TRADE LIBERALIZATION AND CORPORATE INCOME TAX AVOIDANCE

We identify the effect of trade liberalization on corporate income tax avoidance in a sample of Chinese manufacturing firms, taking advantage of China's entry into the World Trade Organization (WTO). We find that firms engage in more tax avoidance in industries with larger tariff reductions. Further analysis shows that firms with a lack of cash or a high demand for cash before WTO entry tend to engage in more tax avoidance after WTO entry. Our study also provides evidence that manipulating costs is one way that firms avoid corporate income tax. (JEL D22, F61, F63, H26)     

CORPORATE TAX LAWS, CORPORATE RESTRUCTURING, AND SUBSIDIARIZATION OF CORPORATE FORM, 1981–1995

Between 1981 and 1995 the dominant form of Fortune 500 firms changed from the multidivisional form to the multisubsidiary form (Zey and Camp 1996). The explanation for the movement toward subsidiarization originates in changes during the late 1970s and 1980s in the political economy, the relationship between corporations and capital, and the regulation of corporations. As a result of the declining capital accumulation of the 1970s, the federal government instituted two measures of corporate welfare, the Tax Reform Act of 1986 (TRA86) and the Revenue Act of 1987 (RA87), that provided corporations with nontaxable ways to restructure their acquisitions and divisions as subsidiaries. Thus, by the process of subsidiarization, corporations were able to continue capital flows. We examine the increase in subsidiarization from 1981–1995 as a means of assessing the utility of four theoretical perspectives to explain change in corporate form. A one-way random effects panel analysis demonstrates how corporate financial conditions, national business laws, and organizational characteristics combine to affect the rate of subsidiarization of U.S. corporations. Separate panel models for 1981–1985 (pre- TRA86) and 1986–1995 (post- TRA86) reveal that changes in corporate tax laws affect capital accumulation and result in significant change in corporate form. This analysis supports the structural political economy contingency theory arguing that change in capital accumulation, brought about by macro changes in political legal conditions of corporations, leads to the transformation of corporate form.     

GROWTH AND CONVERGENCE WHEN TECHNOLOGY AND HUMAN CAPITAL ARE COMPLEMENTS

This article presents a model of endogenous growth, in which a firm's technology and a country's human capital stock are complementary in the production of output. Production technologies are created by costly research and development (R&D) and are owned by firms that can freely choose where in the world to produce. Both production and R&D have a positive effect on a country's human capital stock. While all countries typically grow at the same rate in the long run, they differ in their levels of human capital, per capita output, and the quality of the technologies that are used in production. A country's relative position in terms of productivity is history dependent. Countries that start out with a lower human capital stock or industrialize later end up with a lower per capita GDP in long‐term equilibrium. (JEL O4, O33, O47)     

CORPORATE TAX POLICY AND INDUSTRY LOCATION WITH FULLY ENDOGENOUS PRODUCTIVITY GROWTH

This paper considers how national corporate tax policy affects productivity growth through adjustments in geographic patterns of industry in a two‐country model of trade. With trade costs and imperfect knowledge spillovers between countries, production concentrates partially and innovation concentrates fully in the country with the lowest tax rate. A rise in the international corporate tax differential accelerates productivity growth through an increase in the production share of the low‐tax country that improves knowledge spillovers from industry to innovation. The paper also investigates the relationship between the corporate tax differential and the level of market entry, and analytically characterizes the effects of changes in tax policy on national welfare. (JEL F43, O30, O40, R12)     

OPTIMAL WAGE TAXATION WHEN HUMAN CAPITAL AND EMPLOYMENT ARE ENDOGENOUS

This paper studies how optimal wage tax conclusions from the classic two‐period life cycle model of human capital accumulation are affected by endogenizing the number of taxpaying workers. In the absence of a corrective policy, young individuals underinvest in human capital from a social perspective because tax premiums for transfers to nonworkers are not actuarially adjusted downward for human capital attainment. A combination of wage taxes and wage subsidies can restore proper price signals. Numerical simulations suggest that even modest employment elasticities can be sufficient to substantially impact the magnitudes and even the signs of optimal wage tax rates. (JEL H21, H3, J24)     

ON THE DESIRABILITY OF TAX COORDINATION WHEN COUNTRIES COMPETE IN TAXES AND INFRASTRUCTURE

This article contains two distinct messages. First, when jurisdictions compete in two independent strategic variables, the decision to coordinate on one variable (a tax rate) induces a carry‐over effect on the unconstrained instrument (infrastructure expenditures). Consequently, classical results of the tax coordination literature may be qualified. A second message is that the relative flexibility of the strategic instruments, which may depend on the time horizon of the decision making, does matter. In particular, tax coordination is more likely to be detrimental (in terms of revenue and/or welfare) when countries can compete simultaneously in taxes and infrastructure, rather than sequentially. The reason is that simultaneity eliminates strategic effects between tax and nontax instruments. (JEL H21, H87, H73, F21, C72)     

PERFECT COMPETITION, URBANIZATION, AND TAX INCIDENCE IN THE RETAIL GASOLINE MARKET

We use monthly gasoline price data for all 50 U.S. states over the period 1984–1999 to examine the incidence of state gasoline excise taxes. Our estimation results indicate full shifting of gasoline taxes to the final consumer. In addition, although we find that gasoline retail prices demonstrate asymmetric responses to changes in gasoline wholesale prices , we find only limited evidence of such behavior for retail prices with respect to gasoline excise taxes. Finally, we find that gasoline markets in urban states exhibit full shifting, but those in rural states (with less competition) demonstrate somewhat less than full shifting . ( JEL H22)     

YOU ARE CLOSE TO YOUR RIVAL AND EVERYBODY HATES A WINNER: A STUDY OF RIVALRY IN COLLEGE FOOTBALL

We use a recent survey of college (American) football fans to study rivalry, where we find the most intense rivalries occur between in‐state teams. Relatedly, within a conference fans are more likely to target rivalrous feelings toward the winningest teams and, in Bowl Championship Series conferences, teams who have been conference members for a longer proportion of time. While the stakes are different from other settings, such as warring nations, college football teams compete for resources and often have loyal followings with strong emotional ties. Thus, examining rivalrous feeling in this setting provides insights into rivalry more generally besides being of interest in its own right as college football is a multi‐billion dollar industry. (JEL L22, L83)