fdi and taxation a meta study despite the continuing political interest in the usefulness of tax competition and tax coordination as well as the wealth of theoretical analyses it still remains open whether or when tax competition is harmful moreover the influence of tax differentials on multinationals decisions is still insufficiently analyzed thus economists have increasingly resorted to empirical analysis in order to gain insights on the elasticity of fdi with respect to company taxation as a result the empirical literature on taxation and international capital flows has grown to a similar abundance during the last 25 years as the respective theoretical literature its heterogeneity leads to a rising need for concise reviews on the existing empirical evidence in this paper we extend former meta analyses on fdi and taxation in three ways first we add the most recent publications unconsidered in meta analyses up to date second we apply a different methodology by using a broad set of meta regression estimators and explicitly discuss which one is most suitable for application to our meta data third we address some important issues in research on fdi and taxation to the clarification of which meta analysis can make valuable contributions these issues are mainly the influence of variables which might moderate effects of tax differentials e g public spending the implications of using aggregate fdi data as opposed to firm level information on measured tax effects the implications of bilateral effective tax rates and the possible presence of publication bias in primary research

estimating the effect of hierarchies on information use theory suggests that greater hierarchical distance between a subordinate and his boss makes it more di cult to share abstract and subjective information in decision making a novel data set put together from credit dossiers of large corporate loan applicants enables us to observe the information collected by loan o cers and also how it is used by the ultimate loan approving o cer we flnd that greater hierarchical geographical distance between the information collecting agent and the loan approving o cer leads to less reliance on subjective information and more on objective information by exploiting non linearities in the assignment rules that determine an applicant s hierarchical distance and using information collecting agent flxed efiects we show that our result cannot be driven by endogenous assignment of applicants we also flnd that higher frequency of interactions between the information collecting agent and loan approving o cer both over time and through geographical proximity helps mitigate the efiects of hierarchical distance on information use our results show that hierarchical distance in uences information use and highlights the importance of human touch in communication

the determination of foreign banking location abstract in this paper we examine the determinants of foreign bank location we initially present some time series data on the postwar expansion of international banking we show that foreign branching increased very rapidly from about 1960 to the mid 1980s and slowed significantly after 1985 one interpretation of this growth in foreign branching is that it largely paralleled the increase in trade and foreign direct investment although it may also have been encouraged by the improvements in communications and the rapid financial innovation of the 1960s and 1970s to assess the role of trade and foreign direct investment on bank expansion we employ a cross sectional analysis of the pattern of foreign bank offices whereas previous studies have focused on a single parent or host country our study extends the existing literature by analyzing the location of nearly 2000 overseas offices across 37 patent and 82 host countries our results suggest a significant relationship between the pattern of bank location trade and foreign direct investment we define a banking centre as one in which there are more foreign banks than can be explained in terms of real business activity and we show that the usa uk switzerland singapore and indonesia most clearly qualify as banking centres we also provide some evidence for a sample of host countries that the abnormal number of bank offices is related to capital market activities

foreign activities of u s banks since 1997 the roles of regulations and market conditions in crises and normal times abstract using a unique newly constructed dataset on u s banks foreign activities since 1997 this paper examines how bank market and regulatory conditions in the u s and host countries affect u s banks choices of which foreign markets to enter and how much claims and liabilities to take on there using a two stage structural estimation framework the determinants of foreign market entry exit cross border claims and foreign affiliate claims and liabilities choices are examined in 107 host countries around the world it is shown that 1 the health of the balance sheet is the primary driver of foreign market entry exit choices especially so during the subprime crisis while host market and regulatory conditions play important roles in the choice of claims liabilities volumes 2 banks choose their foreign activities during banking and market crises differently than they do in normal times and 3 in addition to bank size previous experience with managing a global lending network significantly increases the intensity of banks foreign involvement structural estimates of the costs of foreign market entry exit and host market regulatory stringency are also derived

empirical asymmetries in foreign direct investment and taxation abstract this paper assesses the sensitivity of the operations of multinational corporations mncs to host country taxation the empirical analysis is based on two different measures of mnc activity by u s majority owned foreign affiliates panel data for aggregate real gross product in manufacturing that originates in a given host country and micro data for a single year regarding the likelihood of a firm locating in a given host country the empirical estimates indicate that investment geared toward export markets rather than the domestic market is particularly sensitive to host country taxation that this sensitivity appears to be greater in developing countries than developed countries and that it is becoming greater over time

outsourcing and capacity planning in an uncertain global environment firms employing offshore outsourcing strategies may face both exchange rate and demand uncertainties in this paper we show that the firms may benefit from operational option to switch production by keeping capacities with both domestic and foreign suppliers the value of the operational option increases as the exchange rate uncertainty or demand uncertainty increases in addition when the firms become risk averse they may use domestic capacity to hedge against offshore capacity as a result the firms may choose to hold local capacity even if it exhibits negative marginal contribution to the profit furthermore risk averse firms may keep more total capacity than risk neutral firms

global production planning under exchange rate uncertainty motivated by an aggregate production planning problem in an actual global manufacturing network we examine the impact of exchange rate uncertainty on the choice of optimal production policies when the allocation decision can be deferred until the realization of exchange rates this leads to the formulation of the problem as a two stage recourse program whose optimal policy structure features two forms of flexibility denoted as operational hedging 1 production hedging where the firm deliberately produces less than the total demand and 2 allocation hedging where due to unfavorable exchange rates some markets are not served despite having unused production our characterization of the optimal policy structure leads to an economic valuation of production and allocation hedging we show that the prevalence of production hedging is moderated by the degree of correlation between exchange rates a comprehensive examination under the following four generalized settings provides the depth scope and relevancy that our proposed operational hedges play to facilitate aggregate planning 1 multiple periods 2 demand uncertainty 3 price setting or monopolistic pricing and 4 price setting under demand uncertainty we show that production and allocation hedging are robust for these generalizations and should be integrated into the overall aggregate planning strategy of a global manufacturing firm

how banks go abroad branches or subsidiaries the authors examine the factors that influence banks type of organizational form when operating in foreign markets using an original database of the branches and subsidiaries in latin america and eastern europe of the top 100 international banks they find that regulation taxation the degree of desired penetration in the local market and host country economic and political risks matter banks are more likely to operate as branches in countries that have higher corporate taxes and when they face lower regulatory restrictions on bank entry in general and on foreign branches in particular subsidiaries are the preferred organizational form by banks that seek to penetrate the local market establishing large and mostly retail operations finally there is evidence that economic and political risks have opposite effects on the type of organizational form suggesting that legal differences in the degree of parent bank responsibility vis a vis branches and subsidiaries under different risk scenarios play an important role in the kind of operations international banks maintain overseas

optimal selling strategies when to haggle when to hold firm a seller encountering risk neutral buyers one at a time should if commitments are feasible quote a single take it or leave it price to each this strategy is superior to any other for finite or infinite buyer populations whether there is learning or the distribution of buyer prices is known at the outset with one object for sale or many although haggling may offer advantages in terms of price discrimination these gains are more than offset by the losses it generates by encouraging buyers to refuse purchases at high prices

international taxation and multinational firm location decisions using a large international firm level data set we examine the separate effects of host and additional parent country taxation on the location decisions of multinational firms both types of taxation are estimated to have a negative impact on the location of new foreign subsidiaries the impact of parent country taxation is estimated to be sizeable consistent with its international discriminatory nature our results show that international double taxation by the parent country despite the general possibility of deferral of taxation until income repatriation is instrumental in shaping the structure of multinational enterprise

screening location strategies to reduce exchange rate risk abstract a firm that markets its products and services world wide may face significant financial risk due to exchange rate fluctuations unless it maintains an international sourcing production network thus the firm must evaluate various sourcing production network designs the selection of the appropriate design is not straight forward since decisions are made in an environment of uncertainty and involve multiple time periods we propose a two phase approach to screen various alternative designs configurations utilizing a number of criteria and illustrate it using a popular harvard business school case as by products we introduce a new criterion for making a pairwise stochastic comparison of alternatives and demonstrate the value of maintaining excess geographically dispersed production capacity

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

information or regulation what drives the international activities of commercial banks information costs and regulatory barriers distinguish international financial markets from national ones using panel data on bilateral assets and liabilities of commercial banks i empirically determine the impact of information costs and regulations and i isolate intra eu financial linkages i confirm that information costs and regulations are important factors influencing international asset choices of banks but their relative importance differs among countries

cross border banking credit access and the financial crisis abstract we study the sensitivity of credit supply to bank financial conditions in 16 emerging european countries before and during the financial crisis we use survey data on 10 701 applicant and non applicant firms that enable us to disentangle effects driven by positive and negative shocks to the banking system from demand shocks that may vary across lenders we find strong evidence that firms access to credit was affected by changes in the financial conditions of their banks during the crisis firms were more credit constrained if they were dealing with banks that experienced a decline in equity and tier 1 capital as well as losses on financial assets we also find that access to credit reflects the balance sheet conditions of foreign parent banks the effect of positive and negative shocks to a bank is greater for riskier firms and firms with fewer tangible assets

a note on foreign bank ownership and monitoring an international comparison abstract this paper empirically analyzes the relation between foreign bank ownership and the three pillars of the new basel capital accord i e capital regulatory oversight supervisory oversight and market discipline using a new database covering 153 countries we find that countries with greater market discipline have a lower presence of foreign banks operating in their economy furthermore our evidence indicates that capital regulatory oversight and supervisory oversight are not significantly related to foreign bank ownership

revenue implications of money creation under leviathan most governments possess a monopoly franchise in the creation of money economists provide an analytical justification for this institutional arrangement either in terms of the use of monetary aggregates for macro economic stabilization or in terms of the alleged inability of competitive markets to generate tolerably efficient monetary results any complete case for the government s monetary monopoly must however depend on a comparison of market and political arrangements a comparison that requires predictions about how governments are likely to behave once a monopoly franchise is assigned similarly such predictions are crucial in evaluating restrictions that might be imposed on the government s exercise of its money creation power in designing a monetary constitution in the analysis of political arrangements the revenue implications of the money creation power are probably more significant than considerations of either macro economic stability or optimality in the money supply although those revenue implications are incidental to demonstrating the nature of market failure in monetary arrangements they are fundamental in understanding how the government might exploit a monopoly in money creation once granted our interest in the revenue effects of money creation stems from a broader study of constitutional restrictions on the revenueraising authority of government see our book the power to create money is naturally encompassed in this restrictions on the revenue raising power must embody restrictions on the power to create money consequently the fiscal constitution has important implications for the monetary constitution in this paper we examine both the revenue implications of money creation and desirable consitutional restrictions on the money creation power within the context of a specific model of political processes

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

optimal labour contracts under asymmetric information an introduction the review of economic studies has instituted a new series of lectures to be given annually by a younger british economist at the association of university teachers of economics meetings the choice of lecturer is determined by a panel whose members are currently professors hahn mirrlees and nobay this paper is a revised version of the first lecture in the series it was presented at the aute meeting held at the university of surrey in april 1982 and was refereed in the usual way mak

location decisions of foreign banks and competitor remoteness this paper examines the role of competitor remoteness the weighted average distance of all competing banks to a host country on the location decision of a foreign bank it uses unique bilateral data on 1 199 foreign banks from 75 home countries present in 110 host countries it finds that besides bilateral distance competitor remoteness importantly drives foreign banks location decisions the impact of distance and competitor remoteness is stronger for non oecd home and host countries when the scale of foreign bank inward and outward investment is limited and for host countries where foreign banks dominate

on the genesis of multinational foreign affiliate networks multinational enterprises mnes develop their networks of foreign affiliates gradually over time instead of exploring all profitable opportunities immediately they first establish themselves in their home countries and then enter new markets stepwise we argue that this behavior is driven by uncertainty concerning a firm s success in new markets after entry the firm collects information which is used to update its beliefs about its performance in a market as conditions in different markets are correlated the information gathered in one of them can also be used to update beliefs elsewhere with the degree of correlation depending on issues such as the geographical or cultural distance between markets this correlated learning may render it optimal to enter markets sequentially investment in market a is only followed by entry in market b if the firm was sufficiently successful in a the prediction that firms start their expansion in markets that are closer to their home base and then proceed step by step is supported by our empirical analysis which features the universe of foreign affiliates held by german multinationals based on a rich set of benchmark estimates and sensitivity checks we identify correlated learning across markets beyond alternative explanations as a key driver of gradualism in the genesis of mnes foreign affiliate networks

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

bargaining over a menu of wage contracts we investigate an infinite horizon bargaining problem in which a firm and a worker bargain over two dimensions quality and wage the worker has private information about his type only the uninformed firm makes an offer and it can offer a menu of quality wage contracts instead of single one we show that for all discount factors the unique sequential equilibrium outcome is separating without delay the firm separates the types of worker with a menu of contracts in the first period our result shows that in multi dimensional bargaining the coase conjecture holds in the sense that the game ends in the first period but it fails in the sense that the uninformed party can preserve the entire bargaining power

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

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

a note on the location choice of multinational banks the case of japanese financial institutions abstract there are many studies investigating the location choice of foreign direct investment fdi of us banks nigh et al journal of international business studies 17 1986 59 72 find that the choice does not depend on local banking opportunity this paper examines what factors affect the location choice of japanese multinational financial institutions our results are consistent with previous studies analyzing us banks in that the fdi of the manufacturing industry is an important determinant of the location choice of japanese financial institutions however our results differ from nigh et al in that japanese financial institutions choose their locations at least partially based on the local banking opportunity in the host countries

impact of sourcing flexibility on the outsourcing of services under demand uncertainty abstract this paper investigates the relationship between market conditions and the value and use of sourcing flexibility for service processes we develop and analyze a series of models and we derive expressions for the optimal switching decision the value of the option to outsource the value of the option to backsource and the probability and timing of switches between the alternative sources one contribution is the models and associated derivations which are largely new to the literature and may serve as a tool to support service sourcing plans and decisions the second contribution is a series of results with managerial implications 1 the probability of outsourcing is generally increasing in volatility for high skill process and decreasing in volatility for low skill processes earlier work has found that the hysteresis band is increasing in volatility which is interpreted as an indicator of increasing organizational inertia we also find that the hysteresis band is increasing in volatility but interestingly for the case of high skill processes organizational inertia tends to be decreasing in volatility 2 the option to backsource is generally more valuable for high skill processes than for low skill processes this result suggests that investments to make it easier to backsource should have a higher priority for high skill processes 3 the value of the option to backsource a high skill service process can be decreasing in volatility the result suggests that a rather nuanced consideration of volatility is in order when considering investments in the flexibility to backsource a high skill process

the location of financial sector fdi tax and regulation policy abstract this paper analyzes how corporate taxation and regulatory requirements affect the location of financial sector fdi we use novel information on new financial services entities established by multinational firms in 83 host countries we find a negative effect of host country taxes on the probability of choosing a particular host location we can also confirm a significant influence of the regulatory environment for example stricter equity capital requirements negatively affect location probabilities our empirical approach allows us to provide new insight in how a policy measure of a given country affects other countries by estimating cross country tax and regulation elasticities

the determinants of u s banks international activities abstract this paper develops a model and structural dynamic estimation of bank behavior to map the relationship between u s banks choices of foreign banking activities and bank and foreign market traits this estimation framework is applied to a unique bank level dataset compiled from regulatory sources covering u s banks foreign activities in 83 host markets over the 2003 2013 period bank traits are better able to explain the evolving patterns of foreign banking than host market characteristics after controlling for these traits the post financial crisis period shows a structural shift away from cross border claims towards foreign affiliate activities structural estimates of foreign market entry costs and regulatory attitudes towards risk are derived simulation exercises confirm the strong impact of banks and regulators risk stance on bank profits and portfolio composition

valuing operational flexibility under exchange rate risk in this paper we develop a stochastic dynamic programming formulation for the valuation of global manufacturing strategy options with switching costs overall we adopt a hierarchical approach first exchange rates are modeled as stochastic diffusion processes that exhibit intercountry correlation second the firm s global manufacturing strategy determines options for alternative product designs as well as supply chain network designs product options introduce international supply flexibility supply chain network options determine the firm s manufacturing flexibility through production capacity and supply chain network linkages third switching costs determine the cost of operational hedging i e the costs associated with reducing downside risks overall the firm maximizes its expected discounted global after tax value through the exercise of product and supply chain network options and or through exploitation of operational flexibility contingent on exchange rate realizations in this environment the firm must trade off fixed operating costs switching costs and the economic benefits derived from exploiting differentials in factor costs and corporate tax rates a multinomial approximation of correlated exchange rate processes is proposed that leads to a consistent and tractable lattice model for this compound option valuation problem we then demonstrate how the global manufacturing strategy planning model framework can be utilized to analyze financial and operational hedging strategies

a multistage model of bargaining this paper presents a simple multistage model of bargaining wherein a seller makes an offer that can be either accepted or refused if rejected the process continues how the seller s ability to make commitments affects bargaining outcomes is analysed by comparing the commitment equilibria to those arising when commitment is impossible the effects of increasing uncertainty about preferences and varying the length of the bargaining horizon are analysed the ways in which the bargaining environment can be changed to improve outcomes are discussed

sequential bargaining with incomplete information this paper describes a simple two person two period bargaining game and solves it using the concept of perfect bayesian equilibrium in which the actions of each player convey information which is used by his opponent the paper examines the effects of changes in bargaining costs the size of the contract zone and the length of the bargaining process on such aspects of the solution as the probability of impasse and the likelihood of concessions the combination of information transfer and the lack of pre commitment embodied in perfectness yields many surprising results common perceptions about the effects of parameter changes on bargaining processes are suspect and should be checked in the particular game being discussed

fdi versus exports evidence from german banks abstract we use a new bank level dataset to study the fdi versus exports decision for german banks we extend the literature on multinational firms in two directions first we simultaneously study fdi and the export of cross border financial services second we test recent theories on multinational firms which show the importance of firm heterogeneity helpman e melitz m j yeaple s r 2004 export versus fdi american economic review 94 1 300 316 our results show that fdi and cross border services are complements rather than substitutes heterogeneity of banks has a significant impact on the internationalization decision more profitable and larger banks are more likely to expand internationally than smaller banks they have more extensive foreign activities and they are more likely to engage in fdi in addition to cross border financial services

extracting consumer information rent by delaying the delivery of goods services abstract a firm can relax the incentive constraint and extract extra consumer information rent by delaying the delivery of goods services to the low type of consumers we provide a condition for profit increasing delays and comment on the related literature

exporting financial institutions management via foreign direct investment mergers and acquisitions we test the relevance of the new trade theory and the traditional theory of comparative advantage for explaining the geographic patterns of international m as of financial institutions between 1985 and 2000 the data provide statistically significant support for both theories we also find evidence that the u s has idiosyncratic comparative advantages at both exporting and importing financial institutions management