Political Support for Tax Decentralization

We present a spatial model of a city with two unequally productive jurisdictions. City residents bear a commuting cost to work in either of the two jurisdictions. Each jurisdiction must finance a public budget with a wage and a head tax. We compare the first best optimum to tax decentralization. From the total welfare viewpoint, tax competition is always inefficient. However, majoritarian local governments may prefer the inefficient tax decentralization to the first best.     

Transfer Pricing Rules,OECD Guidelines,and Market Distortions

We study the impact of transfer pricing rules on prices, firms' organizational structure, and consumers' utility in a two‐country monopolistic competition model with source‐based profit taxes. Firms can either be multinationals and serve the foreign market through a fully controlled affiliate, or be exporters and serve the foreign market by contracting with an independent distributor. The use of the OECD's comparable uncontrolled transfer price (CUP) rule distorts firms' output and pricing decisions, because the comparable arm's length transactions between exporters and distributors—which serve as the benchmark—are not efficient. We show that the CUP rule is detrimental to consumers in the low‐tax country, yet benefits consumers in the high‐tax country when compared to the benchmark of unconstrained profit shifting. Using the OECD rule increases tax revenue at the expense of consumer surplus. Those results also hold under the alternative cost‐plus transfer pricing rule.     

How Labourers Fare in Fresh Fruit Export Industries: Lemon Production in Northern Argentina

Horticultural export industries have been acclaimed as promoting employment and growth. Critics, however, contend that most of the jobs created are low wage jobs. This article examines whether field labourers fared better than previously in a well positioned, producer-driven, innovative horticultural export industry. Our findings indicate that workers initially fared badly and we identify the strategies used to cap wages. Real wages and seasonal incomes increased significantly from 2002, but only after producers were pressured by government and the union regained political power. Contrary to expectation, escalating consumer demands for high-quality healthy fruit and responsible agronomic practices contributed to producers' response to the union's demands. We argue that the monitoring technologies and practices required by buyers allowed large producers to gain greater information about the role of field labourers in the production process and the transaction costs associated with unreliable, poorly trained occasional harvesters. Nevertheless, even after real wages rose, only few harvesting families managed to escape poverty at the height of the season.