Samuel C. A. Pereira

Crossing Mountains: The Effect of Competition on the Laffer Curve

Regarding states and state-like entities as producers and taxation as a price, this paper connects the thoroughly studied impacts of the market structures in microeconomics to the controversial Laffer curve, suggesting that the outcome of the “taxation market�? depends also on competition. By studying the determinants for Property Tax revenue for the 308 Portuguese municipalities, a general model that successfully explains tax revenue is developed. Evidence is found for the existence of a two-peaked Laffer curve in the sample, and various tests indicate that competition impacts – shifting but also changing – the Laffer curve, causing more competitive municipalities to maximize revenue at lower tax rates – i.e. lower prices - than those in a more monopolistic setting.

Optimal Overhead Cost Allocation in an Agency Model with Moral Hazard and Private Information

This paper develops a model of moral hazard and private information to explore the properties of efficient cost allocations. The production function uses two complement inputs: the agent’s effort and a resource supplied by the principal. After contracting, the agent receives non-contractible (private) information related to the productivity of the resource that is relevant to his effort level decision. The optimal cost allocation rate reflects the trade-off between the need to recover overhead costs and the need to provide incentives to the agent. It is shown that the optimal cost allocation charge is lower than the resource cost as a result of the need to compensate the agent for the uncontrollable risk. Further, the allocation rate might be negative or positive, depending on whether or not the effect of recovering overhead costs prevails over the incentive effect. When the agent uses two resources whose productivities are positively and strongly correlated, the optimal resource charge rate is higher than the resource cost. Interestingly, the reason for this is to expose the agent to less controllable risk. The results in this paper explain some empirical evidence related to cost allocation practice and to the relationship between risk and incentives.

Determinants of Cross-Border Mergers and Acquisitions: An Econometric Study of Transactions in the Euro Zone between 2001 and 2010

Following to the previous literature, this paper intends to study the main determinants that lead to cross-border mergers and acquisitions in the EURO zone, by analysing a total sample of 980 transactions occurred between 2001 and 2010 in the 13 EURO zone original member countries, 218 of which are cross-border operations. Nevertheless, and unlike the previous literature, which identified the currency differences and geographical proximity as the most important proxies of this kind of transactions, it is our intention to analyse thoroughly other factors, namely valuation differences and international taxation issues, that may influence the likelihood of crossborder operations. The Ordinary Least Squares (OLS) regression results suggest that some issues such as international tax arbitrage and a lower complexity of the target country’s fiscal rules, the quality of accounting disclosure, the level of each country’s bureaucracy, the standards of corporate governance, and bilateral trade increase the likelihood of mergers between two countries. Similarly to previous literature, valuation appears to play a key role in motivating this specific type of transactions: firms in countries whose stock market has increased its value and that present, at some point, a relatively high market-to-book value tend to be acquirers, while firms from economies with a lower performance tend to be targets.