Leadership in Tax Competition with Fiscal Equalization Transfers

2018 ◽  
Vol 18 (3) ◽  
Author(s):  
Junichi Haraguchi ◽  
Hikaru Ogawa
Keyword(s):  
Tax Competition ◽  
Capital Allocation ◽  
Fiscal Equalization ◽  
Timing Game ◽  
Capital Misallocation

Abstract We propose a timing game of asymmetric tax competition with fiscal equalization scheme. The study finds that governments tend to play a sequential-move game as the scale of equalization transfer increases, which explains the emergence of tax leaders in tax competition. The presence of a tax leader is likely to exacerbate capital misallocation among countries, suggesting that equalization transfers aimed at narrowing the interregional fiscal gap might cause an inefficient capital allocation.

Capital Allocation in Developing Countries

2020 ◽  
Author(s):  
Joel M David ◽  
Venky Venkateswaran ◽  
Ana Paula Cusolito ◽  
Tatiana Didier
Keyword(s):  
Adjustment Costs ◽  
Developed Countries ◽  
Business Environment ◽  
Capital Allocation ◽  
American Economic Review ◽  
Parameter Estimates ◽  
Firm Level ◽  
Capital Misallocation ◽  
Future Work ◽  
Sources Of Capital

Abstract This paper investigates the sources of capital misallocation across a group of developing and developed countries, using the empirical methodology developed in David and Venkateswaran (2019. “The Sources of Capital Misallocation.” American Economic Review 109 (7): 2531–67). The main findings are: (i) technological frictions—namely, adjustment costs and uncertainty—account for only a modest share of the observed misallocation; (ii) heterogeneity in firm-level technologies potentially explains between one-quarter and one-half, but (iii) dispersion in markups is much smaller; (iv) after accounting for these factors, on average, at least 50 percent of misallocation within each country remains unexplained, suggesting a large role for additional—potentially distortionary—factors. These factors are largely attributable to a component that is correlated with firm size/productivity and one that is essentially permanent to the firm. They exhibit strong negative correlations with income per capita and direct measures of the quality of the business environment from the World Bank Doing Business Report. The paper reports a broad set of moments describing firm-level investment dynamics and detailed parameter estimates on a country-by-country basis with an eye towards future work in this area.

scholarly journals Capital Allocation and Productivity in South Europe*

2017 ◽  
Vol 132 (4) ◽  
pp. 1915-1967 ◽  
Author(s):  
Gita Gopinath ◽  
Şebnem Kalemli-Özcan ◽  
Loukas Karabarbounis ◽  
Carolina Villegas-Sanchez
Keyword(s):  
Interest Rates ◽  
Balance Sheet ◽  
Capital Allocation ◽  
Capital Inflows ◽  
Net Worth ◽  
Size Dependent ◽  
Productivity Losses ◽  
Convergence Process ◽  
Capital Misallocation ◽  
Increase In Productivity

Abstract Starting in the early 1990s, countries in southern Europe experienced low productivity growth alongside declining real interest rates. We use data for manufacturing firms in Spain between 1999 and 2012 to document a significant increase in the dispersion of the return to capital across firms, a stable dispersion of the return to labor, and a significant increase in productivity losses from capital misallocation over time. We develop a model with size-dependent financial frictions that is consistent with important aspects of firms’ behavior in production and balance sheet data. We illustrate how the decline in the real interest rate, often attributed to the euro convergence process, leads to a significant decline in sectoral total factor productivity as capital inflows are misallocated toward firms that have higher net worth but are not necessarily more productive. We show that similar trends in dispersion and productivity losses are observed in Italy and Portugal but not in Germany, France, and Norway.

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