Electoral accountability and tax mimicking: the effects of electoral margins, coalition government, and ideology

This paper investigates the relation between tax mimicking and electoral accountability against the background of data on Spain. The results confirm the presence of tax-mimicking behaviour and indicate a relation between tax mimicking and electoral accountability. Tax rates are found to be higher and the reaction to neighbours' tax rates lower when the electoral margin is high and when left-wing parties control government. Coalition governments do not tax heavily and mimic more than single party majority governments.     

Unemployment insurance: The role of electoral systems and regional labour markets

Levels of insurance against unemployment vary considerably across countries. Replacement rates, the ratio relating income from unemployment to what people earned when they were employed, are higher in countries with proportional electoral systems than in countries with majoritarian systems. Also, replacement rates are positively correlated with per capita income and negatively correlated with the countries' unemployment rates. I develop an electoral competition model that replicates these stylized facts.     

Budget processes: Theory and experimental evidence

This paper studies budget processes, both theoretically and experimentally. We compare the outcomes of bottom-up and top-down budget processes. It is often presumed that a top-down budget process leads to a smaller overall budget than a bottom-up budget process. Ferejohn and Krehbiel [Ferejohn, J., Krehbiel, K., 1987. The budget process and the size of the budget, Amer. J. Polit. Sci. 31, 296–320] showed theoretically that this need not be the case. We test experimentally the theoretical predictions of their work. The evidence from these experiments lends strong support to their theory, both at the aggregate and the individual subject level.     

Globalisation, capital mobility and tax competition: theory and evidence for OECD countries

Are the predictions of tax competition theory wrong? While the tax competition literature predicts that taxes on income from capital decrease with increasing globalisation, past empirical studies on various data find contradicting evidence. By using different data and additional elements of economic theory, this paper aims to challenge the empirical contributions. For a panel of 14 OECD countries and for the period 1967–1996, we find that globalisation has indeed a negative and significant impact on corporate taxes. Furthermore, globalisation tends to raise labour taxes and social expenditures. As a consequence, the so-called “efficiency” and “compensation” hypotheses of globalisation are not competing, but rather, both appear to apply at the same time. Efficiency has an impact on the tax-mix, whereas compensation is provided through increased social expenditures.     

An experimental study of information and mixed-strategy play in the three-person matching-pennies game

Summary. Recent experiments on mixed-strategy play in experimental games reject the hypothesis that subjects play a mixed strategy even when that strategy is the unique Nash equilibrium prediction. However, in a three-person matching-pennies game played with perfect monitoring and complete payoff information, we cannot reject the hypothesis that subjects play the mixed-strategy Nash equilibrium. Given this support for mixed-strategy play, we then consider two qualitatively different learning theories (sophisticated Bayesian and naive Bayesian) which predict that the amount of information given to subjects will determine whether they can learn to play the predicted mixed strategies. We reject the hypothesis that subjects play the symmetric mixed-strategy Nash equilibrium when they do not have complete payoff information. This finding suggests that players did not use sophisticated Bayesian learning to reach the mixed-strategy Nash equilibrium. Received: August 9, 1996; revised version: October 21, 1998     

Batch queues with choice of arrivals: Equilibrium analysis and experimental study

We study the decisions agents make in two queueing games with endogenously determined arrivals and batch service. In both games, agents are asked to independently decide when to join a queue, or they may simply choose not to join it at all. The symmetric mixed-strategy equilibrium of two games in discrete time where balking is prohibited and where it is allowed are tested experimentally in a study that varies the game type (balking vs. no balking) and information structure (private vs. public information). With repeated iterations of the stage game, all four experimental conditions result in aggregate, but not individual, behavior approaching mixed-strategy equilibrium play. Individual behavior can be accounted for by relatively simple heuristics.     

Principles of network development and evolution: an experimental study

This paper reports on an experimental investigation of the evolution of networks and the individual decision-making processes that guide it. Inasmuch as there is no history of experimental work on network formation, part of the paper is devoted to the formulation of problems that can be examined experimentally. The results are that networks, composed of decentralized decision makers, are capable of overcoming complex coordination and learning problems and converge to stationary configurations. While stationarity is frequently observed, such an achievement is not guaranteed, and when it does not occur, significant and persistent inefficiencies can result. The models of equilibration based on the principle of Nash equilibrium are more reliable than models based on the alternative principles of efficiency seeking or focalness of the network configuration. However, individual decision making within networks is not in accordance with the simple decision rule of Nash best response. Instead, we observe complicated strategies that appear to trade short-term profits in order to signal to and teach other agents the strategies required for long-term profit maximization.     

Teaching Nash Equilibrium and Dominance: A Classroom Experiment on the Beauty Contest

Abstract: The authors' aim in this article was to show how the use of classroom experiments may be a good pedagogical tool to teach the Nash equilibrium (NE) concept. The basic game is a version of the beauty contest game (BCG), a simple guessing game in which repetition lets students react to other players' choices and converge iteratively to the equilibrium solution. The authors perform this experiment with undergraduate students with no previous training in game theory. After four rounds, they observe a clear decreasing tendency in the average submitted number in all groups. Thus, the findings show that by playing a repeated BCG, students quickly learn how to reach the NE solution.     

Institutions, motivations and public goods: An experimental test of motivational crowding

Contributions to public goods can be motivated by intrinsic factors such as warm glow altruism and fairness, as well as extrinsic incentives such as sanctions and payments. However, psychological studies suggest that formal extrinsic incentives may crowd out intrinsic motivations. In an experimental study of individual contributions to a public good we find that suasion crowded in voluntary contributions, while an extrinsic incentive in the form of a regulation led to crowding out. This has implications for the design of public policy where ranges of motivations are present.     

Specification choice and robustness in CGE trade policy analysis with imperfect competition

In order to contribute to a more comprehensive understanding of the robustness of the quantitative results of applied trade policy simulations to variations in the assumptions about firm conduct, this article provides a systematic synopsis of alternative formulations of imperfectly competitive supply behaviour in applied general equilibrium trade models and examines the sensitivity of simulated trade policy effects to the specification choice and calibration strategy within a prototype multi-country model. The analysis suggests in particular, that simulation results are generally far more sensitive to numerical specification choices at the calibration stage, than to the prior choice of firm conduct specification.     

Imperfect competition and capital accumulation: the role of price normalization

We consider a capital-accumulation model with infinitely lived households and two production sectors. The intermediate-good sector is characterized by perfect competition, a constant-returns-to-scale technology, and production externalities. The final-good sector is a monopoly operating under constant returns to scale. We analyze the general equilibrium in the sense of Gabszewicz and Vial [Journal of Economic Theory (1972) 4: 381–400] for this economy and different price-normalization rules. It is shown that the qualitative behavior of the equilibrium paths depends crucially on the chosen normalization rule. In particular, whether equilibria are monotonic or oscillating and whether indeterminacy occurs or not may depend on the choice of the numeraire.     

Product quality and competition: evidence from the broadband industry

Access to high-quality broadband internet is important in many different respects such as in communication, education, commerce and information acquisition. We investigate the relationship between the number of broadband providers in an area and the quality of broadband service provided where download speed is used as a proxy for quality. We find that increased competition in an area positively affects the access to fast download speeds. This finding is robust to three different top download speeds tested. Additionally, a theoretical model is provided which shows that competition can decrease the profits associated with offering slow speeds; this gives an incentive for providers to offer higher speeds as a way to increase profits.     

Price competition between big and small supermarkets: evidence from Seoul

This article empirically investigates the level of competition between superstores and smaller retailers in the Korean retail industry where market entry and operational hours of the former are restricted in order to protect the latter. Applying spatial econometric methods to store-level price data from Seoul, we find that while spatial price correlations among same-size stores exist, product prices across different-size stores are spatially uncorrelated. This result implies that consumers may not view superstores’ and smaller retailers’ products as close substitutes, and thus their markets are likely to be segmented from each other.     

Repetition and signalling: experimental evidence from games with efficient equilibria

We report experiments where subjects generally fail to attain the efficient equilibrium of a one-shot game, but attain the efficient equilibrium of the repeated version. The results suggest that in the repeated game actions are used to signal future intentions.     

Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada

We study corporate income taxation when firms operating in multiple jurisdictions can shift income using tax planning strategies. Because income of corporate groups is not consolidated for tax purposes in Canada, firms may use financial techniques, such as lending among affiliates, to reduce subnational corporate taxes. A simple theoretical model shows how income shifting affects real investment, government revenues, and tax base elasticities, depending on whether firms must allocate income to provinces or not. We then analyze data from administrative tax records to compare the behavior of corporate subsidiaries that may engage in income shifting to comparable firms that must use the statutory allocation formula to determine their taxable income in each province. The evidence suggests that income shifting has pronounced effects on provincial tax bases. According to our preferred estimate, the elasticity of taxable income with respect to tax rates for “income shifting” firms is 4.9, compared with 2.3 for other, comparable firms.     

Market forces and competition in university systems: theoretical reflections and empirical evidence from Italy

This paper deals with the reforming processes in higher education (HE) from centralised systems towards more competitive ones. In particular, I discuss these issues referring to the Italian case, and the market‐like mechanisms introduced in it during 1990s and early 2000s. The focus of the paper is in analysing the effects of the increasing competition on teaching performance of universities. For this purpose, I develop a theoretical model, moving from the framework of yardstick competition (YC), to describe the functioning of a competition model based on comparing performance of institutions. Then, I apply this model using data from the Italian university system. The results suggest that an increasingly competitive environment effectively improves the universities’ performance, which is also influenced by other factors, namely the characteristics of the institutions themselves and of their students, and by the resources available. As the exploratory nature of the study, these findings must be validated through future research.     

Market structure and competition in transition: results from a spatial analysis

The present article provides first microlevel (indirect) empirical evidence on changes in entry barriers, the determinants of firm profitability as well as the nature of competition for a transition economy. We estimate size thresholds required to support different numbers of firms for several retail and professional service industries in a large number of geographic markets in Slovakia. The 3 time periods in the analysis (1995, 2001 and 2010) characterize different stages of the transition process. Specific emphasis is given to spatial spill-over effects between local markets. Estimation results obtained from a spatial ordered probit model suggest that entry barriers have declined considerably (except for restaurants) and that the intensity of competition has increased on average. We further find that demand spill-overs and/or the effects associated with a positive correlation in unobservable explanatory variables seem to outweigh negative spill-over effects caused by competitive forces between neighbouring cities and villages. The importance of these spatial spill-over effects differs across industries.     

Information and the persistence of private-order contract enforcement institutions: An experimental analysis

We study an experimental market in which some sellers are prone to moral hazard, and in which a private-order contract enforcement institution exists that can mediate trade and prevent sellers from reneging on their contractual obligations. Using the institution to resolve the moral-hazard problem is costly. We demonstrate that in this market, the utilization of the private-order contract enforcement institution may make public and private market signals uninformative and inhibit learning. We study whether this potential information externality can limit adaptation away from the private-order institution when it is efficient to do so. Consistent with theory, we find inefficient persistence when the institution is used, but by contrast, efficient adaptation in other situations. Providing information to individuals who are using the private-order institution allows them to partially adapt.     

The role of strategic uncertainty in games: An experimental study of cheap talk and contracts in the Nash demand game

We utilise results from a human-subjects experiment to examine the connection between strategic uncertainty and outcomes in games. Our basic game is a Nash demand game where one player has an outside option available. A “chat” treatment allows bargainers to send cheap-talk messages prior to playing the basic game, and in a “contracts” treatment, they can additionally propose and accept binding contracts. We propose that strategic uncertainty comprises at least two facets: “coordination-type”, which is lower in the chat game than in the basic game, and “rationality-type”, which is lower in the contracts game than in the chat game. We find that both types of strategic uncertainty impact bargaining outcomes: moving from the basic game to the chat game, and thence to contracts, improves several aspects of outcomes, such as higher efficiency, less opting out and less under-demanding. Other results include a treatment effect on the types of agreements that are reached.