Agnès Bénassy-Quéré

Tax and public input competition

The debate on tax competition lacks due attention when it comes to the provision of public goods used by firms in their production process. Indeed, firms may accept higher corporate taxation provided they enjoy good infrastructure and public services. We quantify such trade-off, i.e. the extent to which a high tax, high public goods strategy is attractive to capital as compared to a low tax, low public goods combination. We revisit and develop the popular model of tax competition introduced by Zodrow and Mieszkowski (1986 ) in a way that allows for the testing of its main prediction. The under-provision of public inputs can be tested econometrically by estimating and comparing two simple elasticities: capital with respect to the tax rate, and capital with respect to public inputs. We regress US foreign direct investment in 18 EU countries over 1994-2003 on several variables, including the corporate tax rate and the stock of public capital, used as a proxy for public input. Based on these estimations ( - 1.1 for the tax elasticity and p0.2 for the public input elasticity), we conclude that raising public input through an increase in the corporate tax rate reduces inward FDI, and that tax competition may indeed lead to an under-provision of public inputs. Furthermore, a high equilibrium (high taxation and high level of public input) is not attainable for a country starting from a low equilibrium unless households have a strong preference for public inputs. On the whole, the impact of tax competition may be more diverse than a mere race to the bottom. Copyright (c) CEPR, CES, MSH, 2007.

Models of exchange rate expectations : how much heterogeneity ?

In this paper we use a unique disaggregate expectations data base to model the expectations formation of around 40 leading foreign exchange forecasters/dealers. Panel estimators are used to increase the power of the tests and to study various types of heterogeneities across forecasters. We find that both model heterogeneities and coefficient heterogeneities are important across individual forecasters, although the latter seem to be reduced at the 12-month compared with the 3-month horizon.

Economic Divergence within the Euro Area: Lessons for EMU Enlargement

The Euro and Economic Stability assesses the euro area’s merits as a shelter and the merits of euro assets as a safe haven and reviews the case for rapid euro adoption from a post-crisis view. Policymakers and economists provide relevant lessons from euro area divergences for future euro area members and, more generally, from the financial crisis, while banking representatives discuss post-crisis business models of banks in the area. Last but not least, a theoretical introductory chapter fills the gap between mainstream macroeconomic modelling and real-world decision-making.

Stratégie de change et attraction des investissements directs en Méditerranée

Cet article met en evidence limpact des regimes de change sur linvestissement direct etranger (IDE) entrant dans les pays du sud et de lest de la Mediterranee (PSEM). On estime une equation econometrique, ou le stock dIDE entrant depend de differents determinants lies au taux de change, pour simuler limpact sur trois PSEM dun ancrage fixe par rapport a leuro. On montre alors quil existe un reel arbitrage entre preserver la competitivite et reduire lincertitude, que le choix dune ancre (dollar ou euro) influe sur lorigine geographique de IIDE, et quun ancrage generalise sur leuro dans les pays voisins de lUnion europeenne accentuerait la concurrence pour attirer les investissements directs.