Corporate Effective Tax Rates in the Netherlands

Summary This paper investigates the actual size of tax incentives granted to Dutch companies by using financial statement data for 1592 companies for the 1994--1999 period. Empirical results indicate that Dutch effective tax rates do not differ much from statutory tax rates. Although capital intensity is negatively associated with effective tax rates, only a small portion of the variance in effective tax rates can be explained. This indicates that the actual size of tax incentives granted to companies in the Netherlands is quite small.Comments by the editor, two anonymous reviewers, Willem Buijink, Yvonne Schols and participants at the annual European Accounting Association congress are gratefully acknowledged.     

What are the Trade Spill-Overs from Fiscal Shocks in Europe? An Empirical Analysis***

We use a Vector Auto Regression (VAR) analysis to explore the (trade spill-over) effects of fiscal policy shocks in Europe. To enhance comparability with the existing literature, we first analyse the effects of these shocks at the national level. Here, we employ identification based on Choleski decomposition and a structural VAR, both of which lead to the same results. Then, we turn to study the cross-border spill-overs of fiscal shocks via the trade channel. Fiscal expansions in Germany, France and Italy lead to significant increases in imports from a number of European countries. In order to mimic the case of monetary union, we also shut off the effects via the short-term interest rate and the nominal exchange rate and find a slight strengthening on average of the cross-country spill-overs from a fiscal expansion. These results suggest that it may be worthwhile to further investigate the possibility of enhanced fiscal coordination.*** This research is part of the RTN project ‘Macroeconomic Policy Design for Monetary Unions’, funded by the European Commission (contract number HPRN-CT-2002-00237). We thank two anonymous referees, a referee for the ECB Working Paper series, Peter Claeys, David-Jan Jansen, Franc Klaassen, Roberto Perotti and audiences at the Dutch Central Bank and the CEPR/CREI Conference ‘Designing a Macroeconomic Policy Framework for Europe’ (Barcelona, 2004) for many helpful comments. A large part of this paper was written while Beetsma was visiting the Directorate-General for Research of the ECB. He thanks the ECB for the stimulating research environment. The views expressed in this paper are those of the authors and do not commit any of.cial institution. The usual disclaimer applies.     

The role of credibility in the cyclical properties of macroeconomic policies in emerging economies

Optimal stabilization policy is countercyclical, aiming at keeping output close to its potential. However it has been traditionally argued that emerging countries are unable to adopt countercyclical monetary and fiscal policies. Here we argue that the cyclical properties of macroeconomic policies depend critically on policy credibility. We test this proposition by making use of recent panel data for eleven emerging market economies and time series data for Chile. The evidence supports that countries with higher credibility, as reflected by lower country risk levels, are able to conduct countercyclical fiscal and monetary policies. Conversely, countries with less credible policies (and, therefore, with higher country risk spreads) contribute to larger cyclical fluctuations by applying procyclical policies. For Chile we find that both monetary and fiscal policies have been largely countercyclical after 1993. JEL no. E43, E52, E62     

Estimating the export and import demand for manufactured goods: The role of FDI

In this paper we estimate the demand for exports and imports of manufactured goods for a panel containing the majority of the EU countries as well as the United States and Japan. The model includes as explanatory factors both the traditional determinants of trade and also the stock of foreign direct investment (FDI). We apply panel unit root and cointegration tests allowing for heterogeneity. Whereas there is no evidence of cointegration when using just the traditional formulation, the results are favorable to the existence of long-run relationships linking the variables of the augmented model. Moreover, the results point mainly to a complementary relationship between trade and FDI.     

The color of money: The effects of foreign direct investment on economic growth in transition economies

During the initial phase of transformation to a market economy many of the Eastern European and Baltic countries experienced an initial decline of output. This paper explains, both theoretically and empirically, why they experienced negative growth initially, and how some of them started to get over and recorded positive growth recently. As a vehicle to transfer technology and managerial skills to the transition economies, as well as to increase capital work, foreign direct investment (FDI) is regarded important. Production function with a low elasticity of substitution between two inputs is employed to capture the dynamic short-run movement of these economies. Cross-sectional and panel data, are utilized to analyze the short-run dynamic movement of equilibrium paths of transformation to a market economy. The findings confirm that total factor productivity and GDP in the region grew together with the inflow of FDI, and the marginal contribution of FDI to growth is greater than that of domestic investment. JEL no. O50, P39, F21 This project is financially supproted by the ARC Small Grant, Department Research Grant, Department of Economics, UWA and Division Research Grant, Commerce, Division, Lincoln University.     

Currency substitution and the stability of the Italian demand for money before the entry into the monetary union, 1972–1998

A money demand function for M2 is estimated for Italy for the period 1972–1998 within an error correction framework. This period has been characterized by major structural changes in the Italian financial system and by major changes in monetary policy. This study takes these changes into account. Moreover, currency substitution, especially between Italy and Germany is incorporated into the model. By accounting for structural breaks and currency substitution a stable money demand function can be found.Financial support from the Deutsche Forschungsgemeinschaft, SFB 373, is gratefully acknowledged. We thank Uwe Hassler, Goethe Universität, Frankfurt, and Carsten Trenkler, SFB 373, Humboldt-Universität zu Berlin, for helpful comments. An earlier version has been presented at the ESEM 2001, Lausanne.     

Sovereign credit spreads and the composition of the government budget

This paper investigates the relationship between sovereign credit spreads and the composition of the government budget. The key result of this paper is that governments that invest more and spend less on consumption have significantly lower sovereign credit spreads. This finding is in accordance with the endogenous growth theory, which predicts a positive impact of government investment and a negative impact of government consumption on the long-term growth rate. Finally, a broader tax base significantly reduces sovereign credit spreads. A possible explanation may be that governments with more tax receipts are less likely to have liquidity problems to finance their debt charges.     

Intellectual property rights and foreign direct investment: A disaggregated analysis

This paper aims at overcoming several shortcomings of previous empirical studies on the relationship between IPR protection and FDI. First of all, we use sectorally disaggregated FDI data for a large sample of host countries. Second, we address the proposition that stronger IPR protection raises not only the quantity but also the quality of FDI. Third, we check to which extent the relationship between IPR protection and FDI is affected by applying alternative measures of IPR protection. Our empirical findings support the hypothesis that the threat of an unauthorized use of intellectual-property-related assets and, thus, FDI depends on industry as well as host-country characteristics. Furthermore, stronger IPR protection may help induce high-quality FDI. JEL no. F21, F23