Frank Stähler

Tax Competition In A Simple Model With Heterogeneous Firms: How Larger Markets Reduce Profit Taxes

An important puzzle in corporate taxation is that effective tax rates have fallen significantly while tax revenue has simultaneously risen in most countries. Moreover, the gross profitability of firms seems to be lower in high-tax countries, even though standard models of international investment would yield the opposite conclusion. We offer an explanation for these stylized facts by setting up a simple two-country model of tax competition with heterogenous firms. In this model a unique, asymmetric Nash equilibrium can be shown to exist, provided that countries are sufficiently different with respect to their exogenous market conditions. In equilibrium the larger country levies the higher tax rate and attracts the high-cost firms. A simultaneous expansion of both markets intensifies tax competition and causes both countries to reduce their tax rates, despite higher corporate tax bases.

Firm Productivity and the Foreign-Market Entry Decision

We use Japanese firm-level data to examine how a firm?s productivity affects its choice of foreign-market entry strategy. We study a sequence of decisions, starting with the choice between exporting and foreign direct investment (FDI). In the case of FDI, the firm faces two options: greenfield investment or merger and acquisition (M&A). If it selects greenfield investment, it has two ownership choices: whole ownership or a joint venture. Controlling for industry- and country-specific characteristics, we find that the more productive a firm is, the more likely it is to choose FDI rather than exporting, greenfield investment rather than M&A, and whole ownership rather than a joint venture. We also find that the assumed sequence of decisions fits the data better than alternative specifications.

Newspaper Differentiation and Investments in Journalism: The Role of Tax Policy

Many countries levy reduced-rate indirect taxes on newspapers, with proclaimed policy goals of stimulating investment in journalism and ensuring low newspaper prices. However, by taking into account the fact that the media industry operates in two-sided markets, we find the paradoxical result that the consequences of a low-tax regime might be quite the opposite; low investments and high prices. We also show that the low-tax regime tends to increase newspaper differentiation. If the advertising market is relatively small, the newspapers might invest too little in journalism and be too differentiated from a social point of view. In this case a tax increase will be welfare-enhancing.

Foreign direct investment and environmental taxes

Abstract This paper studies the effect of foreign direct investment (FDI) on environmental policy stringency in a two-country model with trade costs, where FDI could be unilateral and bilateral and both governments address local pollution through environmental taxes. We show that FDI does not give rise to ecological dumping because the host country has an incentive to shift rents away from the source country toward the host country. Environmental policy strategies and welfare effects are studied under the assumption that parameter values support FDI to be profitable.

Trade policy and mixed enterprises

This paper demonstrates that the degree of state ownership affects neither the level of socially optimal activities nor welfare if the government chooses optimal trade policy instruments. In the case of rivalry in the home market, the optimal import tariff is independent of the degree of state ownership, and the optimal production subsidy decreases with state ownership if the optimal tariff is positive. For the case of Cournot rivalry in a third market, the optimal export subsidy increases with state ownership, while in the case of Bertrand rivalry with differentiated products, the optimal export tax increases with state ownership.

Revenue Sharing in Professional Sports Leagues

We employ a model of n heterogenous profit-maximizing clubs to analyze the impact of revenue sharing in professional sports leagues on competitive balance. Revenues of each club depend on absolute quality, relative quality and on competitive balance itself so that our model captures much of the preceding literature as special cases. We show that revenue sharing always increases competitive balance if clubs differ only with respect to the impact of absolute quality on revenues. On the contrary, revenue sharing reduces competitive balance if only clubs relative qualities play a role for revenues or if only two teams are considered.

On international compensations for environmental stocks

This paper sheds some light on the possible implications of compensations which are paid for the maintenance of an environmental stock. It shows that serious complications can arise if the resource-owner may influence the compensation price strategically. If the incentive to raise the compensation price dominates the preservation incentive, the steady-state stock falls short from that which is voluntarily held. Whether compensation policies can neglect this feature depends crucially on the institutional setting which determines the compensation price.

Market Entry Regulation and International Competition

We analyze a non-cooperative two-country game where each government decides whether to allow free market entry of firms or to regulate market access. We show that a Pareto-efficient allocation may result in equilibrium. In particular, if the cost difference between home and foreign production is significant, production will be located in the cost-efficient country exclusively; and if this cost difference is even substantial, the induced allocation is also Pareto efficient. Only if the cost difference is insignificant, production may take place in both countries and the allocation is inefficient. Copyright

A Model of Outsourcing and Foreign Direct Investment

This paper presents a model in which two firms may use foreign direct investment or outsourcing in order to reduce the production cost of an intermediate input. Outsourcing requires training which is costly and creates a positive spillover. The paper shows that the equilibrium depends on the level of training costs. If they are high, only bilateral outsourcing is possible in equilibrium. If bilateral outsourcing is incomplete, it will not change prices compared to no outsourcing. If they are low, only complete outsourcing is possible. If complete outsourcing is unilateral (bilateral), the price increases (decreases) with the degree of spillovers.

Sustainability in Closed and Open Economies

This paper discusses unilateral sustainability policies for tradable resources in closed and open economies. The effects of sustainability policies are modeled in an intertemporal, competitive framework by applying different sustainability rules which are introduced unilaterally in the domestic country. The paper shows that no sustainability rule will lead to a slower rate of extraction of the resource. Unilateral policies will lead to an import of sustainability. It is also shown that the foreign country may well gain in terms of consumption and real income from such unilateral sustainability policies but not in terms of sustainability. Copyright 1998 by Blackwell Publishing Ltd.