This paper analyzes the interaction between corporate taxes and corporate governance. We show that the characteristics of a taxation system affect the extraction of private benefits by company insiders. A higher tax rate increases the amount of income insiders divert and thus worsens governance outcomes. In contrast, stronger tax enforcement reduces diversion and, in so doing, can raise the stock market value of a company in spite of the increase in the tax burden. We also show that the corporate governance system affects the level of tax revenues and the sensitivity of tax revenues to tax changes. When the corporate governance system is ineffective (i.e., when it is easy to divert income), an increase in the tax rate can reduce tax revenues. We test this prediction in a panel of countries. Consistent with the model, we find that corporate tax rate increases have smaller (in fact, negative) effects on revenues when corporate governance is weaker. Finally, this approach provides a novel justification for the existence of a separate corporate tax based on profits.
Africa is a puzzle to economists. Why is it so unsuccessful in partaking of development? In short, is there an African curse? This paper argues the answer is 'no'. Africa?s dismal economic performance is neither due to colonization nor to a different effect of the usual variables impacting on growth. It presents a rare combination of exogenous handicaps: poor soils, infectious diseases, small economies, landlockedness, declining rainfall, hasty independence, high dependency ratios, terms of trade losses. Dysfunctional governance is however the main factor, due to an exceptionally harmful post– independence history. This generated not only growth traps but a pervasive lack of trust too, including of Africans in themselves, a sort of ethical trap. Still, there are flames of hope and more Africans want a deeper change. They might prevail if democracy gives them a voice and a chance.
Recent econometric estimates suggest that currency unions have far greater effects on trade patterns than previously believed. Since currency unions are good for trade, and trade is good for growth, that is one major argument in favor of EMU. If there were evidence that the boost to trade within EMU was likely to come in part at the expense of trade with outsiders, that would imply something stronger, for a neighbor such as the United Kingdom: that life outside EMU would get progressively less attractive in the future. But there is no such evidence, either for currency unions in general (according to Frankel–Rose) or for the first three years of EMU in particular (according to Micco, Stein, and Ordoñez). Furthermore, there are the usual countervailing arguments for retaining monetary independence, particularly the famous asymmetric shocks. One possible argument for waiting is that UK trade with euroland is still increasing, probably due to lagged effects of joining the EU and the Single Market initiative. Estimates suggest that the growing trade links in turn lead to growing cyclical correlation. The implication is that the UK may better qualify for the optimum currency area criteria in the future than in the past. On the other hand, if, as a result of waiting to enter, London loses to Frankfurt its position as the leading financial center in the European time zone, that loss may not be readily recoverable in the future.
In September 2000, the U.N. General Assembly committed governments to eradicating extreme poverty. Endorsing several specific development goals, this historical document was called the Millennium Declaration, and has since become a reference point for development efforts across the globe.
The turn to "geography" in the social sciences has been evident in recent years, but the insights from this literature have largely bypassed scholarship on international organizations (IOs). Does geography matter at all for how IOs behave? We argue that, from both rationalist and constructivist approaches, there are theoretical reasons why location, controlling for power and interest, affects institutional design and performance. We suggest how preferences over location arise; what determines where IOs are located; and how and when location affects the design and performance of IOs. To assess the plausibility of our ideas, we provide empirical examples of the effect and importance of location, focusing on evidence from specific IOs; evidence regarding how location influences the staffing of IOs; and evidence on the clustering of IOs geographically.
Kapur, Devesh. "Where You Sit Is Where You Stand: The Behavioral Impact of Geography on International Organizations." Working Paper 04–06, Weatherhead Center for International Affairs, Harvard University, September 2004.
Underdevelopment is thought to be about lack of investment, and many political economy theories can account for this. Yet, there has been much investment in developing countries. The problem has been that investment growth has not led to output growth. We therefore need to explain not simply underinvestment, but also the missallocation of investment. The canonical example of this is the construction of white elephants–investment projects with negative social surplus. In this paper we propose a theory of white elephants. We argue that they are a particular type of inefficient redistribution, which are politically attractive when politicians find it difficult to make credible promises to supporters. We show that it is the very inefficiency of such projects that makes them politically appealing. This is so because it allows only some politicians to credibly promise to build them and thus enter into credible redistribution. The fact that not all politicians can credibly undertake such projects gives those who can a strategic advantage. Socially efficient projects do not have this feature since all politicians can commit to build them and they thus have a symmetric effect on political outcomes. We show that white elephants may be preferred to socially efficient projects if the political benefits are large compared to the surplus generated by efficient projects.
[in Jorge I. Domínguez and Chappell Lawson, eds., Mexico's Pivotal Democratic Election: Candidates, Voters, and the Presidential Campaign of 2000 (Stanford: Stanford University Press, 2004), pp. 321-344]
Mexico's 2000 presidential election campaign mattered. It closed the breach between Fox and old–line panistas, somewhat distrustful of his candicacy. It stimulated PAN voters to turn out at rates higher than those of PRI supporters on election day. It solidified the Cáredenas base in the PRD. It demoralized the PRI machinery. It detached voters from Labastida, leading them to vote for another candidate or to stay home on election day. It informed opposition strategic voters to support Fox. The proportion of voters influenced by the campaign to change their voting preference was at least two to three times greater than in U.S. presidential campaigns and at least twice Fox's margin of victory. In fact, the proportion of strategic voters alone gave Fox nearly all of his margin of victory.
Intestinal helminths – including hookworm, roundworm, whipworm, and schistosomiasis – infect more than one–quarter of the world's population. Studies in which medical treatment is randomized at the individual level potentially doubly underestimate the benefits of treatment, missing externality benefits to the comparison group from reduced disease transmission, and therefore also underestimating benefits for the treatment group. We evaluate a Kenyan project in which school–based mass treatment with deworming drugs was randomly phased into schools, rather than to individuals, allowing estimation of overall program effects. The program reduced school absenteeism in treatment schools by one–quarter, and was cheaper than alternative ways of boosting school participation. Deworming substantially improved health and school participation among untreated children in both treatment schools and neighboring schools, and these externalities are large enough to justify fully subsidizing treatment. Yet we do not find evidence that deworming improved academic test scores.