tax base effects and fiscal externalities of local capital taxation evidence from a panel of german jurisdictions abstract this paper provides empirical evidence on the tax base effects of local capital taxation using a large panel of german municipalities it tests whether both the local tax rate and the tax rate in adjacent jurisdictions affect the local tax base the results obtained from a spatial gmm approach confirm a strong negative impact of the local tax rate whereas the average tax rate of neighboring municipalities proves insignificant only if interacted with the relative population size of neighbors a significant positive impact is found indicating that externalities from taxing decisions of adjacent jurisdictions are experienced only by relatively small municipalities

are corporate tax rates or countries converging abstract the statutory rate and effective tax rate imposed on corporation income as well as the dispersion of these rates began to decline in the 1980s is this due to changes in the domestic determinants of corporate taxation or increases in international pressures for tax competition this paper finds clear evidence that the corporate tax rate is insulated from a country s revenue needs across countries there is no association of the expenditure gdp ratio with the corporate statutory rate and only weak evidence of a positive association with the average rate there is suggestive but not definitive evidence that the domestic role of the corporate tax as a backstop to the individual income tax is important across countries there is indeed a strong association between the top individual rate and the top statutory corporate rate there is intriguing evidence about the role of international competitive pressures on corporate taxation measures of openness are negatively associated with statutory corporate rates although not with revenues collected as a fraction of gdp strikingly larger more trade intensive countries do collect more corporate tax but this may be because these countries are more attractive venues for investment

does competition for capital discipline governments decentralization globalization and public policy competition among countries or regions within them to attract mobile capital is often thought to discipline their governments motivating them to invest more in infrastructure reduce waste and corruption and spend less on non productive public goods the result should be convergence on business friendly policies we argue that this requires an assumption units start out very similar that is often unrealistic if units are heterogeneous in natural resources geographical location inherited human capital or infrastructure capital mobility often weakens discipline on the poorlyendowed units this may help explain disappointing results of liberalizing capital flows within russia and sub saharan africa jel f36 h73 h87

why hasn t tax competition triggered a race to the bottom some quantitative lessons from the eu abstract the integration of european financial markets in the early 1980s created an environment of near perfect capital mobility across countries that had harmonized indirect taxes but maintained large differences in factor taxes the years that followed witnessed several rounds of competition in capital taxes with puzzling results instead of the dreaded race to the bottom in capital taxes the uk lowered its capital tax to a rate closer to those of france germany and italy while capital taxes changed slightly in these countries the uk increased its labor tax marginally but the other countries increased theirs sharply this paper shows that these results are consistent with the quantitative predictions of a dynamic neoclassical general equilibrium model of tax competition that incorporates the key international externalities of tax policy operating via relative prices wealth distribution and fiscal solvency tax competition is modeled as a one shot game over time invariant capital taxes with dynamic payoffs relative to a status quo calibrated to european data the calibration is preceded by an empirical analysis that shows that the relationship linking taxes to labor supply and the investment rate in the model are in line with empirical evidence and that domestic taxes seem to respond to foreign taxes the solutions of the games show that when countries compete over capital taxes adjusting labor taxes to maintain fiscal solvency there is no race to the bottom and the nash equilibrium is close to observed taxes in contrast if consumption taxes adjust to maintain fiscal solvency competition over capital taxes triggers a race to the bottom but this outcome entails large welfare gains surprisingly the gains from coordination are small in all of these experiments

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

capital budgets borrowing rules and state capital spending abstract this paper compares the level and composition of government spending in u s states that maintain separate budgets for capital and operating expenditures with that in states that employ unified budgets it also investigates the effects of pay as you go financing rules for capital projects the empirical findings suggest that states with separate capital budgets spend more on public capital projects than comparable states with unified budgets there is no evidence that the presence or absence of a capital budget affects the level of non capital spending pay as you go requirements for financing capital projects are associated with lower levels of both capital and non capital spending

tax competition among u s states racing to the bottom or riding on a seesaw abstract dramatic declines in capital tax rates among u s states and european countries have been linked by many commentators to tax competition an inevitable race to the bottom and underprovision of local public goods this paper analyzes the reaction of capital tax policy in a given u s state to changes in capital tax policy by other states our study is undertaken with a novel panel data set covering the 48 contiguous u s states for the period 1965 to 2006 and is guided by the theory of strategic tax competition the latter suggests that capital tax policy is a function of foreign out of state tax policy preferences for government services and home state and foreign state economic and demographic conditions the slope of the reaction function the equilibrium response of home state to foreign state tax policy is negative contrary to casual evidence and many prior empirical studies of fiscal reaction functions this result which stands in contrast to most published findings is due to two critical elements that allow for delayed responses to foreign tax changes and responses to aggregate shocks omitting either of these elements leads to a misspecified model and a positively sloped reaction function our results suggest that the secular decline in capital tax rates at least among u s states reflects synchronous responses among states to common shocks rather than competitive responses to foreign state tax policy while striking given prior empirical findings these results are fully consistent with the implications of the theoretical model developed in this paper and presented elsewhere in the literature rather than racing to the bottom our findings suggest that states are riding on a seesaw consequently tax competition may lead to an increase in the provision of local public goods and policies aimed at restricting tax competition to stem the tide of declining capital taxation are likely to be ineffective

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

long run prices of primary commodities and oil prices acutely volatile movements in primary commodity prices have drawn considerable interest from empirical researchers exports of these commodities account for the bulk of export earnings of developing countries the traditional demand based framework was unable to explain the marked deterioration in these prices during the 1980s this paper tries to ascertain the role played by real oil prices in explaining the extremely volatile movements in real prices of primary commodities by taking into account oil price shocks over the period 1973 1996 using monthly data real primary commodity prices and real oil prices are cointegrated additionally the error in the cointegrating relation stimulates real commodity price adjustment not real oil price adjustment

international tax competition and the deficit bias i analyze the dynamic effects of tax competition on public budget deficits i find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization when countries differ in terms of capital mobility further liberalization leads to external imbalances and diverging fiscal deficits while corporate tax rates converge consistent with theory i find that stronger tax competition increases deficits in a sample of oecd countries controlling for tax revenues and other standard determinants of fiscal deficits jel e62 f62

the market efficiency hypothesis the case of coffee and cocoa futures this study tests the market efficiency hypothesis for coffee and cocoa futures using daily data for contracts with a maturity of 2 and 6 months the hypothesis is tested sequentially the first condition is that future spot and futures prices be cointegrated if this condition is maintained market efficiency requires the cointegrating vector to support a 0 1 restriction that can be likened to an unbiasedness condition finally market efficiency imposes zero restrictions on the parameters of the variables expressed in first differences in the specification of the error correction representation of the relationship between future spot and futures prices brenner and kroner brenner r kroner k 1995 arbitrage cointegration and testing the unbiasedness hypothesis in financial markets journal of financial and quantitative analysis 30 pp 23 42 argue that the cointegration condition is rarely met in practice they attribute this outcome to potentially non stationary net cost of carry which would make the parameters of the cointegration relation unstable it is for this reason that hansen s tests hansen b e 1992 tests of parameter instability in regressions with i 1 processes journal of business and economic statistics 10 about the stability of the parameters in cointegration regressions were used to supplement more traditional cointegration tests johansen and juselius cointegration tests johansen s juselius k 1993 testing structural hypotheses in a multivariate cointegration analysis of the ppp and the uip for uk journal of econometrics 53 could not reject cointegration for all four contracts while hansen s lc test favored cointegration only for the cocoa contracts nested and non nested testing procedures were used to test the 0 1 restriction on the cointegration vector unbiasedness was found to be robust across testing procedures however further testing about the specification of the error correction representation revealed the existence of important short run deviations from unbiasedness even though these results hold strictly for a rather limited number of contracts and commodities they are encouraging for futures markets advocates in developing countries

gm free private standards and their effects on biosafety decision making in developing countries we provide a comprehensive review of international cases where gm free private standards set up by food companies in developed countries have influenced biosafety policymaking in developing countries we find 29 cases where private importers have directly or indirectly affected policy decisions in 21 countries most of the cases relate irrational fear of export losses to excessively precautionary decisions these cases are based on two generally misleading premises the belief that europe or japan represents the only market for exports and the perception that non gm segregation is infeasible or prohibitively costly in all situations our study also demonstrates the importance of information asymmetries across countries and agents and the role of risk aversion in seemingly irrational decision making the combination of these four factors helps us explain why presumed but unproven expected commercial losses still represents a significant impediment to biosafety policymaking in developing countries

optimal fiscal federalism in the presence of tax competition abstract this paper models the optimal division of public goods provision between central and regional governments in an economy with interregional tax competition regional provision is inefficient because governments compete for scarce capital by lowering their capital taxes and public good levels to inefficiently low levels on the other hand central provision is inefficient because it is determined by the minimum winning coalition within a legislature the optimal degree to which public good provision should be decentralized depends on a tradeoff between these inefficiencies in our main model complete centralization is never optimal regional governments should supply some public goods

welfare improving competition for mobile capital abstract this paper constructs a model in which regions provide firms with a public input financed by taxes that residents choose to levy on capital and wage income self interested government officials face incentives to provide the public input because its positive impact on labor and capital productivity leads to larger tax bases the positive relation between tax revenue and the public input is strengthened if capital is mobile across regions government officials engage in expenditure competition leaving residents better off than they would be in the absence of capital mobility to further enhance public sector incentives residents may choose to tax capital income at a positive rate although investment is discouraged

public input competition abstract public investment in infrastructure may help create agglomeration economies by attracting mobile factors such as skilled labour competition among regions in public investment can then be destructive this paper analyzes the nash equilibria to a simple model of public input competition even though the regions are assumed identical the equilibrium may not be symmetric the problem with non cooperative behaviour is not only that regions invest too much but that too many regions may choose to invest depending on the parameter values the nash equilibrium may be efficient may be inefficient or may not exist at least not in pure strategies better mobility among regions leads to more aggressive competition the analysis suggests that rents from public investment may be dissipated by governments competition to attract mobile factors

revisiting the palm oil boom in south east asia fuel versus food demand drivers in the past 30 years palm oil production has increased ninefold with almost all the growth occurring in malaysia and indonesia this growth has been associated with extensive deforestation with biofuels often named as the principal driver however other drivers have been less examined in particular restrictions on genetically modified food in europe and on trans fats in many developed countries have led food companies to switch to using palm oil in production this article uses a price analysis to examine the drivers of palm oil production growth during the 1980 2010 boom soya bean oil is used in the analysis as the leading vegetable oil while crude oil represents the energy market the prices of these oils along with palm oil are tested in vector autoregression var and vector error correction models the two models consistently find that palm oil prices do not appear to respond to short run fluctuations in crude oil prices rather they are a function of lagged palm oil prices and current and

does federalism lead to excessively high taxes the relative strengths of vertical and horizontal tax externalities turn on the balance between the interest responsiveness of the supply of savings and demand for capital the extent to which immobile factors are taxed by the states and the strength of preferences between federal and state expenditures the vertical externality will dominate if the aggregate tax base of the federation is responsible to the state tax instrument tax interactions in federations are more complex than has often been supposed

competing in taxes and investment under fiscal equalization the paper considers a model of federation with two heterogeneous regions that try to attract the capital by competing in capital income taxes and public investment that enhance the productivity of capital regions choices determine allocation of capital across the regions and their revenues under a tax sharing scheme this framework allows for the examination of different approaches to fiscal equalization schemes boadway r flatters f 1982 efficiency and equalization payments in a federal system of government a synthesis and extension of recent results canadian journal of economics 15 613 633 weingast b r 2006 second generation fiscal federalism implication for decentralized democratic governance and economic development working paper hoover institution stanford university we show that tax competition distorts downwards public investments and that the equalization grants discourage public investments with a little effect on equilibrium taxes however the equalization schemes remain beneficial not only for the federation and under a low degree of regional asymmetry also for each region c 2008 elsevier b v all rights reserved

culture and taxes we propose a difference in differences strategy to identify the existence of interjurisdictional tax competition our strategy rests on differences between desired tax levels determined by culture specific preferences and equilibrium tax levels determined by fiscal externalities and by preferences while preferences differ systematically between french speaking and german speaking swiss municipalities local income tax burdens exhibit smooth spatial gradients to qualify the empirical evidence we develop a theoretical model of strategic tax setting by local governments that anticipate the effects of taxes on the per capita income and the median hedonic income two inextricable consequences of the sorting of heterogeneous individuals

vertical versus horizontal tax externalities an empirical test abstract we study taxation externalities in federations of benevolent governments where different hierarchical government levels tax the same base one can observe two types of externalities a horizontal externality working among governments of the same level and leading to tax rates that are too low compared to the social optimum and a vertical externality working between different levels of government and leading to suboptimally high tax rates building on the model of keen and kotsogiannis keen michael j kotsogiannis christos 2002 does federalism lead to excessively high taxes american economic review 92 1 363 370 we derive a discriminating hypothesis to distinguish vertical and horizontal tax externalities based on measurable variables this test is applied to a panel data set on local taxes in a sample of swiss municipalities that feature direct democratic fiscal decision making so as to maximize the correspondence with the benevolent governments of the theory we find that vertical externalities dominate they are thus an observed empirical phenomenon as well as a notable extension to the theory of tax competition

how low business tax rates attract mne activity municipality level evidence from germany most existing empirical evidences on the impact of profit taxation on multinational firm activity are based on cross country data one major drawback of such data is that countries differ not only with regard to taxes but also with other dimensions which might be hard to capture by means of observable characteristics we compile a database of more than 11 000 municipalities in germany to analyze the sensitivity of location decisions of foreign mnes in germany with respect to business tax rates which are levied directly by the municipalities we find that higher business tax rates have a negative effect on three alternative measures of mne activity after controlling for other determinants of firm location decisions the number of foreign mnes mne employment and mne fixed assets our results suggest that tax competition among regional entities for foreign investors is a game of a few in cross section instrumental variable regressions a one percent reduction of the municipal business tax rate equivalent to a decline by about 0 14 percentage points leads to an increase in the number of legally independent foreign owned firms by about 0 45 the average municipality would have to reduce its business tax rate by about 2 2 percentage points or 15 from its average level to attract one foreign mne hence municipalities need to be attractive in other dimensions to be able to use tax instruments to attract foreign firms at the margin

a dynamic theory of public spending taxation and debt this paper presents a dynamic political economy theory of public spending taxation and debt policy choices are made by a legislature consisting of representatives elected by geographically defined districts the legislature can raise revenues via a distortionary income tax and by borrowing these revenues can be used tofinance a national public good and district specific transfers interpreted as pork barrel spending the value of the public good is stochastic reflecting shocks such as wars or natural disasters in equilibrium policy making cycles between two distinct regimes business as usual in which legislators bargain over the allocation of pork and responsible policy making in which policies maximize the collective good transitions between the two regimes are brought about by shocks in the value of the public good in the long run equilibrium tax rates are too high and too volatile public good provision is too low and debt levels are too high in some environments a balanced budget requirement can improve citizen welfare

fiscal competition and public debt the existing theoretical literature on fiscal competition has to a large extent ignored the role of government debt as a determinant of taxes and productive public spending we develop a simple model of fiscal competition with government borrowing if a default on government debt is no option initial debt levels play no role in fiscal competition this neutrality result is overturned when a default is possible a government that is constrained in its borrowing due to a possible default responds optimally by lowering spending on durable public infrastructure which in turn induces more aggressive tax setting a rise in exogenous firm mobility reinforces the link between legacy debt and fiscal competition our model may help explain the observation that highly indebted countries in europe have decreased corporate tax rates over proportionally our model may also be useful for evaluating decentralization reforms in which the power to tax firms is devolved to lower levels of overnments which differ in their initial debt levels

testing for strategic interaction among local governments the case of growth controls this paper helps to fill a gap in the public economics literature by providing empirical evidence on strategic interaction among local governments using the methodology of case et al journal of public economics 52 285 307 1993 the paper focuses on the adoption of growth control measures by cities in california and looks for evidence of policy interdependence in these choices the data are drawn from an elaborate survey of growth control practices in california cities conducted by glickfeld and levine regional growth local reaction lincoln institute of land policy cambridge ma 1992 the survey results are used to compute an index of the stringency of growth controls in each city which serves as the dependent variable for the study

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

a preliminary comparison of the retail level effects of genetically modified food labelling policies in canada and france abstract most developed countries have adopted labelling policies for genetically modified gm food in april 2004 canada implemented a voluntary labelling policy for gm and non gm food while france adopted the european union s new extended mandatory labelling of gm food i present the result of a qualitative survey of gm and non gm food labels in supermarkets in canada and france five months after the introduction of the new policies i find that there are almost no gm labelled products in france and non gm labelled products in canada each policy tends to crowd out the targeted label attribute however canadian consumers can choose between gm and non gm organic products whereas there are only non gm products in french supermarkets recent political developments in quebec suggest that the labelling landscape may change in canada either with an increase in the number of non gm products at the retail level or a transition towards a mandatory labelling policy like in france

do higher corporate taxes reduce wages micro evidence from germany because of endogeneity problems very few studies have been able to identify the incidence of corporate taxes on wages we circumvent these problems by using an 11 year panel of data on 11 441 german municipalities tax rates 8 percent of which change each year linked to administrative matched employer employee data consistent with our theoretical model we find a negative effect of corporate taxation on wages a 1 euro increase in tax liabilities yields a 77 cent decrease in the wage bill the direct wage effect arising in a collective bargaining context dominates while the conventional indirect wage effect through reduced investment is empirically small due to regional labor mobility high and medium skilled workers who arguably extract higher rents in collective agreements bear a larger share of the corporate tax burden

does the law of one price really hold for commodity prices in spite of the empirical failure of the law of one price it is usually assumed that commodity prices are perfectly arbitraged at least in the long run this paper argues that this assumption is counterfactual and that much of the empirical evidence provided to support it is flawed and affected by econometric shortcomings spurious regressions nonstationarity in the data inappropriate use of first differences an alternative methodology co integration by which a long run relationship between nonstationary series can be tested is proposed tests of nonstationarity and co integration for a group of commodities show quite uniformly that the law of one price as a long run relationship fails and that deviations from the pattern are permanent

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

the link between growth volatility and technical progress cross country evidence abstract this paper provides strong evidence showing that the rate of technical progress plays an important role in stabilizing business cycle volatility empirical tests consistently indicate that business cycle volatility diminishes with increasing rates of technical progress using alternative estimates of technical progress and datasets do not alter the conclusion

fiscal competition and the pattern of public spending much attention has been given to the impact of fiscal competition on the level of public expenditure but relatively little to the impact on its composition using a broadly familiar and reasonably rich model of fiscal competition in the presence of mobile capital this paper establishes a systematic bias in public spending patterns starting from the non cooperative equilibrium and holding tax rates constant welfare would be improved by a coordinated reduction in the provision of local public inputs and a corresponding increase in the public provision of local public goods benefiting immobile consumers c 1997 elsevier science s a