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Some corporations attempt to lessen their tax burden through involvement in the legislative process. We identify firms that contributed to congressional candidates who favor reductions in the U.S. corporate statutory tax rate. This support created a temporary incentive to manage effective tax rates (ETRs) up. We document that these firms increased their reported effective tax rate in the two calendar quarters preceding the 2012 election relative to adjacent periods and other firms supporting candidates in the same election. We find that the variation in upward ETR management is correlated with firm-level proxies for potential reputational costs, capital markets costs, and long-run tax burdens. The variation in upward ETR management is also correlated with firm-candidate-level proxies for strength of relationships and competitiveness of election races. Our findings provide new evidence on accounting choices in support of corporate political activity and on the political cost hypothesis in the tax setting. History: Accepted by Shivaram Rajgopal, accounting. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2017.2842. Keywords: corporate political activity * financial reporting choices * political costs hypothesis, 1. Introduction We test the hypothesis that firms affiliated with politicians through campaign contributions use accounting discretion during elections to avoid releasing politically damaging financial information. During an election period, [...]

In this study, we analyzed the drivers of tax evasion occurring through international trade between Benin and its major import partners, namely France--a Western country--and China, a non-Western country. To this end, we scrutinized the co-movement between tax rates and tax evasion, and investigated whether tax evasion in Benin is driven by misclassification behavior or not. Unobservable by nature, tax evasion was measured by missing imports. The results show a positive relationship between tax rates and missing imports expressed in value and in quantity on products from China. Concerning France, the relationship is positive in value but negative in quantity. These two effects combined together result in a weak tax evasion on products imported from France compared to those from China. There is evidence of misclassification only on products imported from France. Keywords: Tax evasion, tax rate, missing imports, misclassification, 1. Introduction In most countries, tax revenue is the greatest source of government revenue (Yalama & Gumus, 2013) and no government can set a tax system and then rely on [...]

With the credit-channel effect driven by the central bank's open market operations, this paper's model easily gives rise to the nonlinear inflation-growth nexus, which is evidenced by a number of cross-country empirical studies. The threshold level of the inflation rate is found to be lower when tax rates are higher. The presence of the credit-channel effect also provides the rationale for setting positive (and smaller than 1) tax rates on consumption, tabor income, and capital income. The optimal tax rates rise as the inflation target declines. Under a fiscal policy rule where labor and capital income taxes move proportionally to each other, the optimal capital income tax rate could be higher than the optimal labor income tax rate. Under a sufficiently large central bank balance sheet, the credit-channel effect will be so weak that inflation and all kinds of taxes are growth and welfare repressing. This provides a rationale for central banks that have implemented quantitative easing policies to shrink their balance sheets. (JEL E58, E62, 042), I. INTRODUCTION The optimal long-run rate of inflation has long been the main concern of monetary policymakers and researchers; see Schmitt-Grohe and Uribe (2011) for an overview. This monetary issue [...]

This paper examines how Social Security dependent benefits impact the labor supply of married women aged 25-54. Specifically, I investigate whether the decrease in the rate of return to women's work discourages them from participating in the labor force by simulating expected net payroll tax rates and dependent benefits. Dependent benefits may reduce the net return to women's work, as they usually pay the full payroll tax without receiving marginal benefits for additional earnings if they claim benefits based on their husbands' earnings records. The results show that high net payroll tax rates reduce married women's work incentives, particularly those near retirement age. (JEL H24, H55, J22), I. INTRODUCTION Since 2010, Social Security's total expenditures have exceeded the noninterest income of its combined trust funds, and the deficit is expected to rise rapidly in the future with [...]

Canadian provinces are required to phase in a minimum price of CAN $50 per tonne on carbon dioxide emissions by 2022. This paper discusses the rationale for, and design of, the price floor requirement; its (provincial-level) environmental, fiscal, and economic welfare impacts; monitoring issues; and (national-level) industry incidence. The general conclusions that the welfare costs and implementation issues are manageable, and pricing provides significant new revenues. A challenge is that the floor price by itself is well short of what will be needed by 2030 for Canada's Paris Agreement pledge. Keywords: carbon price, price floor, Canada, welfare impacts, incidence, effective carbon price, competitiveness impacts JEL Codes: Q54, Q58, H23, 1. INTRODUCTION One hundred and ninety five parties submitted pledges to reduce carbon dioxide (C[O.sub.2]) and other greenhouse gases (GHGs)--so-called 'Nationally Determined Contributions' (NDCs)--for the 2015 Paris Agreement on climate [...]

What is the most physician friendly state? Every year, our partners at Physicians Practice[R] conduct an analysis of which states are the most physician friendly, using a variety of criteria [...]

Utilizing a natural experiment setting of the 2003 Dividend Tax Cut, this study documents that as the tax rate on dividends drops, corporate payout policy is contingent on firm's growth opportunity, shareholder rights, and their interactions. The study confirms that firms with high shareholder rights act in the interest of the shareholders. It also provides evidence that the 2003 Dividend Tax Cut helps move the cash flow out of the firms with low growth., INTRODUCTION The Job and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) has significantly dropped the tax rate on dividends. Instead of taxing dividends as ordinary income with the highest [...]

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 coun tries 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), I. INTRODUCTION The effect of financial globalization on the governments' ability to redistribute is an important yet only partially understood issue. Starting in the mid-1980s, deregulation in the financial sector [...]

The purpose of this paper is to discover and understand factors that lead to small and medium-sized enterprises (SMEs) shutdown in transitional economies, such as the economy of Bosnia and Herzegovina (B&H). The paper provides some findings about main influencing factors that lead to SMEs shut down in the first years of operation from entrepreneurs' and managers' perspective and suggests certain measures that should be taken to secure their survival, development and growth. For the purpose of this paper, empirical research was conducted, using stratified sampling of 110 SMEs from Republic of Srpska (49% of B&H territory). The section on methodology explains the entry criteria for the study population and methods of data analysis. Respondents from the research sample identified the following factors as the main obstacles to successful development of their businesses: difficulties in the collection of receivables from debtors, complicated legal procedures that regulate the work and business operations of enterprises, high rates of taxes and contributions on wages, the negative impact of the global economic crisis and expensive and complicated procedures for obtaining loans from commercial banks. Respondents didn't evaluate their personal traits, level of formal and informal knowledge from business management field or lack of entrepreneurial spirit and readiness for being proactive, innovative or risk acceptance as potential causes of business failure. With its limitation, the paper contains novel information and insights about SMEs business obstacles and challenges in economy of Bosnia and Herzegovina as a solid base for more comprehensive future researches. Key words: Small and medium-sized enterprises (SMEs), Entrepreneurship, Transition, Failure, Economic development. Ovim se radom zele otkriti i razjasniti faktori, koji vode prema zatvaranju malih i srednjih poduzeca (MSP) u tranzicijskim gospodarstvima, kao sto je ono u Bosni i Hercegovini (BiH). U radu se izlazu rezultati istrazivanja kljucnih cimbenika, koji vode zatvaranju malih i srednjih poduzeca u prvoj godini poslovanja, i to iz perspektive poduzetnika te menadzera. Predlazu se mjere, kojima bi se moglo osigurati prezivljavanje, razvoj i rast takvih poduzeca. Za potrebe ovog rada, izvrseno je empirijsko istrazivanje 110 MSP iz Republike Srpske (49% BiH). Poglavlje o metodologiji istrazivanja objasnjava kriterije za ulazak u populaciju, koja je obuhvacena studijom i metode analize podataka. Sudionici u istrazivanju utvrdili su sljedece cimbenike kao ogranicenja razvoja svog poslovanja: naplata potrazivanja, slozeni pravni postupci kojima se regulira poslovanje, visoke stope poreza i doprinosa, negativno djelovanje globalne gospodarske krize te slozene i skupe procedure dobivanja kredita od komercijalnih banaka. Sudionici istrazivanja nisu procjenjivali svoje osobne karakteristike, formalno i/ili neformalno poznavanje poslovnog okruzenja, odnosno poduzetnickog duha, proaktivnost, inovativnost, odnosno preuzimanje rizika, kao potencijalne uzroke poslovne propasti. Unutar ogranicenja, u radu se iznose nove informacije i spoznaje o preprekama i problemima MSP-ima u BiH, koja predstavljaju dobru osnovicu za buduca istrazivanja., UDC 005.7:334.722-022.51/.55>(497.6) 1. INTRODUCTION A recent report from the European Commission (2015, p. 6) finds that a minority of SMEs expands their business and the number of employees, with the [...]

Within the literature on the informal sector, there has been numerous research on the impact of labour regulation and the tax rate on productivity on the size of the informal sector (IS) and unemployment. These effects have mostly been analysed with the aid of search and matching models. However, we have observed, that the impact of labour regulation on the size of the informal sector and unemployment rate has not been estimated empirically. On the other hand, the effect of the tax rate on the size of the informal sector has been analysed with the aid of various theoretical and empirical models respectively. Our paper attempts to bridge the gap in the theoretical and empirical literature by demonstrating that a change in firing costs generates a trade off in the decision to operate in the informal sector or become unemployed. However, an increase in the tax rate on production can neutralise the impact of higher firing costs on unemployment. We use a dynamic general equilibrium model to show how a change in firing costs or tax rate affects the incentive of an agent to operate in the informal sector as well as the consequences for unemployment. The model's parameters are calibrated with values used in the general literature to demonstrate analytically the impact of firing costs and the tax rate on the size of the informal sector and unemployment. Our results show that an increase in firing costs decreases the relative size of the IS but raises the unemployment rate. However, a rise in the tax rate increases the relative size of the informal sector but reduces the unemployment rate. Next, we apply panel data analysis to estimate the effect of firing costs and direct tax for a panel of 93 countries between 2000 and 2007. We find that our empirical results are consistent with the results from our theoretical model. Our results reveals how the kind of regulation (labour or non-labour) can have a direct impact on the mobility of factors of production between the formal and informal sector respectively. It also shows how regulatory policy can be refined to maximize the trade-off between the informal sector and unemployment. JEL Classifications: J41, O17 Keywords: Firing cost, Informal sector, Tax burden, Unemployment, Labor regulation, Shadow Economy, INTRODUCTION Our paper estimates the effect of firing costs on the size of the informal sector (IS) and the unemployment rate. We show that higher firing costs has a significant [...]

The root of the Baumol cost disease is higher productivity increases for manufactured goods than for services. The implied increase in relative costs of service production is widely claimed to have devastating implications for the public sector as a provider of tax-financed services such as health, education, and care. To match the increasing costs it appears inevitable that tax rates would be ever increasing. It is shown that this inference does not follow under standard assumptions when accounting explicitly for service provision from both the private and public sectors. Strikingly under assumptions often made in the literature, the welfare maximizing tax rate for a utilitarian policy maker would remain constant despite the Baumol cost disease, and by implication the share of public employment in total employment will remain constant. (JEL H5, H11, O41), I. INTRODUCTION The origin of the Baumol cost disease is lower (none) productivity growth for services than for manufactures (the 'progressive' sector), see Baumol and Brown (1966) and Baumol (1967). [...]

We study and compare two taxation schemes (based on a single tax rate and a progressive tax rate respectively) within the framework of the Ramsey-Solow model. Bibliography: 6 titles. Illustrations: 3 figures., UDC 330.115:519.83 In this paper, we consider two taxation schemes: 1) a single tax rate (the Flat rate tax scheme) 2) a linearly increasing tax rate (a counterpart of the [...]

I examine how taxes and tax progressivity affect two different types of entrepreneurship--established business ownership and nascent entrepreneurship--in a large group of Organization for Economic Co-operation and Development countries, using 2000-2009 macro-level Global Entrepreneurship Monitor data. Empirical evidence from Arellano-Bond generalized method of moments estimation suggests that higher tax progressivity exerts a negative influence on nascent enterprises but appears to have no impact on established business ownership. Changes in marginal and average tax rates are found to have no significant influence on either type of entrepreneurship. The most important contribution of the article is the comparison of tax impacts on actual and nascent entrepreneurship rates. (JEL H24, H29, M13, M19), I. INTRODUCTION In recent years, there have been heated debates in the United States (1) and some European Union countries about taxation and economic growth. There are people who believe [...]

This article examines the determinants of local tax rates. For the two main local taxes in Spain--the property tax and the motor vehicle tax--we test the existence of tax mimicking, yardstick competition, and political trends in a sample of 2,713 municipalities. Using various spatial models, the results support the hypothesis of tax mimicking, with coefficients above 0.40. We also show the relevance of political variables such as the ideology of incumbents and political fragmentation. The fact that incumbents with weaker political support exhibit stronger mimicking behavior is interpreted as evidence in favor of yardstick competition. Finally, we find that incumbents mimic neighboring municipalities ruled by the same political party, confirming the political trends hypothesis. (JEL C31, H71, H77), I. INTRODUCTION Local tax rates are determined by a wide range of economic and political factors, both internal and external to a municipality. Among the external factors are changes in [...]

Introduction and summary Fiscal policy describes how the expenditure and revenue decisions of local, state, or federal governments influence economic growth. In this article, we create a comprehensive measure of [...]

We review the empirical literature on competition in source-based taxes on corporate income. Drawing an analogy to the competition models for the goods market indicates how evidence for the existence of tax competition can be provided, and highlights that tax competition can take many forms. With this in mind we classify the empirical literature, and highlight the importance of the measurement of tax rates and openness. Using measures based on the statutory tax system, there is evidence for tax competition mostly in the European Union. In contrast to the view of Gordon (1992) small countries appear to be the leader of the tax competition game. Keywords: tax competition, corporate taxation JEL Codes: H25, H21, I. INTRODUCTION In the last two decades, both policy makers and academics have been increasingly occupied with tax competition. Policy makers have been concerned about a race to the bottom [...]

We review the basics of international tax planning by U.S. multinational corporations (MNCs) and the organizational structures that facilitate such planning. We then discuss the potential impacts that adopting a participation exemption regime (i.e., a territorial tax system) along the lines proposed by Representative Camp could have on a U.S. MNC's worldwide supply chain structure and financing arrangements. We compare the change in a corporation's global accounting effective tax rate under the current U.S. worldwide tax system and four participation exemption options proposed by Representative Camp. Using a hypothetical set of facts representative of a U.S. multinational with highly mobile intellectual property income, we show that the options produce very different accounting effective tax rates and tax revenues received by the U.S. Treasury. We also point out potential tax planning strategies that could be employed pre- and post-effective date of the implementation of a participation exemption system that would change the expected revenue to be received during the transition to such a system. Keywords: international taxation, tax reform, territorial tax system JEL Codes: H25, H26, M41, M48, I. INTRODUCTION The call for international corporate tax reform has gained traction in the past two years, with the chairs of both tax writing committees pledging to craft comprehensive tax [...]

This paper compares the employment growth of states that enacted corporate income tax rate cuts in the past 23 years with those making no changes. Overall employment comparisons from 1990 [...]

We analyze the sustainability of the government's intertemporal budget constraint and the corresponding fiscal reaction function within a nonlinear error-correction framework. Our empirical analysis, based on Italy, provides some evidence that the Italian government is meeting its intertemporal budget constraint. Nevertheless, we show that the burden of correcting budgetary disequilibria is entirely carried out by changes in the average tax rate, with a weakly exogenous government spending, possibly determined by the political process. We also document some rigidities of the tax instrument, in terms of downward inflexibility of the average tax rate with respect to its long-run level. Finally, we provide some evidence in favor of a nonlinear adjustment toward a sustainable long-run equilibrium, as the average tax rate adjusts faster the further away it gets from the equilibrium. By considering the behavior of taxes across the economic cycle, we also provide some evidence of inflexibility of the tax instrument during bad times. (JEL C32, C51, C52, H20, H50), I. INTRODUCTION Fiscal policy sustainability is an important issue for European Union (EU) countries, which are subject to some forms of monitoring of their public finances. The European Stability and [...]

The foreign share of the worldwide income of U.S. multinational corporations (MNCs) has risen sharply in recent years. Data from a panel of 754 large MNCs indicate that the MNC foreign income share increased by 14 percentage points from 1996 to 2004. The differential between a company's U.S. and foreign effective tax rates exerts a significant effect on the share of its income abroad, largely through changes in foreign and domestic profit margins rather than a shift in sales. U.S. foreign tax differentials are estimated to have raised the foreign share of MNC worldwide income by about 12 percentage points by 2004. Lower foreign effective tax rates had no significant effect on a company's' domestic sales or on the growth of its worldwide pre-tax profits. Lower taxes on foreign income do not seem to promote 'competitiveness.' Keywords: multinational corporations, domestic-foreign tar differentials, income shifting, foreign-source income JEL Codes: F23, H25, H32, Since 1996 there has been a significant increase in the share of the worldwide income of U.S. multinational corporations (MNCs) that is declared abroad. In a linked sample of large [...]

This article investigates the cyclical properties of the average effective tax rate in 26 OECD countries over 1965-2003 to test the validity of three theories of fiscal policy: (i) the standard Keynesian theory, which recommends that tax policy should be countercyclical: (ii) the Tax Smoothing hypothesis, which implies that changes in GDP should be uncorrelated with tax rates: and (iii) the positive theory of Battaglini and Coate (2008), which predicts the average tax rate should be negatively correlated with GDP. Our main finding is that the correlations of tax rates with cyclical GDP are generally quite small and statistically indistinguishable from zero. This finding is quite robust and is more consistent with the implications of the Tax Smoothing hypothesis than either the recommendations of the standard Keynesian model or predictions of the political economy theory of Battaglini and Coate. JEL Classification: E62, E32, 1. Introduction Is fiscal policy procyclical? Should it be? The standard Keynesian model implies that fiscal policy should be countercyclical, that is, government spending should increase in economic contractions and [...]

We show that firms successfully attempt to time exchangeable debt offerings. A firm that issues exchangeable debt gives the bondholders the option to exchange their bonds for shares of the underlying firm in which the issuing firm has a stake. Companies tend to raise cash with exchangeable debt soon after the underlying stock has appreciated, but issuers expect deterioration in the future performance of the underlying firm. The price of the underlying asset falls after the exchangeable debt is issued. An exchangeable debt issue also signals the prospective open market sale of the underlying shares by the issuer., Introduction Exchangeable debt is bonds issued by one company that are convertible into common shares of a second company (hereafter the underlying firm) in which the issuing firm has a [...]

In this paper, we study the impacts of a set of China's export-oriented tax and tariff rules on the optimal supply chain design and operations for a firm that produces [...]

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1475-4932.2010.00654.x Byline: RATBEK DZHUMASHEV (1), EMIN GAHRAMANOV (2) Keywords: H26; D91; O41 Abstract: We develop an endogenous growth model a la Barro (1990), augmented with income tax evasion. Unlike many traditional rational choice models of tax evasion, the numerical simulations of our model do not produce counter-intuitive results. Further, we show that: (i) accounting for evasion costs (while capturing the full risk associated with the tax evasion process) is important for obtaining realistic relationships between key model variables; (ii) productive government expenditures explicitly affect the economy's tax evasion rate; (iii) Barro's natural efficiency condition for setting the optimal statutory tax rate holds even in the presence of tax evasion; (iv) given realistic estimates of the public expenditure externality, the average marginal income tax rate in Australia is not too far away from the optimal one; and (v) differences in tax evasion opportunities aggravate inequality over time. Author Affiliation: (1)Department of Economics, Monash University, Berwick, Victoria, Australia (2)School of Accounting, Economics and Finance, Deakin University, Burwood, Victoria, Australia Article note: Emin Gahramanov, School of Accounting, Economics and Finance, Deakin University Burwood campus, 70 Elgar Road, Melbourne, VIC 3125, Australia. Email: eming@deakin.edu.au

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1467-9957.2009.02150.x Byline: TSUYOSHI TOSHIMITSU (1) Abstract: Based on a model of environmental quality differentiated products, we explore how an emission tax charged on consumers who choose an environment-unfriendly good, i.e. a consumer-based emission tax policy, affects the unit emission level of the product, the environment, and consumer and producer surplus. Then, we analyse the conditions for an optimal consumer-based emission tax rate to exist and the properties of the optimal tax rate. We address these issues in the case of a partial coverage market with a Bertrand duopoly. Furthermore, we discuss some of the assumptions of the model. Author Affiliation: (1)Kwansei Gakuin University

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.childyouth.2010.07.026 Byline: Michael J. MacKenzie, David J. Tucker Keywords: Infant mortality; Child death rate; Disconnected youth; Taxation; Tax freedom day Abstract: Each year the Tax Foundation releases rankings of U.S. states on time to Tax Freedom, or the day that the average taxpayer has met their tax burden. The current analysis sought to contextualize the tax freedom day rankings, by examining the association between state tax burden and key indicators of child wellbeing. The 2009 measure of days to tax freedom by state was correlated with ten key indicators of child wellbeing from the Casey Foundation's KIDS COUNT 2009 data. Each of the wellbeing indicators and the overall composite wellbeing rankings were also regressed on days to Tax Freedom and Gross State Product. As the days to tax freedom decrease, indicating a lighter tax burden, all of the following increase significantly -- the infant mortality rate, child and teen death rates, teen birth rate, rates of school dropout and disconnected youth, and numbers of children in poverty. These findings all held even after controlling for Gross State Product. Public attitudes and choices about paying taxes have important consequences for the health of children in our society. The broad appeal of Tax Freedom Day highlights a disconnect between the act of paying taxes and recognition of the benefits to children those taxes provide. Article History: Received 13 May 2010; Revised 23 July 2010; Accepted 28 July 2010

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmateco.2010.08.005 Byline: Stefano Bosi (a), Thomas Seegmuller (b) Keywords: Progressive taxation; Heterogeneous agents; Borrowing constraint; Endogenous labor supply; Steady state allocation; Macroeconomic stability Abstract: The aim of this paper is to study the role of progressive tax rules on the steady state and the stability properties in a Ramsey economy with heterogeneous households and borrowing constraints. Since labor supply is elastic, considering different tax rates on capital and labor incomes matters. Showing the existence of steady states where only the most patient households hold capital, we argue that working could not be optimal for them. Dynamics are addressed through a local analysis. In contrast to many contributions, progressive tax rules can promote expectation-driven fluctuations and endogenous cycles. Hence, progressivity can be an inopportune device to stabilize macroeconomic volatility. Author Affiliation: (a) THEMA, Universite de Cergy-Pontoise, 33 boulevard du Port, 95011 Cergy-Pontoise Cedex, France (b) CNRS and GREQAM, Centre de la Vieille Charite, 2 rue de la Charite, 13236 Marseille Cedex 02, France Article History: Received 20 May 2009; Revised 4 August 2010; Accepted 4 August 2010 Article Note: (footnote) [star] This work was supported by French National Research Agency Grant (ANR-05-BLAN-0347-01). Part of this research has been done when Stefano Bosi was at the University of Lille 1 and Thomas Seegmuller at the Paris School of Economics. We would like to thank an anonymous referee for his helpful comments and the participants of the workshop 'Growth with Heterogeneous Agents: Causes and Effects of Inequality' held in Marseille on June 2008, of the Public Economic Theory conference held in Seoul on June 2008, of the 'First Workshop on Dynamics, Optimal Growth and Population Change: Theory and Applications' held in Milan on September 2008 and of the Western Economic Association International conference held in Kyoto on March 2009. This paper also benefits from suggestions by Carine Nourry. All remaining errors or omissions are our own.

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-2354.2010.00611.x Byline: Thomas Aronsson ([dagger]), Olof Johansson-Stenman (1) Abstract: This article concerns optimal income taxation under asymmetric information in a two-type OLG model when individuals' relative consumption matters. Positional concerns affect the policy choices via two channels: (i) the average degree of positionality and (ii) positionality differences between the low-ability type and the mimicker. Under plausible empirical estimates, the marginal labor income tax rates become substantially larger, and the absolute value of the marginal capital income tax rate of the low-ability type becomes substantially smaller, than in the conventional model. In addition to measures of reference consumption based on average consumption, we also address within-generation and upward comparisons. Author Affiliation: ([dagger])Umea University, Sweden; University of Gothenburg, Sweden

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1540-5982.2010.01610.x Byline: Karen Pittel (1), Lucas Bretschger (1) Keywords: O4; O41; Q01; Q3 Abstract: Abstract. We analyze the long-term dynamics of an economy in which sectors are heterogeneous with respect to the intensity of natural resource use. It is shown that heterogeneity induces technical change to be biased towards resource-intensive sectors. Along the balanced growth path, the sectoral structure of the economy is constant as the higher resource dependency in resource-intensive sectors is compensated by enhanced research activities. Resource taxes have no impact on dynamics except when the tax rate varies over time. Research subsidies and the sectoral provision of productivity-enhancing public goods raise growth and provide an effective tool for structural policy. Abstract (Spanish): Les implications de l'heterogeneite des intensites dans l'usage des ressources naturelles sur le changement technique et la croissance. On analyse la dynamique a long terme d'une economie dans laquelle les secteurs sont heterogenes pour ce qui est de l'intensite dans l'usage des ressources naturelles. On montre que cette heterogeneite engendre un changement technique biaise dans la direction des secteurs a forte intensite dans l'usage de la ressource naturelle. Le long d'un sentier de croissance balancee, la structure sectorielle de l'economie est constante a proportion que la dependance plus grande de la ressource dans les secteurs a forte intensite d'utilisation de la ressource est compensee par des activites de recherche plus importantes. Les taxes sur la ressource n'ont pas d'effet sur la dynamique si ce n'est quand les taux de taxation varient dans le temps. Les subventions a la recherche et la production de biens publics qui renforcent la productivite sectorielle augmentent la croissance et sont un outil efficace de politique structurelle. Author Affiliation: (1)Center of Economic Research, ETH Zurich

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jpubeco.2010.04.006 Byline: Hubert Kempf (a), Gregoire Rota-Graziosi (b) Keywords: Endogenous timing; Tax competition; First/second-mover advantage; Strategic complements; Stackelberg; Risk-dominance Abstract: In this paper we extend the standard approach of horizontal tax competition by endogenizing the timing of decisions made by the competing jurisdictions. Following the literature on the endogenous timing in duopoly games, we consider a pre-play stage, where jurisdictions commit themselves to move early or late, i.e. to fix their tax rate at a first or second stage. We highlight that at least one jurisdiction experiments a second-mover advantage. We show that the Subgame Perfect Equilibria (SPEs) correspond to the two Stackelberg situations yielding to a coordination problem. In order to solve this issue, we consider a quadratic specification of the production function, and we use two criteria of selection: Pareto-dominance and risk-dominance. We emphasize that at the risk-dominant equilibrium the less productive or smaller jurisdiction leads and hence loses the second-mover advantage. If asymmetry among jurisdictions is sufficient, Pareto-dominance reinforces risk-dominance in selecting the same SPE. Three results may be deduced from our analysis: (i) the downward pressure on tax rates is less severe than predicted; (ii) the smaller jurisdiction leads; (iii) the 'big-country-higher-tax-rate' rule does not always hold. Author Affiliation: (a) Paris School of Economics and Banque de France, France (b) CERDI-CNRS, Universite d'Auvergne, France Article History: Received 23 September 2009; Revised 24 February 2010; Accepted 19 April 2010

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jedc.2010.06.017 Byline: Lorenzo Forni (a)(b), Andrea Gerali (b), Massimiliano Pisani (b) Abstract: We simulate a currency union dynamic general equilibrium model to assess the macroeconomic implications of permanently reducing the public debt-to-gross domestic product (GDP) ratio in euro area countries. We obtain the following results. First, tax distortions are quantitatively significant. Second, the best fiscal consolidation strategy is to permanently reduce both expenditures and tax rates. Third, under such a consolidation strategy the transition is generally not costly, as the GDP and investment would grow, while private consumption would not fall. Finally, spillovers to the rest of the euro area are generally expansionary. Author Affiliation: (a) International Monetary Fund, Washington, DC, USA (b) Bank of Italy, Forecasting and Modeling Division, Italy

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1475-5890.2010.00113.x Byline: Ludger Linnemann ([dagger]) Keywords: tax policy; unemployment; labour market frictions; Laffer curve; government spending; growth Abstract: Abstract The paper studies the effects of income tax rate changes in a general equilibrium model with frictional unemployment. Laffer curve effects, by which a tax rate reduction may increase the level of government spending or its share in output, are shown to be possible under certain conditions. These are the presence of unemployment benefit payments, government budget balance through fiscal spending adjustment and limited quantitative importance of labour reallocation costs. Endogenous government spending acts as a fiscal accelerator if the fiscal burden of unemployment benefit payments is large, but reduces the employment effects of tax rate cuts if it is low. Author Affiliation: ([dagger])Technical University of Dortmund (ludger.linnemann@tu-dortmund.de)

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jet.2009.09.003 Byline: Borys Grochulski (a), Tomasz Piskorski (b) Keywords: Optimal taxation; Private information; Human capital; Deferred tax Abstract: We study the structure of optimal wedges and capital taxes in a dynamic Mirrlees economy with endogenous distribution of skills. Human capital is a private, stochastic state variable that drives the skill process of each individual. Building on the findings of the labor literature, we construct a tractable life-cycle model of human capital evolution with risky investment and stochastic depreciation. In this setting, we demonstrate the optimality of (a) a human capital premium, i.e., an excess return on human capital relative to physical capital, (b) a large intertemporal wedge early in the life-cycle, and (c) a non-zero intratemporal wedge even at the top of the skill distribution at all dates except the last date in the life-cycle. The main implication for the structure of optimal linear capital taxes is the necessity of deferred taxation of physical capital. The average marginal tax rate on physical capital held in every period is zero in present value. However, expected capital tax payments do not equal zero in every period. Necessarily, agents face negative expected capital tax payments early in the life-cycle and positive expected capital tax payments late in the life-cycle. Author Affiliation: (a) Federal Reserve Bank of Richmond, United States (b) Columbia University, Columbia Business School, Broadway 3022, Uris Hall 810, New York, NY 10027, United States Article History: Received 28 December 2007; Revised 12 June 2009; Accepted 30 August 2009 Article Note: (footnote) [star] The views expressed here are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jpubeco.2009.10.002 Byline: Peter Egger (a)(b)(c), Marko Koethenbuerger (b)(d), Michael Smart (b)(e) Keywords: Fiscal competition; Fiscal federalism; Equalization; Gewerbesteuer Abstract: According to theory, capacity equalization grants cause local governments to internalize the effects of their tax policies on revenues of neighboring jurisdictions and so raise equilibrium tax rates. This paper empirically analyzes the incentive effects of equalizing transfers on business tax policy by exploiting a natural experiment in the state of Lower Saxony which changed its equalization formula as of 1999. We resort to within-state and across-state difference-in-difference estimates to identify the reform effect on municipalities' business tax rates. Confirming the theoretical prediction, the reform had a significant impact on the municipalities' tax policy in the 4years after the reform with the effect stabilizing in the fourth to fifth years. The finding is robust to various alternative specifications. Author Affiliation: (a) Department of Economics, ETH Zurich, Weinbergstrasse 35, 8006 Zurich, Switzerland (b) CESifo, Germany (c) CEPR, United Kingdom (d) Department of Economics, University of Copenhagen, Aster Farimagsgade 5, 1353 Copenhagen, Denmark (e) Department of Economics, University of Toronto, 150 St. George Street, Toronto ON M5S 3G7, Canada Article History: Received 11 January 2007; Revised 29 September 2009; Accepted 5 October 2009

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jet.2009.10.013 Byline: Andreas Schabert (a)(b) Keywords: Equilibrium determination; Interest rate policy; Money supply; Public debt; Sovereign default Abstract: This paper examines equilibrium determination under different monetary policy regimes when the government might default on its debt. We apply a cash-in-advance model where the government does not have access to non-distortionary taxation and does not account for initial outstanding debt when it sets the income tax rate. Solvency is then not guaranteed and sovereign default can affect the return on public debt. If the central bank sets the interest rate in a conventional way, the equilibrium allocation cannot be determined. If, instead, money supply is controlled, the equilibrium allocation can uniquely be determined. Author Affiliation: (a) TU Dortmund University, Germany (b) University of Amsterdam, Netherlands Article History: Received 1 June 2009; Revised 1 September 2009; Accepted 26 September 2009 Article Note: (footnote) [star] The author would like to thank Roel Beetsma, Wouter den Haan, Mark Gertler, Philipp Harms, Dirk Niepelt, Leopold von Thadden, and other seminar participants at the Federal Reserve Bank of New York, the Free University Berlin, and the University of Amsterdam for helpful comments. This work has been supported in part by the Collaborative Research Center SFB 823 of the German Research Foundation (DFG). The usual disclaimer applies.

The effects of demographics on the mix of tax rates on labor and capital are examined. The younger US voting-age population in 1990 compared to 1965 has explained for the decline in relative capital tax rate between those two years. The younger population has increased net return to capital, led voters to increase their savings, and resulted in preference for lower taxes on capital.

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-0297.2009.02333.x Byline: Teresa Garcia-Mila (1), Albert Marcet (2), Eva Ventura (3) Abstract: We evaluate the effect on welfare of shifting the burden of capital income taxes to labour taxes in a dynamic equilibrium model with heterogeneous agents and constant tax rates. We calibrate and simulate the economy; we find that lowering capital taxes has two effects: it increases efficiency in terms of aggregate production and it redistributes wealth in favour of those agents with a low wage/wealth ratio. When the parameters of the model are calibrated to match the distribution of income in terms of the wage/wealth ratio, the redistributive effect dominates, and agents with a high wage/wealth ratio would experience a large loss in utility if capital income taxes were eliminated. Author Affiliation: (1)Universitat Pompeu Fabra and Barcelona GSE (2)Universitat Autonoma de Barcelona, CEPR and Barcelona GSE (3)Universitat Pompeu Fabra and Barcelona GSE Article History: Submitted: 30 July 2008 Accepted: 28 May 2009

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jedc.2009.09.010 Byline: Tino Berger (a)(b), Gerdie Everaert (b) Abstract: This paper estimates the impact of labour taxes on unemployment using a panel of yearly observations (1970-2005) for 16 OECD countries. Possible heterogeneity of the unemployment incidence of taxes is taken into account by grouping countries according to their wage-setting institutions. Panel data unit root and cointegration tests show that unemployment and labour tax rates are non-stationary but not cointegrated. As this finding may be induced by missing non-stationary variables, we set up a panel unobserved component model. Labour taxes are found to have a positive impact on unemployment only in countries characterised by strong but decentralised unions. Author Affiliation: (a) Department of Economics, University of Muenster, Germany (b) SHERPPA, Ghent University, Belgium Article History: Received 21 May 2008; Accepted 17 September 2009

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1540-5982.2009.01570.x Byline: Celine Azemar (1) Keywords: F23; H25; H32 Abstract: Abstract. This paper explores the effects of corporate taxation on U.S. capital invested abroad and on tax planning practices. The econometric analysis first indicates that investment is strongly influenced by average tax rates, with a magnified impact particularly for low-tax rates, implying that the attractiveness of low-tax countries is not weakened by anti-deferral rules and cross-crediting limitations. Further explorations suggest that firms report higher profit, higher Subpart F income, and are less likely to repatriate dividends when they are located in low-tax jurisdictions. Finally, when the role of effective transfer pricing regulations is estimated, it appears that low degrees of law enforcement are associated with higher income shifting. Abstract (Spanish): Fiscalite internationale et comportment des firmes multinationales americaines: une approche integree. Ce memoire s'interesse aux effets des impots sur le revenu des societes sur l'investissement et les pratiques de planifications fiscales des firmes multinationales americaines. L'analyse econometrique indique que l'investissement americain est fortement influence par le taux d'imposition moyen et que cet impact est sensiblement plus important pour de faibles taux d'imposition. Ceci suggere que l'attractivite des pays a faible imposition n'est pas affaiblie par les limites imposees par le systeme fiscal americain sur la possibilite de differer l'impot et sur les moyennes de credit. Des tests additionnels montrent que les firmes reportent un profit ainsi qu'un revenu 'Subpart F' plus important et rapatrient moins leurs dividendes lorsqu'elles sont localisees dans des pays a faible imposition. Finalement, en estimant le role joue par l'efficacite des reglementations en termes de prix de transferts, il apparait qu'un faible etat de droit est associea de plus fortes manipulations fiscales. Author Affiliation: (1)Department of Economics, University of Glasgow

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jpubeco.2009.09.007 Byline: Pascalis Raimondos-MA[cedilla]ller (a)(b)(c), Nicolas Schmitt (c)(d) Keywords: Parallel import; Commodity taxation; Tax harmonization Abstract: We examine the interaction between commodity taxes and parallel imports in a two-country model with imperfect competition. While governments determine non-cooperatively their commodity tax rate, the volume of parallel imports is determined endogenously by the retailing sector. We compare the positive and normative implications of having commodity taxes based on destination or origin principle. We show that, as the volume of parallel imports increases, non-cooperative origin taxes converge, while destination taxes diverge. Moreover, origin taxes are more similar and lead to higher aggregate welfare levels than destination taxes. Author Affiliation: (a) Department of Economics, Copenhagen Business School, Porcelanshaven 16A, 2000 Frederiksberg, Denmark (b) CEPR, United Kingdom (.sup.c ) CESifo, Germany (.sup.d ) Simon Fraser University, Canada Article History: Received 26 October 2007; Revised 17 September 2009; Accepted 22 September 2009

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1540-5907.2009.00415.x Byline: Douglas A. Hibbs (1), Violeta Piculescu (2) Abstract: How do government-supplied institutional benefits and the taxation and regulation of producers affect the propensity of private firms to enter the unofficial economy and evade taxation? We propose a model in which the incentive of firms to operate underground depends on tax rates relative to firm-specific thresholds of tax toleration that are decisively affected by quality of governance-in particular by the presence of high-grade institutions delivering services enhancing official production that anchor profit-maximizing firms to the official economy. Some key predictions of the model concerning the determinants of firms' tax toleration and tax compliance receive broad support from empirical analyses of enterprise-level data from the World Bank's World Business Environment Surveys. Author Affiliation: (1)Gothenburg University (2)Gothenburg University Article note: Douglas A. Hibbs, Jr., is emeritus Professor of Economics and Senior Research Associate at the Center for Public Sector Research (CEFOS), Gothenburg University, 40530 Gothenburg, Sweden (douglas@douglas-hibbs.com). Violeta Piculescu is a PhD in Economics from Gothenburg University, 40530 Gothenburg, Sweden (violeta.piculescu@gmail.com).

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.ejor.2008.12.012 Byline: Zu-Hsu Lee (a), Shiming Deng (b), Beixin Lin (c), James G.S. Yang (c) Keywords: OR in strategic planning; Nonlinear programming; Income tax; Investment interest expense; Linear programming Abstract: Investment income tax planning requires informed, strategic choices. One must determine the amount of qualified dividends and net long-term capital gain to be included in investment income (against which investment interest expense can be deducted). This choice also determines the residual qualified dividends and net long-term capital gain which enjoy a reduced tax rate. Another important decision is whether all or some of this interest expense should be deducted in the current year or carried forward. This paper puts forward a new approach to formulate these questions as a generalized resource allocation problem which permits analysis of the interdependence between, and the tax consequences of, the above decisions. The commonly used approach - deducting investment interest expense sooner rather than later - we consider myopic since the benefit of deferring some of the deduction is not leveraged. Presented here is a tax planning guideline (a necessary and sufficient condition for optimality) to realize a more forward-looking strategy. We also show that, for certain income structures, the tax savings by deducting a one-dollar investment interest expense may be more than the tax rate on the dollar of investment income that is offset. Author Affiliation: (a) School of Management, Marist College, Poughkeepsie, NY 12601, United States (b) School of Management, Huazhong University of Science and Technology, Wuhan 430074, PR China (c) Department of Accounting, Law and Taxation, Montclair State University, Montclair, NJ 07043, United States Article History: Received 15 October 2006; Accepted 8 December 2008