While governments have access to multiple tax instruments, studies of the effect of tax policy on the location of multinational investment typically focus exclusively on host country corporate income tax rates and their interaction with home country tax rules. This paper examines the impact of indirect (non–income) taxes on foreign direct investment by American multinational firms, using confidential affiliate–level data that permit the introduction of controls for parent companies and host countries. Indirect tax burdens significantly exceed foreign income tax obligations for these firms and appear to influence strongly their behavior. Estimates imply that 10 percent higher indirect tax rates are associated with 1.3 percent lower assets, 3.1 percent lower property plant and equipment, and 1.6 percent smaller trade surpluses with parent companies. Corporate income tax rate differences have comparable effects. The estimated combined effects of indirect and income taxes are similar to earlier estimates of investment responses to income taxes, which raises the possibility that some of the effects commonly attributed to income taxes also reflect the impact of indirect taxes.
This essay presents what we believe to be the consensus among political scientists with regard to the analysis of the politics of international economic relations. The review we present is not intended to be exhaustive. We do not, for example, attempt to include the work of scholars who challenge the positivist approach that is assumed here. We believe that this survey does, nonetheless, reflect the principal focuses of North American scholarship in IPE. Most scholarship published in the principal journals of the profession and the sub–discipline, and most graduate training and research, are within the range of the theoretical and empirical topics and approaches presented here.
Census data for 1990/91 indicate that Australian and Canadian female immigrants appear to have higher levels of English fluency, education, and income (relative to natives) than do U.S. female immigrants. This skill deficit for U.S. female immigrants arises in large part because the United States receives a much larger share of immigrants from Latin America than do the other two countries. However, even among women originating outside Latin America, the proportion of foreign–born women in the United States who are fluent in English is much lower than among foreign–born women in Australia. Furthermore, immigrant/native education gaps are reduced but not eliminated by the exclusion of Latin American women from the analysis. In contrast, other evidence for men suggests that the gap in observed skills among male immigrants to the United States is completely eliminated when Latin American immigrants are excluded from the estimation sample (Borjas, 1993; Antecol, et al., 2001). The importance of national origin and the general consistency in the results for men (who are routinely subjected to the selection criteria of various immigration programs) and women (who are not) suggests that many factors other than immigration policy per se are at work in producing skill variation among these three immigration streams.
This paper, part of a multi–author project evaluating the evolution of theoretical paradigms in international relations (IR), evaluates the Liberal paradigm form a Lakatosian perspective. There is a distinct "Liberal" Scientific Research Program (SRP) in the study of international relations, based on three core assumptions. These Assumptions are shared by Ideational, Commercial and Republican variants of Liberal theory. The Liberal SRP is clearly progressive in the Lakatosian sense, that is, it explains a broad and expanding domain of empirical phenomena more accurately than competing research programs – and does so in such a way as to meet the specific Lakatosian criteria of "heuristic", "temporal" and "background theory" novelty. Liberal theory is thus among the most promising, perhaps the most fruitful and promising, of contemporary paradigms in IR theory. Yet legitimate doubts can be raised about the utility of Lakatosian theory as a means to evaluate research in IR. In particular, one might question its view that theories from competing paradigms are mutually excusive, which encourages one–on–one testing of unicausal theories, rather than estimation of the proper (and sometimes overlapping) scope of paradigms, or the construction of multi–paradigmatic syntheses. Given the current stage of IR theory, these two tasks may offer greater explanatory insight into world politics than unicausal theory testing. This conclusion does not undermine, however, the positive assessment of Liberal theory, which both supports clear empirical scope conditions and can play a foundational role in fruitful multi-theory syntheses.
Moravcsik, Andrew. "Liberal International Relations Theory: A Social Scientific Assessment." Working Paper 01–02, Weatherhead Center for International Affairs, Harvard University, April 2001.Download PDF
One dimension of global income inequality swamps all others, the inequality due to differences in living standards among nations. This is primarily the result of differential rates of national economic growth. This paper examines current conditions, then looks at how global inequality has evolved over the past 50 years. After an examination of the causal factors that affect this inequality, it engages in a few speculative observations about what the next half–century might bring.
The answer to the question posed in the title is "yes." Using a total of 128,106 answers to a survey question about "happiness," we find that there is a large, negative and significant effect of inequality on happiness in Europe but not in the US. There are two potential explanations. First, Europeans prefer more equal societies (inequality belongs in the utility function for Europeans but not for Americans). Second, social mobility is (or is perceived to be) higher in the US so being poor is not seen as affecting future income. We test these hypotheses by partitioning the sample across income and ideological lines. There is evidence of "inequality–generated" unhappiness in the US only for a sub–group of rich leftists. In Europe inequality makes the poor unhappy, as well as the leftists. This favors the hypothesis that inequality affects European happiness because of their lower social mobility (since no preference for equality exists amongst the rich or the right). The results help explain the greater popular demand for government to fight inequality in Europe relative to the US.
It appears likely that the number of currencies in the world, having proliferated along with the number of countries over the past 50 years, will decline sharply over the next two decades. The question I plan to pose here is: where, from an
economic point of view, should we aim for this process to stop? Should there be a single world currency, as Richard Cooper (1984) boldly envisioned? Should there remain multiple major currencies but with a much stricter arrangement among them for stabilizing exchange rates, as say Ronald McKinnon (1984) or John Williamson (1993) recommended? Building on Maurice Obstfeld and Rogoff
(2000b, d), I will argue here that the status quo arrangement among the dollar, yen, and euro (which I take to be benign neglect) is not far from optimal, not only for now but well into the new century. And it would remain a good system even if political obstacles to achieving greater monetary policy coordination (or even a common world currency) could be overcome. Again, this is not a paper on, say,
the pros and cons of dollarization for small and medium-sized economies, but rather on arrangements among the core currencies. Any blueprint for the future core of the world currency system involves some crystal-ball gazing. But at the same time, recent research in international macroeconomics offers several important insights that can help inform the discussion.
Ten years have passed since the publication of my book The Road to a Free Economy: Shifting from a Socialist System–the Example of Hungary. It was the first book in the international literature to put forward comprehensive proposals for the post–socialist transition. This paper sets out to assess the book as the author sees it ten years later.
Journal of Political Economy, 108, 663-679We build a model of child labor and study its implications for welfare. We assume that there is at trade–off between child labor and the accumulation of human capital. Even if parents are altruistic and child labor is socially inefficient, it may arise in equilibrium because parents fail to fully internalize its negative effects. This occurs when bequests are zero or when capital markets are imperfect. We also study the effects of a simple ban on child labor and derive conditions under which it may be Pareto improving in general equilibrium. We show that the implications of child labor for fertility are ambiguous.
Ray Vernon was a great intellect, an iconoclast for whom scholarly fashions never held much attraction. That is of course what made him a visionary: his pioneering studies of the multinational enterprise, comparative political economy, and what we today call globalization anticipated the flourishing academic work in these areas by a decade or two. And his intellect and scholarly curiosity were matched by a distinguished career in the real world, spanning both the private and public sectors.
Whatever the ultimate verdict on that issue, the Malaysian experience with capital controls (not just the 1998 controls, but also the earlier restrictions on inflows in 1994) demonstrate two things: (a) capital controls can be made effective (in the sense of driving a wedge between onshore and offshore interest rates) with minimal corruption and rent-seeking; (b) capital controls on short-term flows can be implemented with minimal disruption to direct foreign investment (i.e., without scaring away the investors that one really cares about). This experience, I think, puts to rest several counter-arguments about controls: that markets can easily evade controls; that controls have to be so heavy-handed that they come with great costs to the real economy; that they are necessarily prone to corruption and rent-seeking; that it is impossible to segment short-term flows from direct foreign investment.
In response to the widespread consensus on the importance of social capital, and to concerns about the scarcity of institutions giving voice to disadvantaged groups, some donors have begun programs designed to strengthen indigenous community organizations. We use a prospective, randomized evaluation to examine a development program explicitly targeted at building social capital among rural women's groups in western Kenya. The program increased turnover among group members. It increased entry into group membership and leadership by younger, more educated women, by women employed in the formal sector, and by men. The analysis suggests that providing development assistance to indigenous community organizations of the disadvantaged may change the very characteristics of these organizations that made them attractive to outside funders.
The corners hypothesis holds that intermediate exchange rate regimes are vanishing, or should be. Surprisingly for a new conventional wisdom, this hypothesis so far lacks analytic foundations. In part, the generalization is overdone. We nevertheless offer one possible theoretical rationale, a contribution to the list of arguments against intermediate regimes: they lack verifiability, needed for credibility. Central banks announce intermediate targets such as exchange rates, so that the public can judge from observed data whether they are following the policy announced. Our general point is that simple regimes are more verifiable by market participants than complicated ones. Of the various intermediate regimes (managed float, peg with escape clause, etc.), we focus on basket pegs, with bands. Statistically, it takes a surprisingly long span of data to distinguish such a regime from a floating exchange rate. We apply the econometrics, first, to the example of Chile and, second, by performing Monte Carlo simulations. The amount of data required to verify the declared regime may exceed the length of time during which the regime is maintained. The amount of information necessary increases with the complexity of the regime, including the width of the band and the number of currencies in the basket.
This paper introduces various sources of consumer heterogeneity in one-sector representative-consumer growth models and develops tools to study the evolution of the distribution of consumptions, assets and incomes. These tools are applied to the Ramsey-Cass-Koopmans model of optimal savings and the Arrow-Romer model of productive spillovers. The RC property per se places very few restrictions on the nature of observed distributions, and a wide range of distributive dynamics and income mobility patterns can arise as the equilibrium outcome. An example illustates how to use these tools to generate quantitative predictions and compare them to the data.
What is the optimal number of currencies in the world? Common currencies aspect trading costs and, thereby, the amounts of trade, output, and consumption. From the perspective of monetary policy, the adoption of another country?s currency trades offers the benefits of commitment to price stability against the loss of an independent stabilization policy. The nature of the trade depends on coñmovements of disturbances, on distance, trading costs, and on institutional arrangements such as the willingness of anchor countries to accommodate to the interests of clients.
In Dinah Shelton (ed.) Commitment and Compliance: The Role of Non–binding Norms in the International Legal System. Oxford University Press, 2000, 244–263The explosion of international financial activity over the last decade has been a central fact of international economic life. Balance of payments statistics indicate that cross–border transactions in bonds and equities for the G–9 states rose from less than 10 percent of gross domestic product in 1980 to over 140 percent in 1995. International bond markets have reached staggering proportions: by the end of 1995, some US$2.803 trillion of international debt securities were outstanding worldwide. Capital flows to developing countries and countries in transition grew from US$57 billion in 1990 to over US$211 billion in 1995. Foreign lending in form of international syndicated credit facilities has surged since the 1980s, to over US$320 billion at the end of 1995. Foreign exchange transactions – which represent the world?s largest market – reached an estimated average daily turnover of nearly US$1.2 trillion in 1995 compared to US$590 billion daily turnover in 1989.