International tax competition with endogenous sequencing

This paper examines endogenous timing in an international tax competition model. Unlike existing studies, governments are assumed to decide not only tax rates but also whether they are set early or late. The Nash equilibrium provides four conclusions for alternative double tax allowances. First, tax deductions cause simultaneous tax competition, whereas tax credits yield sequential tax competition. Second, any double taxation relief would generate capital trade. Third, a credit system could maximize one country’s economic welfare but would lower another country’s economic welfare more than a deduction regime. Fourth, a home country’s government would choose credit regimes under a maximax rule, but select deduction methods under minimax and maximin rules, while all double tax allowances are indifferent to a host country. The findings resolve the question raised by Bond and Samuelson (Economic Journal 99:1099–1111, 1989) of why governments choose tax credits when tax deductions are clearly better. Namely, this paper shows that one country is better off but another is worse off with credits rather than deductions. Accordingly, we cannot clearly specify whether governments choose credit systems or deduction regimes. The possible double tax allowances employed by the governments depend on their own decision criterion.     

Asymmetric capital tax competition and choice of tax rate

This article provides an alternative mechanism that explains differences in capital tax rates, which applies to small jurisdictions. In the framework of standard capital tax competition models, regions have to be large, in the sense of having market power, otherwise they will tax capital, a mobile factor, at the same rate. In this paper, we consider a second mobile factor, labor, which is mobile only within metropolitan areas. We will show that this spatially limited mobile factor may explain the capital tax rate differences levied on the global mobile factor as long as no source-based wage tax is available. In addition to the theoretical treatment, numerical simulations also confirm this result and show a significant tax differential.     

Entry in tax competition: a note

This paper extends the tax competition analysis of public inputs to the case where the number of regions that compete for business investment is endogenous. To determine the number of competing regions, a fixed cost of regional development is introduced into the Zodrow–Mieszkowski model of public-input provision. It is shown that allowing for region entry does not affect the analytical results of inefficient public-input provision under tax competition. This paper also shows that the equilibrium number of competing regions is inefficient.     

Endogenous choice on tax instruments in a tax competition model: unit tax versus ad valorem tax

This paper analyzes an endogenous choice problem with regard to tax instruments in a capital tax competition model. Using a symmetric and two-region model of tax competition, where each region is allowed to choose either a unit or an ad valorem tax, we show that selecting a unit tax as a policy instrument is the dominant strategy.     

MIGRATION into the WELFARE STATE: tax and migration competition

Despite big gains from easing restrictions on international labor mobility, liberalizing migration flows is not pursued unilaterally or negotiated among countries in a way that international trade negotiations are pursued. Among several key explanations is the fiscal burden imposed by immigration on native-born. The paper focuses on a central tension faced by policy makers in countries that receive migrants from lower wage countries. Such countries are typically high productivity and capital rich, and the resulting high wages attract both skilled and unskilled migrants. A generous welfare state may attract low-skill migration deter skilled migration, since it is likely to be accompanied by higher redistributive taxes. Assuming that a group of host countries faces an upward supply of immigrants, the analysis demonstrates that tax competition does not indeed lead to a race to the bottom; competition may lead to higher taxes than coordination. There exists a fiscal externality (fiscal leakage) that causes tax rates (on both labor and capital), and the volume of migration (of both skill types), to be higher in the competitive regime than in the coordinated regime.     

Consumption tax competition among governments: Evidence from the United States

The paper contributes to a small but growing literature that estimates tax reaction functions of governments competing with other governments. We analyze consumption tax competition between US states, employing a panel of state-level data for 1977–2003. More specifically, we study the impact of a state’s spatial characteristics (i.e., its size, geographic position, and border length) on the strategic interaction with its neighbors. For this purpose, we calculate for each state an average effective consumption tax rate, which covers both sales and excise taxes. In addition, we pay attention to dynamics by including lagged dependent variables in the tax reaction function. We find overwhelming evidence for strategic interaction among state governments, but only partial support for the effect of spatial characteristics on tax setting. Tax competition seems to have lessened in the 1990s compared to the early 1980s.     

Asymmetric tax competition in the presence of lobbying

This paper incorporates the influence of interest groups into the asymmetric tax competition model to explain the phenomenon that small countries do not necessarily set lower capital tax rates than large countries. In addition to the efficiency effect considered by the standard model, which leads the smaller country to set a lower capital tax rate, this present paper also takes account of the political effect arising from lobbying. We show that the smaller country may face less downward political pressure. If the political effect outweighs the efficiency effect, then the smaller country sets a higher tax rate than the larger country. This result has several welfare implications, which are in contrast to the conventional consequences.     

Tax competition and tax base equalization in the presence of multiple tax instruments

The literature on tax competition has argued that tax base equalization, which reduces regional disparities in tax bases, can serve as a means of internalizing horizontal and vertical fiscal externalities. This argument assumes that each government relies on a single tax base (a regional tax on mobile capital and a federal tax on savings). This paper considers the case in which a distortionary labor tax is also available. Internalizing fiscal externalities requires that while the regional capital tax base is fully equalized, a region’s equalization entitlement for the labor tax is positive when its tax base is “larger” than the average tax base of all regions. This efficient tax base equalization system is incompatible with the primary objective of fiscal equalization.

     

International competition and exchange rate shocks: a cross-country industry analysis of stock returns

This article systematically examines the importance of exchangerate movements and industry competition for stock returns. Commonshocks to industries across countries are more important thancompetitive shocks due to changes in exchange rates. Weeklyexchange rate shocks explain almost nothing of the relativeperformance of industries. Using returns measured over longerhorizons, the importance of exchange rate shocks increases slightlyand the importance of industry common shocks increases moresubstantially. Both industry and exchange rate shocks are moreimportant for industries that produce internationally tradedgoods, but the importance of these shocks is economically smallfor these industries as well.     

Merger policy and tax competition: the role of foreign firm ownership

In many situations, governments have sector-specific tax and regulation policies at their disposal to influence the market outcome after a national or an international merger has taken place. In this paper we study the implications for merger policy when countries non-cooperatively deploy production-based taxes and firms may be partly owned by foreigners. We find that when foreign firm ownership is low in the pre-merger situation, non-cooperative tax policies are more efficient after a national merger, and smaller synergy effects are needed for this type of merger to be proposed and cleared. In contrast, cross-border mergers dominate when the degree of foreign firm ownership is high initially. These results suggest a link between increasing international portfolio diversification and the rising share of cross-border mergers.     

Further analysis on leadership in tax competition: the role of capital ownership

This paper extends the work of Kempf and Rota-Graziosi (J. Pub. Econ. 94:768–776, 2010), which argues that under capital tax competition the sub-game perfect equilibria (SPEs) correspond to two Stackelberg outcomes. The findings show that the Kempf and Rota-Graziosi result depends on the form of capital ownership. By generalizing the form of capital ownership, this paper shows that the simultaneous-move outcome prevails as an SPE if the capital is owned by residents in the countries, whereas the Kempf and Rota-Graziosi argument holds if the capital is owned by nonresidents.     

Equilibrium leadership in tax competition models with capital ownership: a rejoinder

This paper reconciles two opposite results in the tax competition literature. Kempf and Rota-Graziosi (J Public Econ 94(9–10):768–776, 2010) and Hindriks and Nishimura (J Public Econ 121:66–68, 2015) have shown that the two Stackelberg outcomes prevail as the subgame perfect equilibria when capital is entirely owned by nonresidents. However, Ogawa (Int Tax Public Finance 20(3):474–484, 2013) has shown that the simultaneous-move outcome prevails when capital is entirely owned by residents. We develop a model in which capital ownership can vary freely between these two polar cases. We show that there exists a unique degree of residential capital ownership such that the equilibrium switches from the Stackelberg to the simultaneous-move outcomes. The chance for the simultaneous-move outcome to prevail increases with the extent of production asymmetry between regions. Partial ownership also induces a novel effect of tax leadership that we call the preference reversion effect.     

Pillar 2: tax competition in low-income countries and substance-based income exclusion

Pillar 2 of the OECD's global tax reform proposal will have significant direct and indirect impacts for low-income developing countries (LICs). Most interesting and problematic is the question as to how the global anti-base erosion (GloBE) rules for a proposed global minimum effective tax will affect tax competition behaviour in LICs, and how LICs should respond when a critical mass of higher-income economies adopt the new structure. Most LICs are source-only countries, and they are very much in competition to attract foreign direct investment. Do LICs want to continue to compete using the tax system to the extent possible, to step back from that competition, or to take some intermediate course? Pillar 2 does not itself change a country's desired position on the competition spectrum – it merely affects how, and to what extent, that position can still be obtained. This paper posits that LICs should adopt qualified domestic minimum top-up taxes, and that this will not itself have a negative impact on their competitiveness. The primary focus of the paper, however, is on the design of the substance-based income exclusion (carve-out), examining the following three questions. Should the GloBE have been designed without a carve-out? Would there have been a better way of designing it? How will LICs be affected? The paper concludes that, as little real advantage is likely to accrue to LICs from intangible assets, minimising tax competition for those assets will have relatively little impact on them; and that, from an economic efficiency standpoint, shifting the tax burden away from a normal return and toward economic rents – albeit imperfectly – is a reasonable solution.     

Measuring revenue responses to tax rate changes in multi-rate income tax systems: behavioural and structural factors

This paper shows how income changes in response to changes in marginal income tax rates (MTRs) translate into tax revenue changes for the familiar multi-step income tax function used in many countries. Previous literature has focused on the relatively straightforward case of a proportional income tax or the top MTR only. The paper examines revenue responses at both the individual and aggregate levels, and it is shown that for individual MTRs within a multi-rate regime, simple expressions for tax revenue responsiveness can be derived that nevertheless capture the various behavioural and structural responses to income tax reforms involving changes to multiple rates and thresholds. Illustrations are provided using changes to the New Zealand income tax structure in the 2010 budget. This reduced all marginal tax rates while leaving income thresholds unchanged.     

The new deal at the top

What makes a company strategically agile--able to alter its strategies and business models rapidly in response to major changes in its market space, and to do so repeatedly without major trauma? Three years of in-depth case research on a dozen large companies worldwide showed the authors that one key factor is a new leadership model at the top. Senior executives at agile companies assume collective rather than individual responsibility for results. They build interdependencies among units and divisions, motivating themselves to engage with one another, and carefully manage their dealings to promote collaboration that is frequent, intense, informal, open, and focused on shared issues and the long term. Challenges to conventional thinking are encouraged. This is the new deal, and it's not easy to strike, because it requires executives to act in ways that are far from comfortable. After all, the corporate ladder at most firms favors independent types with a deep need for power and autonomy. At executive meetings, disagreement is suppressed or expressed passive-aggressively, eroding any real sense of belonging to a team. Switching to the new deal almost always requires a huge shift in the company's culture, values, and norms of interaction. The authors describe three approaches to making the shift: Executives can be given formal responsibility not for a business unit but for different stages in the company's value chain. This worked well for SAP, which has a relatively focused business portfolio. When a company's portfolio is less uniform, like Nokia's, business and functional units can be organized to crisscross on a matrix. And when a company is widely diverse, like easyGroup, it can emphasize the learning opportunities that units with common business models may share.     

Macroprudential policies and bank competition: International bank-level evidence

The paper analyzes the effect of changes in eight types of bank-oriented macroprudential policies on bank competition and stability. Using a bank-level database of a maximum of 2511 listed banks from 52 countries, I find that a tightening in bank-oriented macroprudential policies on average increases both bank competition and stability. However, there are differences across policies and countries. Loan supply and liquidity-based policies increase bank competition whereas capital and tax-based policies reduce bank competition. Tighter legal restrictions on entry and activity in a country reduce the positive (increase the negative) effect of macroprudential policies on bank competition. In terms of policy implications, I identify a sub-set of especially useful macroprudential policies that increase not only financial stability but also bank competition.     

外运长航：瞄准世界五百强

中国对外贸易运输（集团）总公司（简称中国外运）是国务院国资委在央企中建立规范董事会的试点企业之一,也是第一家外部董事任董事长的试点企业。试点从理论上讲允许失败,但在中国,试点则意味着上级的重视、重托,只能成功不能失败。试点的结果能否真正实现决策权与执行权的有效分离？能否让这家不够大的企业做大做强？这对中国外运来说,是机遇,更是挑战。经过近五年的努力,他们成功了,