Neil Bruce

The Rotten-Kid Theorem Meets the Samaritan's Dilemma

Becker derives the Rotten-Kid theorem -- that a child will not behave in a manner which lowers the parents income more than it raises the childs -- in a one period setting. Not captured in Beckers analysis is that the family environment can exhibit what others refer to as the Samaritans Dilemma. That is, children may consume too much in early periods because by doing so they can increase the income transfers they receive in later periods. In this paper we formally consider the Samaritans Dilemma and its relation to the Rotten-Kid Theorem in a two period version of Beckers model.

Problems with integrating corporate and personal income taxes in an open economy

This paper analyzes the case for integration in a small open economy when all firms and households exploit tax arbitrage opportunities to the fullest possible (legal) extent. The analysis shows that integration does not accomplish the objectives that have been attributed to it. Instead of eliminating the double taxation of equity income, it simply removes to primary taxation of savings done through the corporation. It has no effect on the investment decisions in an open economy; it is distorted by the corporate tax whether or not there is integration. The analysis also has important implications for the relative desirability of an income versus a consumption tax at the personal level and for the design of the corporate tax itself.

The Specification and Influence of Goods and Factor Markets in Open Economy Macroeconomic Models

This paper explores the structure and specification of goods and factor markets in open economy macro models. Simple benchmark models are set up which abstract entirely from market structure and focus on goods market structure. These real and monetary factors are combined in a full employment context, then in an unemployment/ variable output context. We consider some applications of specie-flow mechanisms and the purchasing power parity doctrine.

Defence expenditures by countries in allied and adversarial relationships

This paper models the linkage between a countrys national security and the defense spending of its allies and adversaries. The cost of an arms race is introduced into the alliance public good framework of Olson and Zeckhauser. Contrary to their presumption, for a cooperative treaty to increase defense spending in an alliance may make it worse off. Further, even where the treaty makes an alliance better off, such treaty making may constitute a form of prisoners dilemma for the world as a whole.

Depreciation and interest deductions and the effect of the corporation income tax on investment

Abstract In this paper, we examine the effect of the corporation income tax on the investment decision of the firm particularly with respect to the role of interest and depreciation deductions in determining the neutrality of the tax. We demonstrate the need for introducing a constraint on corporate borrowing before a meaningful analysis of the firms behaviour under certainty is possible. The effect of a given tax and deduction scheme on the firms investment decision is found to depend on the form of this constraint. We then relate our results to that of earlier authors and indicate some problems with their analyses.

Marginal Effective Tax Rates for Capital in the Canadian Mining Industry

The authors model a firm that explores, develops, and extracts a depletable asset, taking into account various features of Canadian corporate and Ontario and Quebec mining tax law. They derive the user cost of capital and effective tax rate for investments undertaken by a mining firm. Calculations based on 1985 tax law show that there is considerable dispersion in effective tax rates, most being negative, especially for processing assets. The authors conclude that these taxes have been very poor collectors of mining rents compared to a neutral cash flow tax. Coauthors are Neil Bruce, Ken McKenzie, and Jack Mintz.

On the Neutrality of Flow-of-funds Corporate Taxation

real income-earning business activities of firms rather than the financial ones. Furthermore, it has virtually ignored the implications of the financial structure of the firm for the neutrality of flow-of-funds taxation of both real and financial activities of the firm in a model of the firm in which the financial structure has been explicitly included. We shall be particularly concerned with the sorts of flow-of-funds tax systems suggested by the Meade Report, the so-called R and R + F bases. We will show that whether the investment decision is distorted under such corporate tax bases depends on how the financial structure of the firm is determined. The R base is neutral under some financial constraints, while the R+F base is neutral under others.3 We also extend the analysis to incorporate personal taxes impinging on capital income and the effects of inflation. Finally, we introduce financial assets held by the firm. We show that the R base can be generalized to what we call the R + A base. This base will be neutral under the same borrowing constraints for which the R base is neutral. In general, the R+F base as defined in the Meade Report will not capture all the profits arising from financial intermediation and may

A Fiscal Federalism Analysis of Debt Policies by Sovereign Regional Governments

This paper takes a fiscal federalism approach to analyzing debt issue by subfederal (regional) governments. Households have a short-run attachment to a particular region but are free to migrate between regions in the long run. Regional governments choose their fiscal policies independently. It is shown that the Nash equilibrium of regional fiscal policies is one where migration is efficient and households are insured against the idiosyncratic part of shocks occurring in the region in which they live. However, regional governments issue too much debt relative to the level that would be issued under a coordinated policy, such as that which might be carried out by a federal government.

The IS-LM Model of Macroeconomic Equilibrium and the Monetarist Controversy

This paper highlights the issue of whether government bonds are net wealth as an important one in the monetarist controversy. In particular it is shown that the standard IS-LM model and its conclusions arise as a special case of a more general macroeconomic model which results when government bonds are fully perceived as collective wealth. When, however, the tax liabilities required to service that debt are fully capitalized, a model with monetarist conclusions emerges.

The Role and Design of the Corporate Income Tax

Proposals for tax reform have focused on the role of the corporate tax as either (i) a tax on pure profits, or (ii) a withholding tax against certain forms of income (capital gain income or income accruing to nonresidents). Little attention has been paid to reconciling these two functions. We discuss how both functions can be combined so that the corporate tax can collect revenue from economic rents and withhold income at the same time. We explicitly consider both nonfinancial firms and financial intermediaries.