fully absorbing dynamic compromise abstract i consider a repeated divide the dollar voting model with rejections leading to the implementation of the previous period s allocation see kalandrakis 14 i show that if proposals can be non exhaustive then equal division can be achieved as an absorbing steady state from any initial allocation given a large enough discount factor as a part of a markov perfect equilibrium this result is robust to changes in voting thresholds and persistence in proposal power outside of unanimity or total persistence

taxation and the allocation of risk inside the multinational firm abstract this paper provides the first theoretical and empirical analysis of how taxation shapes the joint allocation of risk and profits inside the multinational firm theoretically we identify three mechanisms through which corporate taxes may shape the within firm allocation of risk 1 transfer pricing rules requiring risk to be compensated with higher expected returns create incentives to shift risk to low tax jurisdictions as a means to shift profits 2 risk averse owners create incentives to allocate risk to high tax affiliates to maximize risk sharing with governments 3 limited loss offset creates incentives to shift risk to affiliates in other countries empirically we show that multinational firms disproportionately allocate risk to low tax countries and that the key mechanism is the nexus between risk and profits established by transfer pricing rules within firm differences in risk explain a significant fraction of the well established correlation between profits and tax rates suggesting that risk shifting is a quantitatively non negligible channel for profit shifting

power illusion in coalitional bargaining an experimental analysis abstract one feature of legislative bargaining in naturally occurring settings is that the distribution of seats or voting weights often does not accurately reflect bargaining power game theoretic predictions about payoffs and coalition formation are insensitive to nominal differences in vote distributions and instead only depend on pivotality we conduct an experimental test of the classical baron ferejohn model with five player groups holding real power constant we compare treatments with differences in nominal power we find that initial effects of nominal differences become small or disappear with experience our results also point to the complexity of the environment as having a negative impact on the speed at which this transition takes place finally and of particular importance as a methodological observation giving subjects a pause accelerates learning

tax motivated transfer pricing and us intrafirm trade prices abstract this paper analyzes monthly data on us international trade prices between 1997 and 1999 in order to investigate the impact of tax influences on intrafirm trade prices results indicate that there is substantial evidence of tax motivated transfer pricing in us intrafirm trade prices there is a strong and statistically significant relationship between countries tax rates and the prices of intrafirm transactions controlling for other variables that affect trade prices as country tax rates are lower us intrafirm export prices are lower and us intrafirm import prices are higher this finding is consistent with theoretical predictions regarding tax motivated income shifting behavior

fiscal paradise foreign tax havens and american business the tax haven affiliates of american corporations account for more than 20 percent of u s foreign direct investment and nearly a third of the foreign profits of u s firms american companies report extraordinarily high profit rates on their tax haven investments in 1982 this behavior implies that the revenue maximizing tax rate for a typical haven is around 5 8 percent american and foreign investment in tax havens has an uncertain effect on u s tax revenue but since low tax rates encourage american companies to shift profits out of high tax foreign countries it is possible that low foreign tax rates ultimately enhance u s tax collections

the effect of a worldwide tax system on tax management of foreign subsidiaries under a worldwide tax system firms pay taxes on their domestic income and repatriated foreign income whereas under a territorial tax system repatriated foreign income is exempt from taxation we examine whether worldwide tax systems reduce the incentives of multinational corporations to engage in tax management in their foreign subsidiaries using two quasi natural experiments we show that multinationals lower the effective tax rates in their foreign subsidiaries after countries switch from a worldwide to a territorial tax system thus multinationals subject to a worldwide tax system face competitive disadvantages compared to competitors from countries with a territorial tax system

optimality properties of alternative systems of taxation of foreign capital income foreign source capital income taxes are examined from the point of view of optimal taxation in the framework of a simple economy with international real capital flows a taxonomy of alternative systems of such taxation is first presented showing how crediting and other tax parameters induce what are called source based residence based and related systems next tax rates are determined that are optimal from a single country s point of view given those of the others the achievability of these rates under the various systems is analyzed finally tax rates that are optimal from an international point of view are considered again achievability of an international optimum under the various systems is considered leading to the main conclusions that i a pure residence based system in all countries can achieve an international fiscal optimum ii it cannot however be sustained as an equilibrium

centralized versus decentralized provision of local public goods a political economy approach abstract this paper takes a fresh look at the trade off between centralized and decentralized provision of local public goods it argues that the sharing of the costs of local public spending in a centralized system will create a conflict of interest between citizens in different jurisdictions when spending decisions are made by a legislature of locally elected representatives this conflict of interest will play out in the legislature depending on precisely how the legislature behaves the result may be excessive public spending or allocations of public goods characterized by uncertainty and misallocation across districts the extent of the conflict of interest between districts is affected by spillovers and differences in tastes for public spending thus the relative performance of centralized and decentralized systems depends upon spillovers and differences in tastes for public spending but for different reasons than suggested in the existing literature

earnings shocks and tax motivated income shifting evidence from european multinationals this paper presents a new approach to estimating the existence and magnitude of tax motivated income shifting within multinational corporations existing studies of income shifting use changes in corporate tax rates as a source of identification in contrast this paper exploits exogenous earnings shocks at the parent firm and investigates how these shocks propagate across low tax and high tax multinational subsidiaries this approach is implemented using a large panel of european multinational affiliates over the period 1995 2005 the central result is that parents positive earnings shocks are associated with a significantly positive increase in pretax profits at low tax affiliates relative to the effect on the pretax profits of high tax affiliates the result is robust to controlling for various other differences between low tax and high tax affiliates and for country pair year fixed effects additional tests suggest that the estimated effect is attributable primarily to the strategic use of debt across affiliates the magnitude of income shifting estimated using this approach is substantial but somewhat smaller than that found in the previous literature

multinationals profit response to tax differentials effect size and shifting channels this paper provides a quantitative review of the empirical literature on profit shifting behavior of multinational firms we synthesize the evidence from 25 studies and find a substantial response of profit measures to international tax rate differentials accounting for misspecification biases by means of meta regressions we predict a tax semi elasticity of subsidiary pre tax profits of about 0 8 moreover we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel our results suggest that transfer pricing and licensing are the dominant profit shifting channel

does a common set of accounting standards affect tax motivated income shifting for multinational firms abstract i test whether adoption of ifrs by individual affiliates of multinational entities mnes for unconsolidated financial reporting facilitates tax motivated income shifting mnes often justify transfer prices to tax authorities by benchmarking intercompany profit allocations against a range of book profit rates reported by economically comparable independent firms that use similar accounting standards additional qualifying benchmark firms resulting from ifrs adoption could allow managers to support more tax advantaged transfer prices using a database of european unconsolidated financial and ownership information over 2003 2012 i first document an increase in the arm s length range of book profits reported by potential ifrs benchmark firms following affiliate adoption of ifrs i then estimate a statistically and economically significant 11 3 percent tax motivated change in reported book pre tax profits following affiliate ifrs adoption relative to pre adoption and non adopter affiliate years

location and housing demand abstract william alonso s model of the demand for housing and location in the monocentric city is one of two pre eminent models of its type the purpose of this article is to provide the detailed analysis and the comparative statics of the alonso model the complexity of the analysis is seen to derive from the nature of the constraint which is nonlinear and has slopes which vary with income a new result is that housing and closeness can be inferior even when they are taste normal the empirical direct variation of income with distance is explained consistent with the finding that income increase has indeterminate effects on location and housing demand the alonso specification is shown to be superior to others

taxes tariffs and transfer pricing in multinational corporate decision making three interrelated aspects of u s multinational corporation activity are analyzed here the ability to shift profits from high tax countries to low tax countries the impact of host country taxes and tariffs on the distribution of real capital and the influence of these policies on international trade patterns of the united states and host countries the cross sectional empirical analysis indicates that the observed pattern of reported profits in high and low tax countries is consistent with income shifting behavior and that real investment responds to host country effective tax rates and tariffs the united states appears both to import more from and export more to low tax countries where mnc investment is greater but this bilateral focus must be amplified to consider multilateral effects if trade benefits are to be projected copyright 1991 by mit press

corporate taxes and the location of intangible assets within multinational firms intangible assets like patents and trademarks are increasingly seen as the key to competitive success and as the drivers of corporate profit moreover they constitute a major source of profit shifting opportunities in multinational enterprises mnes due to a highly intransparent transfer pricing process this paper argues that for both reasons mnes have an incentive to locate intangible property at affiliates with a relatively low corporate tax rate using panel data on european mnes and controlling for unobserved time constant heterogeneity between affiliates we find that the lower a subsidiary s corporate tax rate relative to other affiliates of the multinational group the higher is its level of intangible asset investment this effect is statistically and economically significant even after controlling for subsidiary size and accounting for a dynamic intangible investment pattern

coalition and party formation in a legislative voting game we examine a legislative voting game where decisions are being made over both ideological and distributive dimensions and legislators preferences are separable over the two dimensions in equilibrium legislators prefer to make proposals for the two dimensions together rather than offering sequential proposals on the two dimensions separately the equilibria exhibit interaction between the ideological and distributive dimensions and in any equilibrium there is a positive probability that a proposal is made and approved which excludes the median legislator as defined over the ideological dimension in contrast with a game where no distributive decision is being made moreover in any stationary equilibrium there is more than one ideological decision that has a positive probability of being proposed and approved we show that legislators can gain from forming political parties and consider examples where predictions can be made about the composition of parties we discuss the impact of political parties on the outcome

on the efficiency of equilibria in a legislative bargaining model with particularistic and collective goods this study analyzes the efficiency of equilibria in a multilateral bargaining game in which a legislature divides its budget among collective and particularistic goods in order to disentangle the causes of inefficiency we extend the model of volden and wiseman am polit sci rev 101 79 92 2007 by considering quasi linear utility functions and consensus requirements ranging from simple majority to unanimity although unanimous agreements can be reached under weaker consensus requirements we show that pareto inefficiency is associated with non unanimous consent we also study how i the endogenous selection of the legislature s size or ii a sequential choice of collective and particularistic spending eliminates or attenuates the inefficiency problem

profit shifting of u s multinationals abstract we analyze the profit shifting behavior of u s multinational firms using a unique panel data set of u s tax returns over the period 2002 2012 prior research has found significant effects of tax rates in affiliate and parent countries on the profit shifting behavior of multinational entities with semi elasticities ranging from close to zero to well above one we build on this prior work by allowing more heterogeneity in response across the distribution of tax rates and by including affiliates located in tax havens around the world our findings suggest that elasticities based on a log linear specification may severely understate the sensitivity of profits to tax in low tax jurisdictions while simultaneously overstating this elasticity in high tax jurisdictions accounting for this type of nonlinearity appears crucial in considering how the global allocation of firm profits might change in response to tax rate changes

household behavior in a monocentric urban area with a public sector abstract this paper has examined how a public sector alters the model of urban household behavior and its predictions the qualitative housing price and demand location characteristics remain unchanged by the introduction of either an exogenous or endogenous public sector in addition the household s response to tax rate and public service changes depend solely upon the nonlocational demand relationships the major impact of location per se on the household s demand vector is through an additional hicksian price term whether locational effects reinforce or vitiate nonlocational demand changes depends upon the compensated relationship between the good in question and housing this paper also investigated the design of neutral public budgets government budgets using property income or comprehensive sales taxes to finance public services cannot be neutral with respect to housing demand and location of the four types of taxes considered only a narrow based sales tax can finance public services neutrally

foreign influence control and indirect ownership implications for productivity spillovers how does the presence of controlled foreign firms affect the productivity of domestic firms in the same industry we revisit the historical distinction between control and influence by the foreign owner and define controlled foreign firms as those with a foreign ultimate owner holding 50 or more of voting shares connecting insights from new internalization theory with knowledge based views of the mne we posit that controlled foreign firms will generate larger productivity spillovers than non controlled foreign firms we use a firm level panel dataset of 575 844 manufacturing firms 2 343 495 observations across 20 european countries to test our proposition we pay careful attention to how firms are categorized as foreign taking into account both direct and indirect ownership links allowing for indirect ownership turns out to be pivotal there are just as many indirectly controlled foreign firms as foreign firms captured with direct ownership data we find positive horizontal spillovers from controlled foreign firms and zero spillovers from non controlled foreign firms interestingly the strongest positive spillovers come from the indirectly controlled foreign firms the implications of our study extend beyond productivity spillovers to areas such as cross border m as joint ventures mne strategies of legitimation and corporate groups

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

strategic behaviour and the rules for international taxation of capital this paper examines the welfare of a capital exporting or source country and a capital importing or host country under tax credit and tax deduction systems for the international taxation of capital because the two tax systems may create quite different strategic incentives for the countries the authors compare the equilibria in the tax setting game played by the two countries under each system they find that the tax credits system introduces an antitrade bias into the equilibrium contrary to initial impressions and that both capital exporting and capital importing countries will prefer the tax deductions scheme to tax credits copyright 1989 by royal economic society

heads i win tails you lose asymmetric taxes risk taking and innovation abstract when multinationals face lower tax rates abroad than in the us transfer pricing strategies generate an asymmetry in the tax rates on a project s profits and losses we show that the tax savings from transfer pricing can be expressed as a long position in a call option we use a model to show that this transfer pricing call option leads a firm to choose riskier and larger projects than it would otherwise thus transfer pricing strategies do not simply reduce a firm s taxes they can influence the scale and types of projects undertaken

taxes and the division of foreign operating income among royalties interest dividends and retained earnings abstract how do taxes influence the way u s corporations divide foreign affiliate operating income among royalties dividends interest and retained earnings the paper goes beyond previous work that focused largely on dividend repatriation behavior and provides a comprehensive analysis of the disposition of foreign subsidiary operating income the empirical results show that taxes have a large and statistically significant effect on the composition of payments own tax prices discourage the payment of dividends royalties and interest but dividend and other repatriation taxes do not increase retained earnings they only alter the composition of payments the results are therefore consistent with a generalized hartman sinn model of the mature controlled foreign corporation that has various alternative repatriation vehicles finally this paper integrates the choice of payments with income shifting among countries because the latter may be part of a low tax strategy for repatriations in this general framework conventional composite tax prices are not appropriate because the response to a change in a composite tax price depends on which components changed

international corporate tax avoidance a review of the channels magnitudes and blind spots this paper reviews the rapidly growing empirical literature on international tax avoidance by multinational corporations it surveys evidence on main channels of corporate tax avoidance including transfer mispricing international debt shifting treaty shopping tax deferral and corporate inversions moreover it performs a meta analysis of the extensive literature that estimates the overall size of profit shifting we find that the literature suggests that for the most recent year a 1 percentage point lower corporate tax rate compared to other countries will expand before tax income by 1 5 percent an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time the literature on tax avoidance still has several unresolved puzzles and blind spots that require further research

driving to opportunity local rents wages commuting costs and sub metropolitan quality of life we examine variation in local rents wage levels commuting costs household characteristics and amenities within metropolitan areas for 2071 areas covering the united states by density and central city status we demonstrate the sensibility of estimating wage levels by workplace not residence and recover decentralized rent gradients that fall with commuting costs we construct and map a willingness to pay index which indicates the quality of life typical households receive from local amenities when households are similar mobile and informed this index varies considerably within metros and is typically high in areas that are dense suburban sunny mild safe entertaining and have elevated school funding

the growth effects of tax rates in the oecd this paper explores the merits of macro and micro based tax rate measures within an open economy fiscal policy and growth model using annual data for 15 oecd countries we find statistically small non robust long run growth effects of macro based average tax rates on capital income and consumption but some evidence for average labor income tax effects changes in micro marginal income tax rates at both the personal and corporate levels yield statistically robust gdp responses of modest size both domestic and foreign corporate taxes appear relevant in general tax effects on gdp operate largely via factor productivity rather than factor accumulation

optimal capital structure and bankruptcy choice dynamic bargaining versus liquidation abstract we model a firm s optimal capital structure decision in a framework in which it may later choose to enter either chapter 11 reorganization or chapter 7 liquidation creditors anticipate equityholders ex post reorganization incentives and price them into the ex ante credit spreads using a realistic dynamic bargaining model of reorganization we show that the off equilibrium threat of costly renegotiation can lead to lower leverage even with liquidation in equilibrium if reorganization is less efficient than liquidation the added option of reorganization can actually make equityholders worse off ex ante even when they liquidate on the equilibrium path

coalition formation and bargaining protocols a review of the literature this paper offers a review of the vast literature regarding bargaining and coalition formation this topic has been generally described as the attempt to provide strategic foundations to cooperative solution concepts it can therefore be seen as the linking ring between the non cooperative and the cooperative game theoretic approach to coalition formation its central role in economic theory and its relatively long history that goes back to the nash program have fostered a large academic production including surveys nonetheless this paper will focus on an aspect that is often neglected in the dedicated surveys the specificities of the bargaining protocols leading to different outcomes although generally downgraded to the rank of details the differences in bargaining protocols even when minor can cause significant changes in fundamental aspects such as the possibility to reach full cooperation the distribution of final pay offs and the time taken to reach an agreement focused on externalities free games therefore on bargaining protocols sustaining solution concepts for cooperative games in characteristic function form the paper aims at providing a brief but exhaustive review of the topic that could result in a very useful tool for any researcher approaching the subject of coalitional bargaining

how elastic are national corporate income tax bases in oecd countries the role of domestic and foreign tax rates abstract to what extent do reductions in corporate income tax cit rates attract foreign tax bases what are the revenue implications of a unilateral tax reduction when tax bases are internationally mobile these questions are explored using annual data from 17 oecd countries spanning the period 1982 to 2005 controlling for fixed country effects year effects and country time trends and subjecting our results to an extensive robustness analysis we find i a country s aggregate reported corporate profits are negatively and significantly affected by cit rate reductions in neighbouring countries ii a unilateral reduction in the domestic cit rate results in lower domestic cit revenues

corporate tax effects on the quality and quantity of fdi this paper measures the relative importance of quality and quantity effects of corporate taxation on foreign direct investment quantity is affected if corporate taxes reduce the equilibrium stock of foreign capital in a given country quality effects arise if taxes decrease the extent to which investment contributes to the corporate tax base and the capital intensity of production depending on the sign of the quality effects the detrimental welfare effects of corporate taxation are either mitigated or aggravated we derive a number of hypotheses how corporate tax changes may affect the quality of investment our hypotheses are then tested using data from a large sample of european multinationals with regard to corporate tax effects on the corporate tax base we find that quality effects account for up to fourty per cent of the total effect with regard to corporate tax effects on labour income our results suggest that quality effects mitigate the negative quantity effect by nearly sixty percent as corporate taxes strongly increase the labor intensity of production an important implication is that governments should not exclusively care about the size of inbound fdi flows but also about their specific characteristics i e their quality

do swedish multinationals pay less in taxes than domestic firms in recent years there has been growing concern that multinational enterprises mnes engage in strategic tax planning in order to shift profits to low tax jurisdictions this common perception is generally confirmed by empirical evidence which is foremost provided for countries with high corporate taxes and relatively complex tax systems we investigate whether multinational firms in a country with a comparatively more competitive tax system undertake profit shifting we do this by using detailed census data from corporate income statements and balance sheets filed by swedish manufacturing firms between 1997 and 2007 many previous studies have used tax rate differences to identify profit shifting these studies however run the risk of overestimating the amount of tax shifting as this method entangles tax planning activities with the effect a lower corporate tax rate has on resulting profits we avoid this by comparing mnes with domestic firms unable to benefit from other tax jurisdictions in particular we identify systematic differences in tax payments earnings before interest and taxes and equity ratios between multinational and comparable domestic firms based on propensity score matching in addition we examine the tax behavioral impact of acquiring multinational status using difference in differences estimations and or propensity score matching our results reveal that the extent to which multinational firms have lower tax payments than their domestic counterparts depends on their production characteristics and foreign market outreach in particular we find evidence indicating that firms operating in few foreign markets and firms that become multinational engage in profit shifting from sweden less

blame game politics in a coalition government abstract delays in the adoption of reforms is an important question in political economics this paper explores this issue in the context of a representative democracy where the government is a coalition and citizens observe neither the decision making process nor politicians preferences for a reform we show that a coalition member who favors a reform may nonetheless choose to veto its adoption thus delaying it until after the next election and let his coalition partners share the blame for the non adoption we refer to this strategy as blame game politics we then identify three reasons for a politician to play the blame game one is to make an issue salient in the next election a second reason is to avoid a split in his electorate which is accomplished by hiding his stance on an issue a third reason is to enhance bargaining power during the formation of the next government

r d intensity and the effective tax rate a meta regression analysis we apply meta regression techniques to provide a quantitative review of the empirical literature on how research and development r d expenses affect the effective tax rate etr r d expenses relate to a well accepted profit shifting channel strategic placement of intellectual property within a multinational entity using a unique hand collected data set we add a new perspective to the current base erosion and profit shifting beps state of research and debate in three ways first observing that primary studies report mixed evidence on how r d expenses affect etr we provide a consensus estimate for this effect second we consider this effect in more detail by separating a tax accounting effect and a profit shifting effect which to our knowledge has not yet been investigated we detect that one third of the r d effect on the etr is due to the tax accounting effect and could be mitigated via book tax conformity we further find that 10 of the profit shifting effect can be traced back to r d tax credits third our meta regression reveals factors that are possible sources of variation and bias in previous empirical studies

a foundation for markov equilibria in sequential games with finite social memory we study stochastic games with an infinite horizon and sequential moves played by an arbitrary number of players we assume that social memory is finite every player except possibly one is finitely lived and cannot observe events that are sufficiently far back in the past this class of games includes games between a long run player and a sequence of short run players and games with overlapping generations of players an equilibrium is purifiable if some close by behaviour is consistent with equilibrium when agents payoffs in each period are perturbed additively and independently we show that only markov equilibria are purifiable when social memory is finite thus if a game has at most one long run player all purifiable equilibria are markov

cross border tax effects on affiliate investment evidence from european multinationals recent studies suggest that multinational firm activities at home and abroad are positively correlated which may be due to the use of common inputs like marketing patents etc then a cost shock at one location may lead to reduced activity in all other locations within the firm in this paper we theoretically and empirically analyze national corporate tax policy in such a setting our main hypothesis is that corporate taxation at the parent location not only reduces the parent s capital stock but also lowers capital stocks at affiliates abroad using micro data on european multinational firms we confirm the hypothesis showing that a 10 percentage point increase in corporate tax rates is associated with a 5 6 decrease in the affiliate s capital stock from a welfare point of view this cross border tax effect on the capital stock gives rise to a negative fiscal externality of corporate taxation which is empirically shown to compensate a substantial fraction of the well known positive externality due to profit shifting

why pay more corporate tax avoidance through transfer pricing in oecd countries this paper presents suggestive evidence of income shifting in response to differences in corporate tax rates for a large selection of oecd countries we use a new method to disentangle the income shifting effects from the effects of tax rates on real activity our baseline estimates suggest that a substantial share of the revenues from a unilateral increase in the corporate tax rate is lost because of a decline in reported income

non cooperative bargaining theory an introduction the paper provides an informal introduction to some of the main themes of the recent literature on non cooperative or sequential bargaining models it focuses in particular on the relationship between the new approach and the traditional axiomatic approach exemplified by nash bargaining theory it illustrates the new insights offered by the non cooperative approach by reference to a detailed analysis of the manner in which the presence of an outside option available to one of the parties will affect the negotiated outcome finally the difficulties which arise in extending this analysis to two person bargaining with incomplete information and to n person bargaining are discussed this is a revised version of the fourth review of economic studies lecture presented in april 1985 at the joint meeting of the association of university teachers of economics and the royal economic society held in oxford the choice of lecturer is made by a panel whose members are currently professors hahn mirrlees and nobay and the paper is refereed in the usual way this paper aims to provide an informal and elementary introduction to an approach to bargaining which has received a great deal of attention over the past few years the approach involves writing down some particular sequence of moves offers and replies to be made over time in the course of negotiations and then looking for a non cooperative equilibrium in the game thus specified in practice a perfect equilibrium or in games of incomplete information a sequential equilibrium while the approach appears at first sight to be very different in spirit from the traditional axiomatic approach in which a bargaining solution is specified by appealing to a number of general requirements which are deemed appropriate on the basis of some a priori considerations the two approaches are in fact complementary while the

what drives corporate tax rates down a reassessment of globalization tax competition and dynamic adjustment to shocks we reassess the driving forces behind the recent decline of corporate tax rates in europe using data for up to 32 countries from 1983 to 2006 we analyze the roles of economic and financial openness as well as tax competition while allowing for dynamic adjustment to shocks and period specific and country specific effects while there is no evidence that countries that have become more open have reduced their tax rates more our findings suggest that countries strongly compete over statutory tax rates a simulation of tax rates in a scenario with no cross sectional dependence in tax setting suggests that in the absence of tax competition the mean statutory tax rate of western european countries in 2006 would have been about 12 5 percentage points above its actual level we conclude that the recent downward trend in corporate taxes is mainly a result of tax competition

legislative bargaining under weighted voting organizations often distribute resources through weighted voting we analyze this setting using a non cooperative bargaining game based on the baron ferejohn 1989 model unlike analyses derived from cooperative game theory we find that each voter s expected payoff is proportional to her voting weight an exception occurs when many high weight voters exist as low weight voters may expect disproportionately high payoffs due to proposal power the model also predicts that ex post the coalition formateur the party chosen to form a coalition will receive a disproportionately high payoff using data from coalition governments from 1946 to 2001 we find strong evidence ofsuch formateur effects

who cares about corporate taxation asymmetric tax effects on outbound fdi this paper investigates whether different types of fdi are asymmetrically affected by corporate taxation we classify investment projects according to several characteristics such as the general motivation for fdi the type of business activity or the degree of internationalisation of the multinational firm subsequently we analyse how local taxes influence the number of german outbound investments in european countries the analysis reveals significant asymmetries with regard to tax effects vertically integrated investments are more sensitive to host country taxation than horizontal fdi larger tax rate elasticities are estimated if business activities are considered highly mobile and in accordance with profit shifting considerations subsidiaries of more internationalised companies are less tax responsive to host country taxation

the taxation of domestic and foreign banking abstract using bank level data for 80 countries in the 1988 1995 period this paper examines taxation of domestic and foreign owned banks the profitability of foreign banks is found to rise relatively little with their domestic tax burden perhaps reflecting the availability of foreign tax credits and profit shifting opportunities the paper also examines whether domestic and foreign banks pay different amounts of domestic tax taxes paid by foreign banks are shown to rise relatively little with the local statutory tax this evidence supports the hypothesis that foreign banks engage in relatively extensive profit shifting

on the future of international joint venture research international joint ventures ijvs are an important type of international strategic alliance isa and have been studied by scholars for decades resulting in a plethora of empirical studies publications and reviews yet an inadequate accumulation of knowledge exists as a closer look reveals much more than providing a summary and critical assessment of past contributions this paper develops an expansive research agenda based upon a deep understanding of past research and comprehensive frameworks that distill this research we identify a number of research opportunities that would not only advance ijv research but also closely related literatures and disciplines such as isas theories of the multinational firm international business research and strategic management

the impact of controlled foreign company legislation on real investments abroad a multi dimensional regression discontinuity design controlled foreign company cfc rules are frequently imposed by countries as part of their anti tax avoidance legislation this paper aims at quantifying the impact of the german cfc rule on the universe of foreign investments held by german multinational firms the german cfc legislation gives rise to a multi dimensional regression discontinuity design which allows us to estimate local average treatment effects along the dimensions determining treatment our results suggest a significant and economically large impact of the cfc legislation on multinationals real activity abroad we also find evidence of some heterogeneity in estimated treatment effects according to parametric as well as nonparametric estimates

cooperation and punishment under repeated majority voting in light of the extensive theoretical evidence suggesting absence of equilibrium in voting models tullock 1981 asks why so much stability our results suggest the following answer political agents engaged in long term relationships can sustain highly stable allocations if there are strongly held norms for punishment of defectors 1

legislative representation bargaining power and the distribution of federal funds evidence from the us congress this article investigates the relationship between representation in legislatures and the geographic distribution of federal funds in a legislative bargaining model we demonstrate that funds are concentrated in high representation areas and two channels underlie this result the proposal power channel reflects the role of representation in committee assignments and the vote cost channel reflects the role of representation in coalition formation in our empirical analysis we find that small states relative to large states receive more funding in the us senate relative to the house we also find empirical support for the two channels underlying this relationship throughout the history of federations and international organisations a key consti tutional design question involves how jurisdictions of different sizes are represented in legislative bodies and how their votes will ultimately be weighted large jurisdictions typically argue for delegation sizes or voting weights that are roughly proportional to population whereas small jurisdictions typically argue for an equal number of delegates or votes for each jurisdiction this conflict over representation is presumably driven at least in part by a belief that increased representation strengthens bargaining power in the battle over the geographic distribution of funds authorised by these legislative bodies in this article i analyse the relationship between legislative representation bar gaining power and the geographic distribution of federal funds from both a theoretical and empirical perspective in addition to investigating the existence of a relationship between representation and federal funds i also explore the underlying mechanisms that is i ask which political institutions such as agenda control provided to commit tees and the formation of coalitions under majority rule shape the bargaining power of jurisdictions in central legislatures and thus facilitate the relationship between repre sentation and the distribution of federal spending to provide a framework for analysing these issues i begin by developing a simple theoretical model of a central legislature that determines the crossjurisdiction distri bution of local public goods which are financed by a national tax base both delegation sizes and population are variable allowing me to consider a variety of institutional arrangements for jurisdictional representation legislators represent local interests and given the common pool problem associated with concentrated benefits and dis persed tax costs attempt to increase ownjurisdiction spending but to restrain spending elsewhere the model follows a recent literature on legislative bargaining in which a proposer must secure a majority of votes in order to pass legislation and due to the

the influence of governance infrastructure and corporate governance on profit shifting in this article we develop a conceptual model to examine the influence of quality of country level governance infrastructure and corporate governance effectiveness on profit shifting we empirically test propositions derived from the model with a unique firm level data set and using multiple indicators of governance infrastructure quality and corporate governance mechanisms we estimate that on average about 6 of total pre tax income is shifted out of foreign owned firms in india we show that governance infrastructure that improves collective action and transparency in both the foreign and host country reduces shifting on the other hand secure property rights and efficient contracting in the foreign country increases shifting we also find that monitoring by foreign institutional investors restricts shifting

banks debt and risk assessing the spillovers of corporate taxes we find evidence of tax driven strategic allocation of debt and asset risk across group entities of european banks we evaluate the effects that establishing tax neutrality between debt and equity finance has on systemic risk and show that the degree of coordination in implementing the hypothetical tax reform matters in particular a coordinated elimination of the tax advantage of debt would significantly reduce systemic losses in the event of a severe banking crisis by contrast uncoordinated tax reforms are not equally beneficial precisely because national tax policies generate spillovers through cross border bank activities jel g21 g28 h25

rural urban welfare program and labor force participation nonmetro poor in the midwest participate more in the labor force and less in welfare programs than metro poor we formalize how household composition capital labor market conditions and state specific regulations define opportunity sets then estimate a bivariate binomial probit model of work and program participation choices an oaxaca decomposition analysis is conducted to compare differences in characteristics to differences in behavior in explaining the two groups choices we find no behavioral basis for the difference in labor market participation and while most of the lower midwestern nonmetro welfare program participation is due to demographics some is due to different life cycle behavior

veto games spatial committees under unanimity rule there exists a large literature on two person bargaining games and distribution games or divide the dollar games under simple majority rule where in equilibrium a minimal winning coalition takes full advantage over everyone else here we extend the study to an n person veto game where players take turns proposing policies in an n dimensional policy space and everybody has a veto over changes in the status quo briefly we find a nash equilibrium where the initial proposer offers a policy in the intersection of the pareto optimal set and the pareto superior set that gives everyone their continuation values and punishments are never implemented comparing the equilibrium outcomes under two different agendas sequential recognition and random recognition we find that there are advantages generated by the order of proposal under the sequential recognition rule we also provide some conditions under which the players will prefer to rotate proposals rather than allow any specific policy to prevail indefinitely

unobserved tax avoidance and the tax elasticity of fdi abstract this paper investigates the tax responsiveness of multinational firms investment decisions in foreign countries distinguishing firms that are able to avoid taxes avoiders from those that are not non avoiders from a theoretical point of view the tax responsiveness of firms crucially depends on this distinction empirically however a firm s ability to avoid profit taxes is inherently unobservable to the researcher to address this problem we use a finite mixture modeling approach which allows us to distinguish avoiders from non avoiders stochastically from a mixture of distributions of the two types of firms using panel data on the universe of foreign affiliates of german multinational firms over the years 1999 2010 we find that investments of tax avoiders do not respond to host country profit taxes at all while those of non avoiders do about 11 of the affiliates are estimated to be able to avoid taxes these investments account for about 58 of the stock of foreign fixed assets held by german multinational firms abroad a one percentage point increase in the statutory corporate profit tax rate of a host country is found to reduce the fixed assets of non avoiders in that host country by 0 81

income shifting investment and tax competition theory and evidence from provincial taxation in canada abstract we study corporate income taxation when firms operating in multiple jurisdictions can shift income using tax planning strategies because income of corporate groups is not consolidated for tax purposes in canada firms may use financial techniques such as lending among affiliates to reduce subnational corporate taxes a simple theoretical model shows how income shifting affects real investment government revenues and tax base elasticities depending on whether firms must allocate income to provinces or not we then analyze data from administrative tax records to compare the behavior of corporate subsidiaries that may engage in income shifting to comparable firms that must use the statutory allocation formula to determine their taxable income in each province the evidence suggests that income shifting has pronounced effects on provincial tax bases according to our preferred estimate the elasticity of taxable income with respect to tax rates for income shifting firms is 4 9 compared with 2 3 for other comparable firms

procedural choice in majoritarian organizations a puzzling feature of self governing organizations is persistent majority support for restrictive seemingly nonmajoritarian procedures e g chairs and committees this article provides a theory of self enforcing majoritarian commitment to restrictive procedures we ask 1 why majorities consent to restrictive procedures in the first place 2 why restrictive procedures survive challenges thereafter and 3 with what policy consequences in the model a risk averse majority allocates procedural rights to increase procedural efficiency i e reduce the procedural uncertainty of free for all bargaining an equilibrium procedure is generally asymmetric and restrictive generating nonmajoritarian policy bias still a majority may persist in endorsing it so as to avoid amplifying procedural and policy uncertainty

revealed preference and location choice abstract the assumption that population and structural densities are defined over parcels of land with zero area is problematic when interpreting the standard residential land use model as approximating a large finite economy this paper extends revealed preference theory to depict a spatial economy with land parcels of finite area the model generalizes the standard utility function approach allowing for many consumer types with different tastes and incomes and labor leisure choice to show that the most important predictions of the standard theory hold in the general finite framework studied here

income misattribution under formula apportionment abstract alternatives to the current system of separate tax accounting such as the proposed common consolidated corporate tax base in europe would apportion a firm s worldwide profits using formulas based on the location of employment capital or sales this paper offers a new method of evaluating the accuracy of these apportionment rules and the ownership distortions they create evidence from european company accounts indicates that apportionment formulas significantly misattribute income since employment and other factors on which they are based do a very poor job of explaining a firm s profits for example the magnitude of property employment and sales explains less than 22 of the variation in profits between firms and the prediction estimates from using such a formula exceed half of predicted profits 64 of the time and exceed twice predicted income 11 of the time as a result the use of formulas rewards or punishes international mergers and divestitures by reallocating taxable income between operations in jurisdictions with differing tax rates the associated ownership distortion is minimized by choosing factor weights to minimize weighted squared prediction errors for which based on the european evidence labor inputs should play little if any role in allocation formulas but even a distortion minimizing formula creates large incentives for inefficient ownership reallocation due to the enormous variation in profitability that is unexplained by formulary factors implying that significant resource allocation costs would accompany european adoption of formulary apportionment methods

fiscal discipline and the budget process the critical economic policy issue for many oecd countries developing countries and transition economies currently is fiscal consolidation and the maintenance of long run fiscal balance two related components underlie this general goal first several countries face the issue of deficit reduction particularly those countries with high debt gdp ratios second it is becoming increasingly apparent that major reforms of the welfare system and specifically of social security systems are critical ingredients of a long lasting fiscal consolidation see alesina and perotti 1995a in the case of monetary policy a constructive discussion has generated a widespread consensus about the benefits of different monetary institutions relatively few economists dispute the benefits of a certain amount of central bank independence even though different commentators and policymakers may disagree on the optimal degree of independence also a contracting approach has highlighted the benefit of inflation targeting and of certain institutional relationships contracts between the executive and the central bank a similar theoretical and empirical discussion on the role of budget procedures and budget institutions is just beginning in this paper we ask the following two questions i do budget procedures matter for the determination of the budget balance and its composition ii are there certain institutional reforms that one should feel comfortable in recommending based on the relatively scarce empirical evidence available we tentatively answer yes to the first question budget procedures matter on the second question we suggest that the two critical areas of reform are first more transparency second a strengthening of the roles of the executive branch vis a vis the legislature and of the treasury minister vis a vis the rest of the executive branch in order to achieve a centralized and top bottom approach to the budget process

electoral thresholds and political representation we rely on a reform in the german federal state of hesse that abolished a 5 electoral threshold for local elections to study the effects of electoral thresholds on political representation the elimination of the threshold had on average a stronger effect on municipalities with larger councils since implicit also known as effective electoral thresholds are inversely correlated with council size using a dataset that includes all 426 hessian municipalities over the period 1989 2011 and exploiting discontinuities in a state law that maps populations exogenously to council size we implement a difference in discontinuities design our results show that the reform had large psychological effects that eventually improved the electoral prospects of relatively small local parties in the short run however the vote and seat shares of the large national parties increased we offer some explanations for this finding

changes in corporate effective tax rates over the past 25 years abstract we investigate systematic changes in corporate effective tax rates over the past 25 years and find that effective tax rates have decreased significantly contrary to conventional wisdom the decline in effective tax rates is not concentrated in multinational firms effective tax rates have declined at approximately the same rate for both multinational and domestic firms moreover within multinational firms both foreign and domestic effective rates have decreased finally changes in firm characteristics and declining foreign statutory tax rates explain little of the overall decrease in effective rates

who bears the burden of international taxation evidence from cross border m as cross border m as can trigger additional taxation of the target s income in the form of non resident dividend withholding taxes and acquirer country corporate income taxation this paper finds that this additional international taxation is fully capitalized into lower takeover premiums in contrast acquirer excess stock market returns around the bid announcement date do not appear to reflect additional taxation of the target s income these findings suggest that international taxation is considered to be burdensome and that the incidence of this taxation is primarily on target firm shareholders

interest group politics under majority rule abstract we develop a model of interest group politics in which the groups and coalitions that arise and the form of redistributive policies sought are jointly determined the model generates three key results first programs intended to reduce income inequality are more likely to involve direct payments than are programs that redistribute wealth across groups with similar incomes second nonequalizing redistribution is unlikely unless the various participants in the political process face significantly different political and economic costs of obtaining transfers third many policies that induce asymmetries among interest groups also impose significant deadweight costs stable nonequalizing redistribution will therefore tend to involve indirect and economically inefficient methods of transferring income

corporate taxation and the choice of patent location within multinational firms corporate patents are perceived to be the key profit drivers in many multinational enterprises mnes moreover as the transfer pricing process for royalty payments is often highly intransparent they also constitute a major source of profit shifting opportunities between multinational entities for both reasons mnes have an incentive to locate their patents at affiliates with a relatively small corporate tax rate our paper empirically tests for this relationship by exploiting a unique dataset which links information on patent applications to micro panel data for european mnes our results suggest that the corporate tax rate differential to other group members indeed exerts a negative effect on the number of patents filled by a subsidiary the effect is quantitatively large and robust against controlling for affiliate size the findings prevail if we additionally account for royalty withholding taxes moreover binding controlled foreign company rules tend to decrease the number of patent applications

strategic trade policy through the tax system if conventional instruments of strategic trade policy are unavailable the system of foreign profit taxation and transfer price guidelines may serve as surrogate policy instruments in this paper i consider a model where firms from two countries compete with each other on a market in a third country both firms have affiliates in the third country where part of the production takes place i analyse optimal policy choices of the firms residence countries aiming at strategically manipulating the competitiveness of their firms i show that first countries prefer the tax exemption system over the tax credit system if there is no intra firm trade second if the headquarters provide inputs for production in the affiliate countries prefer the tax exemption system if the transfer price for these inputs is close to the headquarters variable cost and if the residence country s tax rate is high however if transfer prices are high and the residence country s tax rate is low i show that the tax credit system is an optimal tax policy choice for both countries from a policy perspective the view that the tax exemption system is generally the best policy response if domestic firms competitiveness is a policy goal has to be qualified

transfer pricing regulation and tax competition abstract the paper analyzes multinational enterprises incentives to manipulate internal transfer prices to take advantage of tax differences across countries and implications of transfer pricing regulations as a countermeasure against such profit shifting we find that tax motivated foreign direct investment fdi may entail inefficient internal production but may benefit consumers thus encouraging transfer pricing behavior to some extent can enhance social welfare furthermore we consider tax competition between two countries to explore its interplay with transfer pricing regulations we show that the fdi source country will be willing to set a higher tax rate and tolerate some profit shifting to a tax haven country if the regulation is tight enough we also indicate a novel mechanism through which it is the larger country that undertakes tax motivated fdi the pattern we often observe in reality

a noncooperative theory of legislative coalitions this noncooperative theory is based on a model that incorporates an institutional structure that reflects the sequential process of agenda formation and voting in a legislature that has the task of allocating particularistic benefits among legislative districts the theory is intended to identify the incentives for the formation of proposal coordinating coalitions as a function of characteristics of the political system and the rules that govern agenda formation coalition proposals allocate all the benefits to their districts and whenever the coalition has discipline or controls the chair it will be of minimal winning size when proposals are governed by a closed rule when coalition discipline is absent and the chair is neutral the coalition will be comprised of approximately 70 of the legislature a legislative rule that allows amendments may result in larger coalitions coalition composition is also considered

the costs of tax havens evidence from industry level data multinational enterprises make use of tax havens to avoid paying corporate income taxes and this costs 100 billion usd and more in lost government revenue worldwide according to an increasing numbe

location housing and leisure demand muth s model of cbd employed household behavior has been successfully extended to include labor leisure choice in order to deal with the original version s deficient treatment of commuting time the extension demonstrates how all the basic results of the simpler formulation remain valid this paper provides a similar extension for the locally employed household variant of muth s model the analysis demonstrates a surprising difference between the demand gradient and comparative static results for the locally employed household without leisure choice and the locally employed household with leisure choice not observed for the cbd employed household model

chaotic shop talk or efficient parliament the reichstag the parties and the problem of governmental instability in the weimar republic the german parliament in the weimar republic was very instable and governments did not last long historical research has tried to determine what caused this instability those historical hypotheses are re examined by studying a completely new dataset covering 489 roll call bills in the parliament during the 14 years in question according to the findings of this study it is very unlikely that it was only the system its conditions and its actors that caused instability and that the reasons rather have to be found outside parliament

the taxation of foreign profits a unified view this paper synthesizes and extends the literature on the taxation of foreign source income in a framework that covers both greenfield and acquisition investment and a general constraint linking investment at home and abroad for the multinational by introducing a cost of adjustment for the mobile factor unless the cost of adjustment is zero the domestic tax on foreign source income should always be set to ensure the optimal allocation of the mobile factor between domestic and foreign assets and should follow the classical rules in the literature national optimality requires the deduction rule and global optimality requires the credit rule only in the zero cost case does exemption become optimal allowances can be set so as to ensure that domestic and foreign asset purchases are undistorted by the tax system this requires a cash flow tax on domestic investment in the greenfield case and a cross border cash flow tax on foreign investment in both cases these basic results extend to various extensions of the model notably i when a profit shifting motive is present and ii to some extent when a corporate income tax is in place the introduction of tax administration costs into the model can explain the empirical trend towards the use of the exemption regime

international profit shifting within multinationals a multi country perspective abstract we model the opportunities and incentives generated by international tax differences for international profit shifting by multinationals the model considers not only profit shifting arising from international tax differences between affiliates and parent companies but also from tax differences between affiliates in different host countries our model yields the prediction that a multinational s profit shifting in a country depends on a weighted average of international tax rate differences between all countries where the multinational is active using a unique dataset containing detailed firm level information on the parent companies and subsidiaries of european multinationals and information about the international tax system we test our model and empirically examine the extent of intra european profit shifting by european multinationals on average we find a semi elasticity of reported profits with respect to the top statutory tax rate of 1 3 while shifting costs are estimated to be 0 6 of the tax base international profit shifting leads to a substantial redistribution of national corporate tax revenues many european nations appear to gain revenues from profit shifting by multinationals largely at the expense of germany

multinational firms and tax havens multinational firms with operations in high tax countries can benefit the most from reallocating taxable income to tax havens though this is sufficiently difficult and costly that only 20 4 of german multinational firms have any tax haven affiliates among german manufacturing firms a 1 percentage point higher foreign tax rate is associated with a 2 3 greater likelihood of owning a tax haven affiliate this is consistent with tax avoidance incentives and contrasts with earlier evidence for u s firms the relationship is less strong for firms in service industries possibly reflecting the difficulty of reallocating taxable service income