Efraim Sadka

A pecking order of capital inflows and international tax principles

Abstract Even though financial markets today show a high degree of integration, the world capital market is still far from the textbook story of high capital mobility. The purpose of this paper is to highlight key sources of market failure in the context of international capital flows and to provide guidelines for efficient tax structure in the presence of capital market imperfections. The analysis distinguishes three types of international capital flows: foreign portfolio debt investment, foreign portfolio equity investment and foreign direct investment. The paper emphasizes the efficiency of a non-uniform tax treatment of the various vehicles of international capital flows.

Comprehensive Income Taxation, Investments in Human and Physical Capital, and Productivity

Abstract This paper analyses the implications of the comprehensive income tax for the accumulation of human and physical capital and for the overall productivity level of the economy. A comprehensive income tax, applying to both labour income and capital income, is shown to discriminate against investments in human capital relative to investments in physical capital. It has an adverse impact on human capital accumulation and lowers productivity.

Comparative statics analysis of a fully closed city

Abstract This paper extends the existing comparative statics analysis about open or semiclosed cities, notably that of W. Wheaton [J. Econom. Theor., 9 (2), 223–237 (1974)], to a fully closed city, where urban land rent is redistributed to the city population. Specifically, we examine the effects on changes in exogenous variables, such as population size, agricultural rent, and initial endowments, on endogenous variables such as welfare level, city size, and rent schedule. Most, but not all, of the existing results are reestablished. Surprisingly, it is shown that, in contrast to the existing literature, and perhaps to intuition, the city area may shrink when the city population increases. The paper also extends the existing literature by analyzing the effect of the exogenous variables on the endogenous income and the demand for transportation. It is shown that, under plausible assumptions, the quantity of transportation demanded declines with its price.

Zoning, first-best, second-best, and third-best criteria for allocating land for roads

This paper elaborates on the cost-benefit criteria for land uses in an urban setting and on the bias which results from use of market data rather than true shadow prices in the calculation. This bias has been discussed extensively in the urban economics literature, especially in response to the studies of Solow and Vickrey [7] and Solow [6]. Progress has been made, especially by Kanemoto [3], Arnott and Mackinnon [2], Amott [l], and Pines and Saclka 151. However, because of the different underlying assumptions, it is difficult to evaluate and compare some of the seemingly conflicting results reported in these works. The purpose of this paper is to reformulate the issues using a systematic exposition, to distinguish among various cost-benefit calculations and policy regimes, and to derive concisely the main results with some useful extensions. The cost-benefit criteria evaluated in this paper refer to three types of decision making:

Von Thünen's model of the dual economy

Imagine a very large town, at the centre of a fertile plain which is crossed by no navigable river or canal. Throughout the plain the soil is capable of cultivation and of the same fertility. Far from the town, the plain turns into uncultivated wildernesss which cuts off all communication between this State and the outside world. There are no other towns on the plain. The central town must therefore supply the rural areas with all manufactured products and in return it will obtain all its provisions from the surrounding countryside. - J. H. von Thunen (1826; 1842, p.11)

Estate taxation with intended and accidental bequests

Abstract In this paper we examine the properties of the optimal estate tax in the presence of a complete set of tax instruments available to the social planner. We allow for both types of bequest motives, namely altruistic and accidental. We examine the case for estate taxation which seems to be the strongest (but not impeccable) with accidental bequests. In general, the estate tax is highly sensitive to the relative importance of the two bequest motives.

An Information-Based Model of Foreign Direct Investment: the Gains from Trade Revisited

Foreign direct investment (FDI) is observed to be a predominant form of capital flows to emerging economies, especially when they are liquidity-constrained internationally during a global financial crisis. The financial aspects of FDI are the focus of this paper. We analyze the problem of channelling domestic savings into productive investment in the presence of asymmetric information between the managing owners of firms and other portfolio stakeholders. We explore the role played by FDI in reviving equity-financed capital investment for economies plagued by such information problems. In the presence of information asymmetry, the paper identifies, however, how FDI gives rise to foreign overinvestment as well as domestic undersaving. The gains from trade argument (applied to intertemporal trade) is re-examined in this case of informational-asymmetry-driven FDI. We show that the gains could be sizable when the domestic credit market is either under-developed or failing as a result of a financial crisis. But with a well-functioning domestic credit market, the gains turn into losses. Surprisingly, capital may flow into the country even when the autarkic marginal productivity of capital in the domestic economy falls short of the world rate of interest. In such a situation, capital should have efficiently flown out rather than in, and FDI is a social loss-generating phenomenon.

Income distribution policies with endogenous fertility

The implications of endogenous fertility for intra-generational welfare comparisons of alternative policies with respect to income taxation and family allowances are considered. The interactions among the choices between leisure options labor force participation and fertility are shown to be crucial to the determination of both the signs and the magnitudes of the optimal child allowances and income tax rates. The implications of a negative marginal tax rate and a negative child allowance are considered. (ANNOTATION)

Horizontal equity, income taxation and self-selection with an application to income tax credits☆

Abstract This paper investigates the relationship between utilitarianism and horizontal equity in models of income taxation in particular and self-selection in general. An example involving well-behaved individual preferences is constructed in which a maximization of a utilitarian social welfare function leads via income taxation to horizontal inequities. Sufficient conditions for utilitarianism to bring horizontal equity are derived. The results are applied to the question of whether income tax credits are an appropriate way to treat differences in family size.

Endogenous Population with Public Goods and Malthusian Fixed Resources: Efficiency or Market Failure

A theoretical population model is developed which takes into account both the desire of a nation for a large population for political and economic reasons as well as the Malthusian pressures that suggest that there is a natural tendency toward overpopulation. The model assumes that parents care about both the number and well-being of their children. The results show that these two possible sources of externality do not lead to market failure nor to unfettered competitive individual decisions concerning childbearing that are detrimental to society. (ANNOTATION)