective of the sign of the correlation and beliefs never get trapped in a no learning region provided that the second mover advantage is sufficiently high

giving overseas and public policy remarkable numbers of people give to overseas development charities the aim of this paper is to consider how such overseas giving is best modelled and the implications for public policy widely used theories of charitable giving based on warm glow or the provision of public goods provide insight but are not fully satisfactory as explanations of giving for the specific purpose of development instead an identification approach to individual giving is proposed here that combines the results focus of the public goods formulation with the scale of the warm glow model the theoretical model is used to examine the implications for public policy including the extent to which official aid crowds out private giving and how public policy should take account of private willingness to make charitable transfers overseas

crowd out and diversity abstract research has shown that altruism is lower in diverse communities can this phenomenon be counteracted by government intervention to answer this question this paper introduces diversity to the canonical model of warm glow giving diversity may have two effects on incentives it may attenuate individuals altruistic preferences for public goods and it may cool off the warm glow that individuals get from voluntarism either of these effects leads to diverse communities having lower levels of public goods consistent with prior research however these effects have opposite implications for the efficacy of government intervention i then empirically investigate whether government intervention is more effective in diverse communities for identification i exploit the supreme court mandated 1991 expansion of the ssi program using a new dataset of united methodist churches from 1984 to 2000 the results show that the expansion of ssi crowded out charitable spending by churches the crowd out estimate for the average church is reasonably large but this masks significant differences in crowd out between communities crowd out occurred almost entirely in relatively homogeneous communities there is only modest evidence of crowd out in racially diverse communities thus diverse communities while having the lowest levels of altruism are in this instance the most amenable to government intervention

endogeneity of alternating offers in a bargaining game we investigate an infinite horizon two person simultaneous move bargaining game with incomplete information and discounted payoffs the game takes the form of a concession game in each period each player chooses to give in or hold out the game continues until at least one of the players chooses to give in at which point agreement has been reached and the game terminates for any discount factor if the players priors about each other s type are sufficiently asymmetric there is a unique nash equilibrium in which the two players alternate in their willingness to give in

labor unions and tax aggressiveness abstract we examine the impact of unionization on firms tax aggressiveness we find a negative association between firms tax aggressiveness and union power and a decrease in tax aggressiveness after labor union election wins this relation is consistent with labor unions influencing managers in one or both of two ways 1 constraining managers ability to invest in tax aggressiveness through increased monitoring or 2 decreasing returns to tax aggressiveness that arise from unions rent seeking behavior we also find preliminary evidence that the market expects these reductions around union elections and discounts firms that likely add shareholder value via aggressive tax strategies

pareto optimal redistribution and private charity abstract when private charity exists and is motivated by utility interdependence a non pareto optimal outcome the free rider problem typically arises nevertheless incremental fiscal redistribution cannot achieve a paretian welfare improvement so long as private charity continues at positive levels donors respond to incremental fiscal redistribution by reducing their voluntary contributions by exactly a dollar for every dollar transferred in this way no net transfer is achieved unless incremental fiscal redistribution is pursued to the point where private contributions have been driven to zero alternatively a net transfer may be achieved by fiscal measures which affect donors marginal incentives to donate

strategic delay in bargaining with two sided uncertainty the role of strategic delay is analyzed in an infinite horizon alternating offer model of bargaining a buyer and seller are engaged in the trade of a single object both bargainers have private information about their own preferences and are impatient in that delaying agreement is costly an equilibrium is constructed in which the bargainers signal the strength of their bargaining positions by delaying prior to making an offer a bargainer expecting large gains from trade is more impatient than one expecting small gains and hence makes concessions earlier on trade occurs whever gains from trade exist but due to the private information only after costly delay panmunjom korea upi the american general and the north korean general glared at each other across the table and the only sound was the wind howling across the barren hills outside their hut maj gen james b knapp negotiator for the united nations command unc was waiting for maj gen ri choonsun of the democratic people s republic of north korea to propose a recess they sat there arms folded for 42 hours not a word finally gen ri got up walked out and drove away evening bulletin philadelphia 11 april 1969

environmental quality competition and taxation in the presence of green network effect among consumers we examine the impact of a green network effect in a market characterized by consumers environmental awareness and competition between firms in terms of both environmental quality and product prices the unique aspect of this model comes from the assumption that an increase in the number of consumers of green brown product increases the satisfaction of each green brown consumer we show that paradoxically when the network effect of a green product is higher than that of a brown product this externality reduces product environmental quality and raises consumption of the green product conversely when the network effect of the brown product is higher the externality improves product environmental quality and raises consumption of the brown product in both cases the network effect does not affect the overall pollution level the externality correction requires the use of three optimal fiscal policies an ad valorem tax on products an emission tax and a subsidy or a tax on the green purchase a second best optimum can also be reached through the green taxation

it takes two to tango equilibria in a model of sales we show that the varian model of sales with more than two firms has two types of equilibria a unique symmetric equilibrium and a continuum of asymmetric equilibria in contrast the 2 firm game has a unique equilibrium that is symmetric for the n firm case the asymmetric equilibria imply mixed strategies that can be ranked by first order stochastic dominance this enables one to rule out asymmetric equilibria on economic grounds by constructing a metagame in which both firms and consumers are players the unique subgame perfect equilibrium of this metagame is symmetric

tax transfer policies and the voluntary provision of public goods abstract the purpose of this paper is twofold first it extends previous models of non cooperative private funding of pure public goods by allowing both for distortionary taxation of private goods and for subsidies based on contributions to the public goods second it clarifies the type of behavioral and informational assumptions which are needed to insure neutrality of both lump sum and distortionary policies the analysis is developed in the context of fiscal federalism

bargaining enforcement and international cooperation neoliberals and their neorealist critics have debated the relative importance of two main obstacles to international cooperation problems of cheating and enforcement and problems of relative gains by contrast i argue that problems of international cooperation have a common strategic structure in which a third distinct obstacle plays a crucial role almost regardless of the issue area states must first resolve the bargaining problem of agreeing on terms before they can implement and begin to enforce an agreement furthermore the bargaining and enforcement problems interact using a game model i show that if states must bargain to determine the deal to be enforced the shadow of the future cuts two ways a high expectation of continued interactions may make enforcing the agreement easier but it can also give states an incentive to bargain harder delaying agreement in hopes of getting a better deal empirical evidence from trade and arms control negotiations suggests that this mechanism may help to explain the costly standoffs that are often observed in international politics and are problematic for received neoliberal theories

information asymmetry valuation and the corporate spin off decision we empirically analyze the information hypothesis that the separation of a rm s divisions into independently traded units through a spin o enhances value because it mitigates information asymmetry about the rm consistent with this hypothesis we nd that rms that engage in spin o s have higher levels of information asymmetry compared to their industry and size matched counterparts and the information problems decrease signi cantly after the spin o the gains around spin o s are positively related to the degree of information asymmetry and this relation is more pronounced for rms with fewer negative synergies between divisions finally rms with higher growth opportunities and rms in need of external capital show a higher propensity to engage in spin o s they also raise more capital following a spin o which is consistent with the view that

optimal public good provision with limited lump sum taxation it is often argued that the use of distortionary taxation lowers the optimal provision of public goods below its optimal level in a first best economy which contains no restrictions on lump sum taxation however this issue is usually investigated using commodity tax models that contain no lump sum taxes this paper examines a many consumer economy in which the only tax instruments are commodity taxes and a poll tax subsidies are negative taxes the optimal level of public good provision in this economy typically exceeds the first best level at least for distributionally neutral public goods copyright 1991 by american economic association

the optimal treatment of tax expenditures abstract this paper analyzes the optimal treatment of tax expenditures it develops an optimal tax model where individuals derive utility from spending on a contribution good such as charitable giving the contribution good has also a public good effect on all individuals in the economy the government imposes linear taxes on earnings and on the contribution good so as to maximize welfare the government may also finance directly the contribution good out of tax revenue optimal tax and subsidy rates on earnings and the contribution good are expressed in terms of empirically estimable parameters and the redistributive tastes of the government the optimal subsidy on the contribution good is increasing in the size of the price elasticity of contributions the size of the crowding out effect of public contributions on private contributions and the size of the public good effect of the contribution good numerical simulations show that the optimal subsidy on contributions is fairly sensitive to the size of these parameters but that in most cases it should be lower than the earnings tax rate

the politics of compromise abstract an organization must select among competing projects that differ in their payoff consequences for its members each agent chooses a project and exerts effort affecting its completion time when one or more projects are complete the agents select which one to adopt the selection rule for multiple projects that maximizes ex post welfare leads to inefficiently high polarization rules that favor later proposals improve upon ex post optimal selections the optimal degree of favoritism increases in the cost of effort and discount rate this trade off informs the design of process rules in standard setting organizations and helps explain their performance jel c78 d23 d71 d72 d83 l15

waiting to imitate on the dynamic pricing of knowledge we study the problem of an inventor who brings to the market an innovation that can be legally imitated imitators may enter the market by imitating the innovation at a cost or by buying from the inventor the knowledge necessary to reproduce and use the invention the possibility of contracting dramatically affects the need for patent protection our results show that i imitators wait to enter the market and the inventor becomes a temporary monopolist ii the inventor sells knowledge through contracts that allow resale by the imitators and iii under certain conditions the inventor s payoff increases with the number of imitators

reputations in the adoption of a new technology abstract this paper studies the effects of uncertainty on the timing of adoption of a new technology in a duopoly firms are uncertain of the innovative capabilities of their rivals and about the profitability of adoption these features lead to a richer and in some respects more plausible theory of adoption in which rents from delayed adoption are always realized and returns are not equalized across adoption times

tax evasion and the marginal cost of public funds tax evasion and deadweight loss have similar implications for the rules of public finance the optimal mix of taxes can be derived from the minimization of the sum of aggregate deadweight loss and aggregate cost of tax evasion similarly the marginal cost of public funds includes allowances for marginal deadweight loss and marginal cost of tax evasion per dollar of public revenue acquired

competition and bias we attempt to measure the effect of competition on bias in the context of analyst earnings forecasts which are known to be excessively optimistic because of conflicts of interest our natural experiment for competition is mergers of brokerage houses which result in the firing of analysts because of redundancy e g one of the two oil stock analysts is let go and other reasons such as culture clash we use this decrease in analyst coverage for stocks covered by both merging houses before the merger the treatment sample to measure the causal effect of competition on bias we find that the treatment sample simultaneously experiences a decrease in analyst coverage and an increase in optimism bias the year after the merger relative to a control group of stocks consistent with competition reducing bias the implied economic effect from our natural experiment is significantly larger than estimates from ols regressions that do not correct for the endogeneity of coverage this effect is much more significant for stocks with little initial analyst coverage or competition

targeting transfers through restrictions on recipients our objective is to design transfer programs that maximize some social welfare function following the optimal income tax formulation we assume that a random process endows individuals with characteristics that influence welfare such as ability to earn income medical condition or unmonitorable income the goal is to maximize the utility of a randomly chosen individual other individualistic social welfare functions would lead to equivalent results if the random characteristics were observable a first best outcome could be achieved by making them the basis for lump sum transfers in practice however we can observe only indicators of these characteristics such as earnings medical expenditures or consumption patterns the challenge for policy is to design an efficient second best transfer program based on indicators in this paper we argue that 1 an optimal transfer program in general must sacrifice productive efficiency to target efficiency this is done by imposing restrictions on the choices made by intended beneficiaries 2 a program that incorporates restrictions such as means tested in kind transfers commodity specific taxes and subsidies and even ordeals i e the imposition of deadweight costs to qualify for a transfer will perform better than programs that rely solely on income taxes and cash transfers

self selection and analyst coverage this paper examines the relation between analysts information about a stock s future prospects and their decisions to issue investment recommendations and earnings forecasts for that stock and the implications of this relation for the observed distribution of recommendations and earnings forecast errors articles in the financial press have long argued that analysts are reluctant to issue unfavorable investment information perhaps because they fear jeopardizing potential investment banking

volunteering a public service an experimental investigation in some public goods environments it may be advantageous for heterogeneous groups to be coordinated by a single individual this volunteer will bear private costs for acting as the leader while enabling each member of the group to achieve maximum potential gains this environment is modeled as a war of attrition game in which everyone can wait for someone else to volunteer since these games generally have multiple nash equilibria but a unique subgameperfect equilibrium we tested experimentally the predictive power of the subgame perfection criterion our data contradict that subjects saw the subgame perfect strategy combination as the obvious way to play the game an alternative behavioral hypothesis that subjects were unable to predict accurately how their opponents would play and tried to maximize their expected payoff is proposed this hypothesis fits the observed data generally well

bargaining reputation and competition this paper addresses the question of whether playing the tough bargainer is a useful strategy for rational negotiators in competitive environments the unique equilibrium outcome of a continuous time multilateral bargaining game between a single seller and two buyers i e a three player war of attrition game show that it does not benefit the buyers the long side of the market if the probability of obstinacy is constant and independent of the initial demands this result is robust in the sense that the buyers heterogeneity about their flexibility does not weaken the intensity of the competition when the seller decides which buyer to negotiate first he not only chooses his bargaining partner but also picks his outside option the seller can strengthen his bargaining position against both buyers by picking the unattractive buyer who is greedier or tougher than the other buyer first and by leaving the attractive buyer aside because he starts the sequel with a strong outside option

has regulation of charitable foundations thrown the baby out with the bath water abstract regulations to curb tax avoidance and evasion through charitable foundations have been in place since the tax reform act of 1969 newly compiled longitudinal data makes it possible to estimate the effects of these regulations by comparing affected and unaffected foundations before and after the reform donations and entry dropped precipitously proxy variables suggest significant deterrence of abuses but half of the decline in donations can be explained by the increased cost of running a foundation the results highlight the potential for large reductions in the benefits of regulation when the cost of compliance affects externality producing actions such as charitable giving

efficiency and redistribution an evaluative review of louis kaplow s the theory of taxation and public economics louis kaplow proposes a two step methodology for normative policy analysis and illus trates it using various policy reforms the first step is to identify efficiency gains when hypothetical lump sum taxes can undo redistributive consequences the second step evaluates the redistributive effects using a strictly welfaristic social welfare function i critically review the foundations for kaplow s procedure and its reliance on strict welfarism i argue that basing efficiency gains on hypothetical lump sum tax adjust ments can lead to social welfare reducing policies if such tax adjustments are not car ried out i also indicate some conceptual problems with translating welfarism into policy evaluation when individuals have different utility function and review one promising alternative approach jel h20 h41 h50

second mover advantage and entry timing we describe a model of entry timing assuming that a second mover can benefit from observing the experience of a first mover we focus on how market attractiveness characteristics such as size and cost affect the time until first entry the effects depend on whether the number of participants is exogenous or endogenous in the former case a more attractive market leads to earlier entry in the latter case it leads to later entry treating the number of firms as an integer free entry leads to non monotone but testable effects of market attractiveness on entry timing

optimal income transfer programs intensive versus extensive labor supply responses this paper analyzes optimal income transfers for low incomes labor supply responses are modeled along the intensive margin intensity of work on the job and along the extensive margin participation into the labor force when behavioral responses are concentrated along the intensive margin the optimal transfer program is a classical negative income tax program with a substantial guaranteed income support and a large phasing out tax rate however when behavioral responses are concentrated along the extensive margin the optimal transfer program is similar to the earned income tax credit with negative marginal tax rates at low income levels and a small guaranteed income carefully calibrated numerical simulations are provided

a case for taxing charitable donations abstract we develop a model that allows for public goods and status signaling through charitable contributions we use this setup to re examine the conventional practice of rendering a favorable tax treatment to charitable contributions

optimal tax treatment of private contributions for public goods with and without warm glow preferences abstract tax favored contributions for financing some public goods may be a useful part of optimal nonlinear income tax and expenditure policy there are two sides to the potential gain from subsidized donations first for a given level of public good provision higher private donations from high earners than low earners eases the incentive compatibility constraint for donors and so can raise social welfare this follows since considering a lower paid job includes a perception of a drop in public good provision second private donation reduces consumption easing the resource constraint this paper explores optimal policy using first a model with standard preferences and then a model with a warm glow of giving in addition to showing the conditions for the level of public goods the paper considers the pattern of optimal subsidization across earnings levels analysis of optimal taxation with warm glow preferences is sensitive to the choice of preferences that are relevant for a social welfare evaluation after considering optimal rules with formulations of social welfare which do and do not include warm glow utility the paper considers the choice of normative criterion like the earlier literature this paper assumes that organizing private donations is costless while tax collection has a deadweight burden since private charitable fundraising is very far from costless the paper is an exploration of economic mechanisms not a direct guide to policy

the 1993 tax rate increase and deferred tax adjustments a test of functional fixation this paper uses a sample of 158 deferred tax adjustments resulting from the omnibus budget reconciliation act of 1993 obra to explore the magnitude and nature of analysts and investors functional fixation on reported accounting numbers the 1993 obra passed on august 10 of 1993 included a provision that raised the corporate tax rate from 34 to 35 gaap requires companies to adjust their deferred tax assets and liabilities to recognize the income effects of tax changes in the period of the tax change sfas no 109 1992 in this case the effects of the tax rate increase on deferred taxes would be included in the income tax expense component of 1993 third quarter earnings 1

earnings management to avoid earnings decreases and losses this paper provides evidence that firms manage reported earnings to avoid earnings decreases and losses specifically in cross sectional distributions of earnings changes and earnings we lind unusually low frequencies of small decreases in earnings and small losscs and unusually high frequencies of small increases in earnings and small positive income we find evidence that two components of earnings cash flow from operations and changes in working capital are used to achieve increases in earnings we present two theories based on stakeholder use of information processing heuristics and prospect theory about the motivation for avoidance of earnings decreases and losses

continuous time games of timing abstract we address the question of existence of equilibrium in general timing games with complete information under weak assumptions any two player timing game has a markov subgame perfect e equilibrium for each e 0 this result is tight for some classes of games symmetric games games with cumulative payoffs stronger existence results are established

analyst coverage and corporate tax aggressiveness abstract we examine the impact of analyst coverage on corporate tax aggressiveness to address endogeneity concerns we perform a difference in differences analysis using a setting which causes exogenous decreases in analyst coverage our tests identify a negative causal effect of analyst coverage on tax aggressiveness suggesting that higher analyst coverage constrains corporate tax aggressiveness further cross sectional variation tests find that this constraining effect on tax aggressiveness is more pronounced in firms with lower investor recognition and firms with more opaque information environments our results are consistent with the notion that higher analyst coverage increases the visibility of aggressive tax planning behavior as well as heightens analysts demand for more transparent information which in turn reduces tax aggressiveness

financing public goods public goods can be financed by direct taxation or a subsidy to private spending this paper examines the relative efficiency and distributional consequences of the two methods efficiency is shown to depend on the price elasticity of private spending and the trade off between public and private spending when this trade off is dollar for dollar however a subsidy is always more efficient than direct taxation the gains from a subsidy are larger for a mixed good than for a pure public good looking a t distributional effects the author shows when richer taxpayers may prefer a tax credit to deductibility even though they face lower prices with deductibility and also shows when richer taxpayers prefer direct taxation to either type of subsidy copyright 1987 by university of chicago press

optimal income taxation and job choice in this paper we study optimal income taxation when different job types exist for workers of different skills each job type has some feasible range of incomes from which workers choose by varying labor supply workers are more productive than others in the jobs that suit them best the model combines features of the classic optimal tax literature with labor variability along the intensive margin with the extensive margin approach where workers make discrete job choices and or participation decisions we find that first best maximin utility can be achieved in the second best and marginal tax rates below the top can be negative or zero

distributional weights in environmental valuation and cost benefit analysis theory and practice abstract cost benefit analysis cba is built on the kaldor hicks efficiency criterion whereby projects that have aggregate positive net benefits are recommended even if those who lose are not compensated for their losses two kinds of problems can be identified with the use of the criterion first as income tends to affect monetary welfare changes positively the preferences of those with higher wealth have a larger weight in societal decision making second monetary welfare changes can be thought of as changes in real income which matter more for those with a lower initial wealth level both problems can be mitigated with distributional weighting despite their strong theoretical pedigree distributional weights have been largely neglected in practical cbas one exception being analyses in climate change economics we present the theory of distributional weighting and illustrate how weights can be applied empirically in an international environmental cba that deals with marine water quality improvements we show that different weighting schemes can result in different policy recommendations we also show that taking the income distribution within countries into account can change a country s willingness to participate in the water quality improvement program and that the income elasticity of willingness to pay wtp is an important indication of the direction of change

corporate tax aggression and debt we provide a tradeoff model of the capital structure that allows leverage to be a function of a firm s choice of tax aggressiveness the model s testable implications are supported empirically debt use is inversely related to corporate tax aggression for most firms and the relation is economically important this substitution effect is especially evident for firms exhibiting high tax shelter prediction scores the effect attenuates for benign forms of tax avoidance and during the recent credit crisis period for the most profitable firms debt and tax aggression are complements our results extend the empirical findings of graham and tucker 2006

impact of bayesian learning and externalities on strategic investment we investigate the interplay between learning effects and externalities in the problem of competitive investments with uncertain returns we examine a game theoretic duopoly investment model in which i a firm can learn about the profitability of the investment by observing the performance of the first mover and ii externalities exist between the investments of two firms we find a region of a war of attrition between the two firms in which the interplay between externalities and learning gives rise to counterintuitive effects on investment strategies and payoffs in particular we find that contrary to the conventional war of attrition where an increase in benefits for the follower generally delays the first move an increase in the rate of learning which tends to benefit the follower can hasten the first investment this paper was accepted by james smith decision analysis

audience costs and reputation in crisis bargaining in crisis bargaining literature it is conventional wisdom that the ability of generating higher audience costs is an advantage for a leader of a state however empirical studies show that democratic states use this mechanism only occasionally this paper formally shows that higher audience costs may be good or bad depending on 1 the benefit cost ratio of the crisis 2 initial probability of resolve and 3 how fast states generate audience costs with time in particular if the value of the prize over the cost of attacking is low or the initial probability of resolve is high enough then having greater ability to generate audience costs may undermine democratic states diplomatic success

dynamic competition and intellectual property rights in a model of product development we study innovation timing and socially optimal intellectual property rights iprs when firms facing market uncertainty invest strategically in product development if demand growth and volatility are high attrition occurs and iprs should ensure the cost of imitation attains a lower bound we identify if demand growth and volatility are low then provided that the private imitation incentive is socially excessive iprs should set the cost of imitation high enough to induce preemption and possibly winner take all preemption moreover the welfare achieved with optimal iprs is then greater with endogenous innovation than if firm roles are predetermined illustrating the importance of fostering dynamic competition in extensions we show how firms benefit from open standards takeovers have ambiguous welfare effects and simple licensing schemes are welfare improving

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

strategic investment in technological innovations abstract the aim of this paper is to determine the optimal timing of technology investment of a single firm in a duopoly framework as time passes different technologies are invented which after sometime become available for the firm to adopt the question here is not only when a firm should invest but also which technology should be adopted for different scenarios the optimal technology investment decision is determined outcomes range from pre emption equilibria to equilibria with second mover advantages

public pressure and corporate tax behavior we use a shock to the public scrutiny of firm subsidiary locations to investigate whether that scrutiny leads to changes in firms disclosure and corporate tax avoidance behavior actionaid international a nonprofit activist group levied public pressure on noncompliant u k firms in the ftse 100 to comply with a rule requiring u k firms to disclose the location of all of their subsidiaries we use this setting to examine whether the public pressure led scrutinized firms to increase their subsidiary disclosure decrease tax avoidance and reduce the use of subsidiaries in tax haven countries compared to other firms in the ftse 100 not affected by the public pressure the evidence suggests that the public scrutiny sufficiently changed the costs and benefits of tax avoidance such that tax expense increased for scrutinized firms the results suggest that public pressure from outside activist groups can exert a significant influence on the behavior of large publicly traded firms our findings extend prior research that has had little success documenting an empirical relation between public scrutiny of tax avoidance and firm behavior

decentralized fiscal federalism revisited optimal income taxation and public goods under horizontal leadership this paper concerns optimal taxation and public goods in an economic federation with decentralized leadership where one lower level government is the first mover also in the horizontal dimension under plausible assumptions horizontal leadership reinforces the incentives created by decentralized leadership

holdouts in sovereign debt restructuring a theory of negotiation in a weak contractual environment negotiations between a country in default and its international creditors are modeled as a dynamic game in an environment of weak contractual enforcement the country cannot borrow internationally until it settles with all creditors delay arises in equilibrium as creditors engage in strategic hold up the model a rms the conventional wisdom that delay increases with more creditors and with the advent of vulture creditors contrary to conventional wisdom putting collective action clauses into bond contracts may increase delay via free riding on negotiation costs even while preventing strategic holdup and reducing total negotiation costs secondary debt markets consolidate debt with high and disperse debt with low creditor bargaining power whether secondary markets reduce or increase delay depends on the interaction between strategic holdup and debt

ethical considerations on quadratic voting this paper explores ethical issues raised by quadratic voting we compare quadratic voting to majority voting from two ethical perspectives the perspective of utilitarianism and that of democratic theory from a utilitarian standpoint the comparison is ambiguous if voter preferences are independent of wealth then quadratic voting outperforms majority voting but if voter preferences are polarized by wealth then majority voting may be superior from the standpoint of democratic theory we argue that assessments in terms of efficiency are too narrow voting institutions and political institutions more generally face a legitimacy requirement we argue that in the presence of inequalities of wealth any vote buying mechanism including quadratic voting will have a difficult time meeting this requirement

optimum taxation with errors in administration abstract the paper compares the welfare levels which can be achieved by two distinct tax regimes lump sum taxation where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics and income taxation where characteristics are not observed but personal incomes are measured and taxed where there are no errors in classifying individuals lump sum taxation is superior but where mistakes are made in the allocation of lump sum grants or subsidies income taxation may be more attractive the level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of feldstein 1973 where there is strong aversion to inequality then income taxation becomes preferable at quite small errors in analysing income taxation it is shown that in the feldstein model with endogenous wages the marginal tax rate in optimum income taxation on the more skilled is negative and that on the less skilled is positive in contrast to the standard results see seade 1977 with exogenous wages

provision of a pure local public good in a spatial model with many jurisdictions abstract this paper examines the provision of a pure local public good in jurisdictions that are spaced evenly along an infinite line each jurisdiction either supplies the local public good or else its residents travel to another jurisdiction to consume the local public good the equilibrium spacing between jurisdictions which supply the local public good which can be uneven varying between a minimum spacing and a maximum spacing for given exogenous parameters can be greater than equal to or less than the socially optimal spacing

baumol s cost disease and the sustainability of the welfare state if productivity increases more slowly for services than for manufactured goods then services suffer from baumol s cost disease and tend to become relatively more costly over time since the welfare state in all countries is an important supplier of tax financed services this translates into a financial pressure that seems to leave policymakers with a trilemma increase tax distortions cut spending or redistribute less under the assumptions underlying baumol s cost disease we show that these dismal implications are not warranted the welfare state is sustainable and there is even scope for pareto improvements under baumol s cost disease

public good provision and the comparative statics of optimal nonlinear income taxation comparative static properties of the solution to an optimal nonlinear income tax problem are provided for a model in which the government both designs an income tax schedule for redistributive purposes and provides a public good optimally there are two types of individuals distinguished by their skill levels who have the same quasilinear preferences for labor supply and the consumption of a private and a public good comparative statics are obtained for the weights in a weighted utilitarian social welfare function the prices of the two goods a taste parameter that measures the onerousness of working and the skill levels

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic