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

the demand for post compulsory education in the uk and the effects of educational maintenance allowances in this paper the author develops a model of investment in postcompulsory schoolin g based on human capital theory the model is estimated using data on a sample of sixteen and seventeen year olds derived from the family expenditure survey the results reveal significant differences in the factors influencing enrollment in postcompulsory education between m ales and females mot notably household income is an important deter minant of educational participation for females but not for their ma le counterparts on the basis of these results the author assesses t he effects of the introduction of educational maintenance allowances on participation rates in the united kingdom

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

staying on in full time education the educational participation rate of 16 year olds this paper presents a time series analysis of the socioeconomic factors influencing the propensity of sixteen year olds to stay on in full time education in england and wales the econometric methodology employed relies on cointegration and general to specific techniques the results suggest that the main factors influencing staying on are the rate of return to education changing social class structure unemployment rates and the introduction of special employment and training measures such as the youth training scheme copyright 1991 by the london school of economics and political science

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

unemployment and early school leaving theoretical predictions about the effect of unemployment on school leaving are ambiguous unemployment might affect the decision to leave school in a number of different ways i current youth unemployment a higher probability of current unemployment for those who choose to leave school would tend to discourage early school leaving first by reducing the expected gains from job search a discouraged worker effect and second by reducing the opportunity cost of additional education ii expected future unemployment the theoretical predictions here are less clear cut an increase in the probability of future unemployment that affected both those with and without additional education would tend to reduce the rate of return to education and hence education demand on the other hand those with more education may be less affected by rises in unemployment and this may encourage further schooling these two opposing effects have been formalised as a shift and a tilt in the unemployment probability schooling relationship kodde i988 fig i suggests that in the united kingdom both effects could have accompanied the transition from the late 1970s to the i98o the full effects of uncertainty on education investment in a two period model depend on the correlation between the uncertainty in the two periods levhari and weiss 1974 how current unemployment rates are used to form expectations of future unemployment is clearly an important issue here also some individuals may be able to undertake job search before committing themselves to leave school and whilst affected by the risk of future unemployment may be comparatively unaffected by the risk of current unemployment iii effects ofparental unemployment parents unemployment in general reduces family income their children s educational demand may fall as a consequence for three reasons first the consumption demand for education will be lower second a reduction in the first period income reduces the investment demand for education assuming decreasing absolute risk aversion kodde i 988

legislator turnout and the calculus of voting the determinants of abstention in the u s congress the belief that turnout and abstention depend on theinteraction of the benefits and costs of voting is oneof the longest held in public choice the interplaybetween benefits and costs has typically been studiedwithin the context of voter turnout in elections butthese results are confounded by the fact thatparticipation in such elections is a low cost low benefit activity analysis of voting in legislatures where the potential returns and costs to participantsare greater is more promising

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

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

choice at sixteen the proportion of sixteen year olds in britain who stay on at school is low by oecd standards this paper examines the probability of completing education at the minimum legal age using micro data on individuals parameter estimates of a reduced form logit model of the leaving probability are obtained for both boys and girls the rich data set used allows the separate effects of family school and ability to be assessed family background in the form of class and parental education is shown to have a large effect even when ability and school type are controlled for copyright 1989 by the london school of economics and political science

upper secondary school completion and the business cycle previous evidence suggests that enrollment in post compulsory education increases decreases in cyclical downturns upturns however little evidence exists on whether enrollment is successfully transformed into completed education this paper adds to the literature by analyzing the relationship between completion of upper secondary education and regional unemployment using norwegian regional panel data on students graduating from compulsory school between 1981 and 2004 we find robust evidence that completion rates are countercyclical our results suggest that poor labor market conditions when starting upper secondary education have a lasting effect and motivate students to stay in school and graduate

modelling the transition from school and the demand for training in the united kingdom this paper analyses the choices made by school leavers and the demand for training in the youth labour market using a large cross section database on all school leavers in lancashire in 1991 we model using a multinomial logit their first destination six months after the end of compulsory schooling we model six choices outcomes non vocational continuing education vocational continuing education youth training employment with on the job training employment with general skills training and unemployment our results show that the first destination from school is affected by a range of individual school and local labour market variables in addition to academic ability we report three effects that are not well known a young person is more likely to leave school the bigger the school the lower its academic performance and the lower his or her expected lifetime earnings our results might be interpreted as evidence of a segmented youth labour market it is also inappropriate to model the decision to stay on in continuing education as a simple binary choice

do recessions keep students in school the impact of youth unemployment on enrolment in post compulsory education in england in this paper i assess the impact of the youth labour market on enrolment in post compulsory education to that end i construct data for a panel of english regions and identify youth labour market effects using variation in youth unemployment rates across regions and over time my estimates suggest that the youth labour market has large enrolment impacts at least twice as large as suggested by uk estimates based on time series data this helps to explain why enrolment growth slowed down from the mid 1990s and suggests that a weakening youth labour market could cause enrolment to increase again

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

competition for university places and parental time investments evidence from the united kingdom across the industrialized world college educated parents invest more time in their children relative to noncollege educated parents yet the reason for the education gradient in parental time investments is not well understood using 24 hour diary surveys since the 1970s we document an inverse u shape in the education gradient in the united kingdom theories unfolding gradually and monotonically cannot easily explain this pattern using an exogenous increase in the number of students going on to university in the 1980s we show that an alternative explanation based on competition for university places can explain the temporal and spatial variation in the education gradient jel j13 j24

equity and efficiency in rationed labor markets the social welfare implications of income tax policy are shown to critically depend on whether or not labor markets are rationed i e on the existence of involuntary unemployment with rationed labor markets raising taxes on the employed and transfers to the unemployed might improve both equity and efficiency it improves equity by redistributing income from the employed to the unemployed it improves efficiency as it encourages people with a small utility surplus of employment to exit the labor market leaving their jobs for people with a higher utility surplus i derive conditions under which this result continues to hold when only part of the labor market is rationed when there is both frictional and rationing unemployment and when rationing endogenously follows from trade unions monopoly power

long term unemployment and labour force participation a decomposition of unemployment to test for the discouragement and added worker hypotheses we sharpen tests for discouragement and added worker effects by splitting the explanatory variable the unemployment rate into a short term component and a long term component while short t

the boundaries of multinational enterprises and the theory of international trade this paper begins with a review of empirical evidence on multinational firms conceptual underpinnings of a theory are developed relying in particular on the notion of knowledge capital as a mobile joint input into geographically separated production facilities this idea is embedded in a simple two country general equilibrium model that supports multinational production in equilibrium under conditions consistent with the empirical evidence the final section examines internalization and shows why certain properties of knowledge capital also imply a preference for transferring technologies internally within the firm rather than through arm s length markets

ability matters effects of youth labor market opportunities on long term labor market outcomes utilizing registry data on cognitive ability tests for all norwegian males born between 1962 and 1973 i study whether labor market conditions at the age of graduation have differential effects on earnings and employment for different ability groups i find that low ability males are more vulnerable to local business cycles at the expected time of labor market entry in particular i demonstrate that low ability males suffer larger long term earnings losses than the rest of the population this article is protected by copyright all rights reserved

patent protection imitation and the mode of technology transfer abstract this paper analyzes a model in which a firm endowed with a new technology can choose between exports licensing and direct investment as entry modes in a foreign market i endogenize the vintage of the transferred technology and allow for imitation by the licensee subsidiary production and exports circumvent imitation but involve higher costs for the innovating firm the firm can strategically use the vintage of the technology to deter imitation by the licensee as a result transfers to affiliates might be of later vintage than technologies sold to outsiders through modification of the imitation costs the host country s system of patent protection influences the mode of technology transfers which in turn affects the welfare of the recipient economy

is a minimum wage an appropriate instrument for redistribution textabstractwe analyze the redistributional dis advantages of a minimum wage over income taxation in competitive labor markets without imposing assumptions on the in efficiency of labor rationing compared to a distributionally equivalent tax change a minimum wage increase raises involuntary unemployment but also raises skill formation as some individuals avoid unemployment a minimum wage is an appropriate instrument for redistribution if and only if the public revenue gains from additional skill formation outweigh both the public revenue losses from additional unemployment and the utility losses of inefficient labor rationing we show that this critically depends on how labor rationing is distributed among workers a necessary condition for the desirability of a minimum wage increase is that the public revenue gains from higher skill formation outweigh the revenue losses from higher unemployment we write this condition in terms of measurable sufficient statistics our empirical analysis suggests that a minimum wage increase is undesirable in nearly all oecd countries a reduction in the minimum wage along with tax adjustments that keep net incomes constant would yield a pareto improvement

does parents money matter abstract this paper asks whether parents income per se has a positive impact on children s abilities previous research has established that income is positively correlated across generations this does not prove that parents money matters however since income is presumably correlated with ability this paper estimates the impact of parents income by focusing on income variation due to factors union industry and job loss that arguably represent luck i find that changes in parents income due to luck have a negligible impact on children s human capital for most families although parents money does matter for families whose father has low education

life cycle schooling and dynamic selection bias models and evidence for five cohorts of american males this paper examines an empirical regularity found in many societies that family influences on the probability of transiting from one grade level to the next diminish at higher levels of education we examine the statistical model used to establish the empirical regularity and the intuitive behavioral interpretation often used to rationalize it we show that the implicit economic model assumes myopia the intuitive interpretive model is identified only by imposing arbitrary distributional assumptions onto the data we produce an alternative choice theoretic model with fewer parameters that rationalizes the same data and is not based on arbitrary distributional assumptions

voter participation and strategic uncertainty the paradox of not voting is examined in a model where voters have uncertainty about the preferences and costs of other voters in game theoretic models of voter participation under complete information equilibrium outcomes can have substantial turnout even when voting costs are relatively high in contrast when uncertainty about preferences and costs is present only voters with negligible or negative net voting costs participate when the electorate is large

legislator voting and shirking a critical review of the literature we set out to critically review the progress in answering two related questions what determines how legislators vote and how can shirking by legislators be measured in the first category the hypothesis that legislators shirk in order to indulge their personal ideological preferences has led researchers astray the theoretical underpinning is shaky on two counts first legislators who indulge their preferences at the expense of their constituents preferences put themselves at a competitive electoral disadvantage second the original two stage procedure used to measure ideological shirking is severely flawed among many other problems the residual measure of shirking implicitly assumes that the median voter is the relevant constituent principal for the legislator agent

on the regional labour market determinants of female university enrolment in europe casarico a profeta p and pronzato c d on the regional labour market determinants of female university enrolment in europe regional studies this paper empirically investigates how young women s decisions of investing in post secondary education are affected by labour market outcomes of older women living in the same region eu silc data on educational decisions of women who completed secondary schooling are used and indicators of the regional labour market are constructed exploiting regional and time variability it is found that the share of working women with young children of women with managerial positions and the self employed positively affect the probability to enrol significant effects of these variables for men are not found

safe port in a storm the impact of labor market conditions on community college enrollments the paper examines the impact of the business cycle on enrollments and finances at individual community colleges between the late 1960s and the mid 1980s we find that 1 percent increases in the unemployment rates of recent high school graduates and of all adults are associated with rises in full time attendance of about 0 5 percent and 4 percent respectively part time enrollment exhibits similar anticyclical patterns this link carries over in large part to degrees obtained in contrast state and local appropriations per student are procyclical we interpret this funding pattern as a failure to integrate education policy sufficiently closely with labor market policy

groups in rational turnout models a model of the strategic calculus of voting that incorporates the behavior of groups is presented if candidates choose different positions positive turnout is possible in partial equilibrium and is generally larger than that without group rationality nevertheless if candidates are probability maximizers and a unique general equilibrium exists the candidates will choose equivalent positions and turnout will be zero even with group rationality but if candidates care about both policy and winning they will choose different positions and cause positive turnout this turnout will be larger than that that would occur without group rationality group rationality alone cannot explain positive turnout in a general equilibrium theory of elections it does imply larger turnout in conjunction with policy oriented candidates than would be predicted solely by individualistic rational behavior

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

college entry by blacks since 1970 the role of college costs family background and the returns to education college enrollment of black 18 19 year old high school graduates declined from 1980 through 1984 and then rebounded after 1984 this paper presents data from a time series of cross sections of 18 19 year old youths from 1973 through 1988 to test the role of family background direct college costs local economic conditions and returns to college in driving these trends the evidence suggests that on the one hand increases in direct college costs were driving enrollment rates downward throughout the eighties on the other hand dramatic increases in average parental education for black youths exerted upward pressure on college enrollment by blacks particularly in the latter half of the decade the net effect of these two factors contributed to the pattern of decline and recovery observed during the eighties

estimating average and local average treatment effects of education when compulsory schooling laws really matter the change to the minimum school leaving age in the united kingdom from 14 to 15 had a powerful and immediate effect that redirected almost half the population of 14 year olds in the mid twentieth century to stay in school for one more year the magnitude of this impact provides a rare opportunity to a estimate local average treatment effects late of high school that come close to population average treatment effects ate and b estimate returns to education using a regression discontinuity design instead of previous estimates that rely on difference in differences methodology or relatively weak instruments comparing late estimates for the united states and canada where very few students were affected by compulsory school laws to the united kingdom estimates provides a test as to whether instrumental variables iv returns to schooling often exceed ordinary least squares ols because gains are high only for small and peculiar groups among the more general population i find instead that the benefits from compulsory schooling are very large whether these laws have an impact on a majority or minority of those exposed

contracts intellectual property rights and multinational investment in developing countries abstract the policy debate between multinational firms favoring strong contract law and host country governments who often oppose such protection motivates the paper local agents managers learn the multinational s technology and can defect to start a rival firm contract enforcement including binding the multinational itself makes the multinational better off outcomes for the host country are more complex depending on mode switches induced by enforcement if enforcement induces the multinational to switch from exporting to local production welfare improves if local production was occurring anyway enforcement may result in the loss of rents to local agents and lower welfare

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