distortionary taxes and the provision of public goods economists have long been concerned with finding an efficient level of public expenditure the classic statement of the problem was given by paul samuelson 1954 an optimal level of expenditure is where the sum of the marginal rates of substitution between the public good and a reference good equals the marginal rate of transformation between the public good and the reference good mrs mrt however samuelson s formula assumes that all of the revenue needed to finance public goods can be raised with lump sum taxes since this is not generally possible the formula must be modified to account for the distortionary effects of the tax system an appropriate modification is to multiply the cost side of the equation by a term that is commonly called the marginal cost of public funds mcf in the case of samuelson s formula where government is entirely financed with lump sum taxes the mcf would be exactly 1 0 in the traditional view of economists distortionary taxes cause the mcf to be greater than one thus raising the cost of providing public goods in this paper we discuss some cases where the mcf may be less than one we will illustrate this possibility using numerical examples for labor taxes

individual risk attitudes measurement determinants and behavioral consequences this paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects homes using a question asking people about their willingness to take risks in general we find that gender age height and parental background have an economically significant impact on willingness to take risks the experiment confirms the behavioral validity of this measure using paid lottery choices turning to other questions about risk attitudes in specific contexts we find similar results on the determinants of risk attitudes and also shed light on the deeper question of stability of risk attitudes across contexts we conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks occupational choice and smoking the question about risk taking in general generates the best all round predictor of risky behavior

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

risk preferences around the world we present results from a large scale international survey on risk preferences conducted in 53 countries in all countries we find on average an attitude of risk aversion in gains and of risk seeking in losses the degree of risk aversion shows significant cross country differences moreover risk attitudes in our sample depend not only on economic conditions but also on cultural factors as measured by the hofstede dimensions individualism and uncertainty avoidance the data may also serve as an interesting starting point for further research on cultural differences in behavioral economics data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1869 this paper was accepted by peter wakker decision analysis

international coordination in the design of macroeconomic policy rules abstract the paper examines international issues that arise in the design and evaluation of macroeconomic policy rules it begins with a theoretical investigation of the effects of fiscal and monetary policy in a two country rational expectations model with staggered wage and price setting and with perfect capital mobility the results indicate that with the appropriate choice of policies and with flexible exchange rates demand shocks need not give rise to international externalities or coordination issues price shocks however do create an externality and this is the focus of the empirical part of the paper using a simple seven country model consisting of canada france germany italy japan the united kingdom and the united states optimal cooperative and non cooperative nash policy rules to minimize the variance of output and inflation in each country are calculated the cooperative policies are computed using standard dynamic stochastic programming techniques and the non cooperative policies are computed using an algorithm developed by finn kydland the central result is that the cooperative policy rules for these countries are more accommodative to inflation than the non cooperative policy rules

individualism and confucian dynamism a note on hofstede s cultural root to economic growth hofstede and his associates have presented statistical evidence purporting to identify a link between national culture and economic growth this note describes two problems with this line of research first two of the dimensions of culture used in this research individualism and confucian dynamism are treated as if they are independent when in fact they appear to be highly interrelated and second culture is not a sufficient condition to explain economic growth and is related to other important factors that play a role in determining economic growth the consequences of these problems on interpretation of the research findings are discussed and recommendations for future research directions are proposed

does tax competition tame the leviathan abstract we study the impact of tax competition on equilibrium taxes and welfare focusing on the jurisdictional fragmentation of federations in a representative agent model of fiscal federalism fragmentation among jurisdictions with benevolent tax setting authorities unambiguously reduces welfare if however tax setting authorities pursue revenue maximization fragmentation by pushing down equilibrium tax rates may under certain conditions increase citizen welfare we exploit the highly decentralized and heterogeneous swiss fiscal system as a laboratory for the estimation of these effects while for purely direct democratic jurisdictions which we associate with relatively benevolent tax setting we find that tax rates increase in fragmentation fragmentation has a moderating effect on the tax rates of jurisdictions with some degree of delegated government our results thereby support the view that tax competition can be second best welfare improving by constraining the scope for public sector revenue maximization

a political economy theory of partial decentralization we revisit the classic problem of tax competition in the context of federal nations and derive a positive theory of partial decentralization a capital poor median voter chooses to use redistributive capital taxes to provide public goods the expectation of high capital taxes however results in a small capital stock which lowers returns to redistribution the median voter therefore wants to commit to a lower level of capital taxes she does so by setting a partial degree of decentralization in the constitution the equilibrium degree of decentralization balances the positive effect of tax competition on capital taxes with the loss in redistribution that results we show that the degree of decentralization is nonmonotonic in inequality increasing in the redistributive efficiency of public good provision and decreasing in capital productivity when public goods are heterogeneous in their capacity to transfer funds all voters agree that goods with high redistributive capacity should be decentralized

on the determinants of household debt maturity choice this article jointly analyses a behavioural and a cultural concept to explain household debt portfolio choice the behavioural approach explores the role of time preferences on household debt maturity in a theoretical model and a numerical analysis we derive a positive relationship between the long term discount factor and the optimal maturity of household loans the cultural approach examines whether national culture is a reasonable predictor for household debt maturity we show that culture is an important factor for households borrowing decisions and has even more predictive power than time preferences countries with higher scores on the hofstede dimension of long term orientation tend to have shorter household debt maturity time preferences incur a primarily mediating role because the effect of national culture on the borrowing decision is reduced as the long term discount factor increases

national culture and dividend policy this interdisciplinary study examines how national culture affects corporate dividend policies the dividend puzzle is one of the most studied yet unresolved issues in financial economics prior theoretical and empirical research has suggested several explanations of the dividend puzzle that are rooted mainly in agency asymmetric information bird in hand and pecking order theories the main intuition behind our analysis is that dividend policy may be determined not only by an objective assessment of the severity of agency and asymmetric information problems within a firm but also by management s and investors subjective perceptions of these problems which hinge on their national culture using schwartz s national culture dimensions conservatism and mastery we find that conservatism is positively related and mastery negatively related to dividend payouts for a sample of 27 462 firm years from 21 countries between 1995 and 2007 these effects are robust to controls for a wide variety of other determinants of dividend policy including investor protection stock market performance financial system configuration tax advantage economic development and dividend catering premium and to alternative culture proxies and sub period windows our findings that national culture affects perceptions of and responses to agency and information asymmetry have important implications for policymakers and multinational enterprises

international policy coordination for financial market stability in the asian economies based on the understanding of financial crisis as the self fulfilling crisis of speculators belief system this paper examines the feasibility of introducing the tobin tax system to reduce financial volatility in the asian foreign exchange markets the model analysis in this paper provides the following policy implications to reduce the motivation to deviate from the policy coordination it is required to allow all tax revenues to collecting countries especially to singapore and hong kong even without the participation of the major western countries the start of the tax policy coordination in the asian region can have significant signalling effects to reduce speculative motivation

solving for optimal simple rules in rational expectations models this paper presents algorithms that solve for optimal simple monetary policy rules in rational expectations models with precommitment and discretion the algorithms are applied to the models in fuhrer j money credit banking 29 1997 214 clarida et al j econ lit 37 1999 1661 and rudebusch econ j 112 2002 402 to examine the efficiency properties of operational policy rules we show that optimized taylor type rules preform well in these models but that aside from the fuhrer moore model this result is sensitive to whether the central bank can respond to current period shocks taylor type rules that are operational in the sense that they do not respond to current period information are found to be highly inefficient in the rudebusch model and in the clarida et al 1999 model

capital tax competition under a common currency abstract we re examine the view that capital taxes are too low when capital is mobile across tax jurisdictions we do so by emphasising a previously neglected implication of decentralised capital tax setting when jurisdictions share a common currency namely capital taxes give rise to a vertical externality by affecting the revenues of the over arching central bank from issuing the common currency this externality may lead ceteris paribus to too high regional capital taxes and may more than offset the usual effects of tax competition in this case and contrary to conventional wisdom decentralised capital taxes will be too high

interjurisdictional capital mobility fiscal externality and a corrective subsidy abstract recent studies emphasize that local property taxation may result in inefficiently small amounts of local public spending this paper shows that the inefficiency can be traced to a fiscal externality when one jurisdiction increases its taxes it causes a flow of capital to other jurisdictions that increases their tax revenues the inefficiency can be corrected with a subsidy that internalizes the externality key empirical parameters determining the magnitude of the externality are identified illustrative calculations indicate that subsidy rates on the order of 40 might be required to achieve efficiency

nation states vs united empire effects of political competition on economic growth is political fragmentation i e nation states more favorable to economic growth than political unification i e a united empire this study develops an endogenous growth model to analyze the growth effects of fragmentation versus unification under unification the economy is vulnerable to excessive leviathan taxation and possibly subject to the costs of unifying heterogeneous populations under fragmentation the competing rulers are constrained in taxation but spend excessively on military defense if capital mobility is above below a threshold then fragmentation unification would favor growth and this threshold is increasing in the degree of defense competition and decreasing in the costs of heterogeneity

on the marginal welfare cost of taxation this paper develops a rigorous partial equilibrium analysis of the determinants of margin al welfare cost mwc of taxes on labor earnings it shows that four key parameters interact to determine the magnitude of mwc using aggregate data and plausible ranges of values for the parameters mwc can vary from under 10 percent to more than 300 percent of marginal tax revenue intermediate parameter values sugge st mwc is in the 25 50 percent range however the more extreme estimates cannot be ruled out on the basis of available evidence suggesting that mwc cannot yet be copyright 1987 by american economic association

national culture and corporate debt maturity abstract we investigate the influence of national culture on corporate debt maturity choice based on the framework of williamson we argue that culture located in social embeddedness level can shape contracting environments by serving as an informal constraint that affects human actors incentives and choices in market exchange we therefore expect national culture to be related to debt maturity structure after controlling for legal political financial and economic institutions using hofstede s four cultural dimensions uncertainty avoidance collectivism power distance and masculinity as proxies for culture and using a sample of 114 723 firm years from 40 countries over the 1991 2006 period we find robust evidence that firms located in countries with high uncertainty avoidance high collectivism high power distance and high masculinity tend to use more short term debt we interpret our results as consistent with the view that national culture helps explain cross country variations in the maturity structure of corporate debt

social interaction and stock market participation we propose that stock market participation is influenced by social interaction in our model any given social investor finds the market more attractive when more of his peers participate we test this theory using data from the health and retirement study and find that social households those who interact with their neighbors or attend church are substantially more likely to invest in the market than non social households controlling for wealth race education and risk tolerance moreover consistent with a peer effects story the impact of sociability is stronger in states where stock market participation rates are higher

the politics of 1992 fiscal policy and european integration the internal market in europe will greatly increase the international mobility of resources how will this affect fiscal policy in different countries we consider taxation of capital in a two country model where a democratically chosen government in each country chooses tax policy higher capital mobility changes the politico economic equilibrium in two ways on the one hand it leads to more tax competition between the countries this economic effect tends to lower tax rates in both countries on the other hand it alters voters preferences and makes them elect a different government this political effect offsets the increased tax competition although not completely

policy cooperation among benevolent governments may be undesirable this paper presents a simple counterexample to the belief that policy cooperation among benevolent governments is desirable it also explains circumstances under which such counterexamples are possible and relates them to the literature on time inconsistency since the work of hamada 1976 investigating the effects of increasing policy cooperation among countries has been a major topic in international economics a standard conclusion of this work is that increasing policy cooperation among countries is desirable in a seminal paper rogoff 1985 has challenged this view using a simple monetary model rogoff shows that cooperation among policy makers can lead to a lower level of welfare than noncooperation does rogoff s result has caused much consternation among those who advocate policy cooperation and his work has been criticized along several dimensions for example some authors including canzoneri and henderson 1988 have noted that a key assumption in rogoff s model is that the objective function of each country s policy maker does not coincide with the objective function of its residents indeed if in his model policy makers maximize the welfare of their country s residents the counterexample is overturned and cooperation strictly dominates noncooperation this feature leads some to interpret rogoff s result as simply saying that if policy makers form a coalition against the private sector they may be worse off than if they do not others such as neck and dockner 1988 have claimed that rogoff s result depends on private agents acting strategically under this interpretation rogoff s result is relevant to say economies with a large trade union but not to economies with a large number of competitive private agents in a somewhat different vein persson 1988 and especially devereux 1986a b have questioned the significance of welfare comparisons across different institutional regimes in a model without a solid foundation for the behavioural relationships this paper presents a simple model in which governments are benevolent but cooperation is still undesirable the model is a two country version of fischer s 1980 optimal tax model in it private agents are competitive in that each agent takes both prices and government policies as uninfluenced by his actions and each government maximizes the welfare of its country s residents in the paper the two different regimes cooperative and noncooperative

tax competition and leviathan abstract attitudes towards downward pressure on tax rates from international tax competition depend on attitudes towards government this paper synthesises the two extremes which as in other areas of public finance have dominated the debate typically being presented as stark alternatives the view of government as a leviathan from which tax competition emerges as a useful constraint on policy makers and the view of government as a benevolent maximiser of their citizens welfare from which it emerges as a source of inefficiency conditions are derived under which when policy makers are neither entirely benevolent nor wholly self serving tax coordination benefits the representative citizen

does culture influence asset managers views and behavior abstract this research enters new ground by presenting comparative survey evidence on asset managers views and behavior in the united states germany japan and thailand relying on hofstede s four cultural dimensions we find that cultural differences are most helpful in understanding country differences which cannot be explained by pure economic reasoning in short controlling for various determinants the dimension of more individualism predicts less herding behavior more power distance leads to older and comparatively less experienced managers in the upper hierarchy masculinity brings men into top positions and to higher volumes of assets under personal responsibility and uncertainty avoidance is related to higher safety margins against the tracking error allowed and relatively more research effort these consequences i e the culturally different importance of herding age experience gender tracking error and research effort clearly affect investment behavior although in a complex way

the political economy of tax coordination as a bargaining game between bureaucrats and politicians in the public finance literature the view prevails that taxcompetition among countries gives rise to an underprovision ofpublic goods and that coordinated tax increases are thereforedesirable public choice arguments in contrast suggest thattax coordination may not be in the interest of thetaxpayers citizens because imperfections of the politicalprocess political distortions may lead to a waste of taxmoney according to this view tax competition is a desirablecheck on the power to tax whereas tax coordination would onlyrelax the budget constraint of an inefficient public sector the present paper integrates the underprovision argument andthe public choice view into a common theoretical framework the government is assumed to consist of politicians andbureaucrats with diverging interests fiscal policy ismodelled as the outcome of a bargaining game between thebureaucrats and the politicians it turns out that coordinatedtax increases always raise the provision of public goods butalso increase the cost of political distortions the effect onthe welfare of the representative citizen may be positive ofnegative depending in particular on the distribution ofbargaining power between bureaucrats and politicians

international tax coordination regionalism versus globalism tax competition for mobile capital can undermine the attempts of governments to redistribute income from rich to poor i study whether international tax coordination can alleviate this problem using a general equilibrium model synthesizing recent contributions to the tax competition literature the model highlights the crucial distinction between global tax coordination and regional coordination with high capital mobility between the tax union and the rest of the world the welfare gain from regional capital income tax coordination is only a small fraction of the gain from global coordination even if the tax union is large relative to the world economy

comparing the global performance of alternative exchange arrangements abstract this paper presents and applies a methodology useful for studying the operating characteristics of a number of alternative monetary arrangements using a large scale simulation model of the world economy we consider the performance of the regimes when policymakers do or do not observe the shocks and when policymakers infer the shocks using an optimal filtering rule although the results are model specific and at best illustrative of the issues involved the approach does have the advantage of providing a richer framework of analysis than is possible in simple models of international interdependence

reforming an asymmetric union on the virtues of dual tier capital taxation the tax competition for mobile capital in particular the reluctance of small countries to agree on measures of tax coordination has ongoing political and economic fallouts within europe we analyse the effects of introducing a two tier structure of capital taxation where the asymmetric member states of a union choose a common federal tax rate in the first stage and then non cooperatively set local tax rates in the second stage we show that this mechanism effectively reduces competition for mobile capital between the members of the union moreover it distributes the gains across the heterogeneous states in a way that yields a strict pareto improvement over a one tier system of purely local tax choices we also discuss the effects of diverging capital endowments within the union and capital flows to third countries

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

commodity tax competition between member states of a federation equilibrium and efficiency we first describe regional market equilibria whereupon consumers of each region allocate their purchases of private goods between domestic and nondomestic ones according to the structure of relative prices taxes and transportation costs next regional optimal tax levels and public good quantities are derived the tax of the other region being held constant fiscal competition arises from the ability of one region in choosing its tax to alter the tax base of the other

vertical tax externalities and the composition of public spending in a federation abstract dividing tax power between different levels of government in a federation is shown to lead not only to overtaxation but also distorts the composition of state and federal public spending

the cultural relativity of organizational practices and theories this paper summarizes the author s recently published findings about differences in people s work related values among 50 countries in view of these differences ethnocen tric management theories those based on the value system of one particular country have become untenable this concept is illustrated for the fields of leadership organization and motivation a key issue for organization science is the influence of national cultures on introduction management twenty or even 10 years ago the existence of a relationship be management and tween management and national cultures was far from obvious to many and it national cultures may not be obvious to everyone even now in the 1950s and 60s the dominant be lief at least in europe and the u s was that management was something univer sal there were principles of sound management which existed regardless of na tional environments if national or local practice deviated from these principles it was time to change local practice in the future the universality of sound manage ment practices would lead to societies becoming more and more alike this ap plied even to the poor countries of the third world which would become rich as well and would be managed just like the rich countries also the differences be tween management in the first and second world capitalist and socialist would disappear in fact under the surface they were thought to be a lot smaller than was officially recognized this way of thinking which dominated the 1950s and 60s is known as the convergence hypothesis during the 1970s the belief in the unavoidable convergence of management prac tices waned it was too obviously in conflict with the reality we saw around us at the same time supranational organizations like the european common market which were founded very much on the convergence belief had to recognize the stubbornness of national differences even within existing nations regional dif ferences became more rather than less accentuated the welsh the flemish the basques the bangladeshi the quebecois defended their own identity and this was difficult to reconcile with a management philosophy of convergence it slowly became clear that national and even regional cultures do matter for management the national and regional differences are not disappearing they are here to stay in fact these differences may become one of the most crucial problems for man agement in particular for the management of multinational multicultural orga nizations whether public or private

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

specification of policy rules and performance measures in multicountry simulation studies abstract much recent analysis of international monetary and fiscal policy issues has been conducted by stochastic simulations with multicountry econometric models in these studies it has become standard practice to consider alternative policy rules of a form that calls for departures of a policy instrument from some baseline reference path that are proportional to deviations of a specified target variable from its own baseline path the present paper argues that this standard rule form is seriously defective for such issues because th eimplied rules often fail to be operational and have associated performance measures that can be misleading in important cases jel c50 f30

why do so few hold stocks the authors investigate why 75 percent of u s households do not hold stocks despite the equity premium and predictions of expected utility models the question is relevant for privatization asset pricing and tax progressivity issues they show that risk aversion per se heterogeneity of beliefs habit persistence time nonseparability and quantity constraints on borrowing do not account for the phenomenon a wedge between borrowing and lending rates and minimum investment requirements are plausible but empirically weak factors more promising explanations are inertia and departures from expected utility maximization there is also qualified support for nondiversifiable income risk as a contributing factor copyright 1995 by royal economic society

exchange rate management and macroeconomic policy a national perspective this paper reviews the literature on alternative exchange rate arrangements for a small economy it discusses exchange rate management for short run stabilization purposes and the choice of exchange rate regimes to foster policy discipline recent research has emphasized that the appropriate degree of exchange rate flexibility depends on the nature of disturbances exchange rate movements provide information about shocks and can serve as a basis for intervention rules empirically operational guidelines have not yet been provided floating rates are said to be desirable because they allow policy makers greater autonomy recent research has questioned the implicit assumption that autonomy is always useful rules that prevent discretionary policy may be preferable what role if any the exchange rate should play in such rules has not yet been resolved

a cultural explanation of the foreign bias in international asset allocation abstract this paper examines the foreign bias in international asset allocation following extant literature in behavioral finance we argue that a society s culture and the cultural distance between two markets play an important role in explaining the foreign bias in particular we hypothesize that the degree of a nation s uncertainty avoidance affects the foreign bias more uncertainty avoiding countries allocate less to foreign markets as does the degree of a country s individualism in individualistic countries performance is more directly attributed to a person and less to teams causing these individuals to be more aggressive in their foreign asset allocations we further expect that the degree of cultural distance between two countries affects the amount of money allocated to that market based on extensive robustness analyses we find support for our hypotheses on the role of culture in international asset allocation

the international transmission of economic shocks in a three country world under mixed exchange rates the international transmission of economic disturbances is analysed in a three country world where two countries have no macroeconomic impact on a third country but are large enough to influence each other under a system of mixed exchange rates a system that combines the fixed exchange rates fers among two ec member countries germany and france and the flexible exchange rates flers towards a third country the rest of the world usa we find that a positive output demand shock originating in germany or france has a positive effect on domestic output but due to a special third country effect is likely to produce a contractionary impact on foreign output negative transmission while the total effect on the world economy is expansionary money supply shocks in either germany or france have identical effects on the output of the two countries the fler component of the mer regime serves as an important tool for dampening the impact of us shocks on the output of the ec

the effect of borrowing constraints on consumer liabilities this paper explores the effects of liquidity constraints on consumer liabilities while much empirical evidence attests to the importance of liquidity constraints in the u s economy evidence about the effects of borrowing constraints on consumer balance sheets is scarce using the 1983 survey of consumer finances data we estimate desired borrowing for unconstrained households we then evaluate the gap between predicted and observed debt for the sample of liquidity constrained consumers predicted debt is 75 percent higher than actual debt in the liquidity constrained sample thus the effect of removing borrowing constraints has quantitatively important implications for the allocation of debt in the household portfolio the removal of borrowing constraints would raise aggregate household liabilities by 9 percent copyright 1993 by ohio state university press

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

explaining diversity in the worldwide diffusion of codes of good governance extending earlier literature on diffusion of codes of good governance cggs by integrating the effect of national culture this study offers a novel perspective on cross national diversity in the worldwide diffusion of corporate governance best practices we argue that particular cultural dimensions affect the indicators i e total number of codes per country and identity of issuing organizations of such diffusion for a sample of 67 countries our analysis reveals that individualist cultures have a stronger tendency to develop cggs in cultures with a high receptivity to power differences there is a higher probability that the first issuers are the government directors or professional associations whereas with low receptivity the stock exchange and investors groups of issuers are more likely to initiate the first code the effects of culture remain significant even after accounting for differences in legal systems and economic institutions indicating that national culture may serve as a comprehensive indicator of the regulatory stance with respect to good governance indeed the effect size is large enough to give pause e g to a location choice and possibly has relevance for strategic decision making by international companies

searching for leviathan an empirical study in several papers and a recent book geoffrey brennan and james buchanan 1977 1978 1980 have put forth a striking and controversial view of the public sector drawing by analogy on the conventional theory of monopoly in the private sector they envision a monolithic government that systematically seeks to exploit its citizenry through the maximization of the tax revenues that it extracts from the economy from this perspective they develop a fiscal constitution whose central purpose is to constrain leviathan by limiting in various ways its access to tax and other fiscal instruments while the leviathan hypothesis has been the source of lively debate and a wide range of policy proposals it has not been the subject of much systematic empirical work or testing this is a matter of some importance since the policy implications of the leviathan view are disturbing to put it mildly in particular brennan and buchanan virtually stand on their heads many of the basic theorems in public finance for an efficient and equitable tax system if in fact the leviathan view is an inaccurate depiction of the functioning of the public sector the introduction of their policy proposals is likely to make a sorry mess of the fiscal system the leviathan model does however have some straightforward implications for observable fiscal behavior it is the purpose of this paper to examine one of these testable implications brennan and buchanan stress that fiscal decentralization is itself a powerful constraint on leviathan competition among governments in the context of the interjurisdictional mobility of persons in pursuit of fiscal gains can offer partial or possibly complete substitutes for explicit fiscal constraints on the taxing power 1980 p 184 such competition among governments in a federal system that places heavy reliance on local fiscal decisions will greatly limit the capacity of leviathan to channel resources into the public sector in short as indicated by the epigraph to this paper the leviathan model implies that other things equal the size of the public sector should vary inversely with the extent of fiscal decentralization 2