Santiago M. Pinto

Politics and Foreign Direct Investment

For decades, free trade was advocated as the vehicle for peace, prosperity, and democracy in an increasingly globalized market. More recently, the proliferation of foreign direct investment has raised questions about its impact upon local economies and politics. Here, seven scholars bring together their wide-ranging expertise to investigate the factors that determine the attractiveness of a locale to investors and the extent of their political power. Multinational corporations prefer to invest where legal and political institutions support the rule of law, protections for property rights, and democratic processes. Corporate influence on local institutions, in turn, depends upon the relative power of other players and the types of policies at issue.

TAX COMPETITION IN THE PRESENCE OF INTERJURISDICTIONAL EXTERNALITIES: THE CASE OF CRIME PREVENTION*

The paper analyzes the effect of fiscal competition when local governments choose the level of public goods that generate spillover effects elsewhere. For instance, law enforcement activities affect both the crime level in the jurisdiction providing the good and in neighboring communities. The model shows that when local governments rely on capital taxation to finance these expenditures the spillover effects may not lead to an inefficient provision of public goods as predicted by the tax competition literature. In the model, capital is costlessly mobile and offenders relocate responding to differential criminal opportunities and differential local law enforcement efforts.

CRIME IN A MULTI-JURISDICTIONAL MODEL WITH PRIVATE AND PUBLIC PREVENTION*

Criminals move between jurisdictions in response to differences in the net returns to crime that depend on the opportunity for crime and the effort to prevent crime. An increase in police protection of a jurisdiction diverts crime to other jurisdictions when only public crime prevention such as police protection is available. However, residents also invest in private prevention (private security, burglar alarms, etc.), and the value of these measures depends on the level of local public protection. In a spatial context, an increase in public prevention of a jurisdiction not only alters the incentives of individuals of the jurisdiction, but also of other jurisdictions as well, and such a change in private crime prevention may end up attracting crime to the jurisdiction. An increase in public prevention of a jurisdiction thus may divert or attract crime. This ambiguous effect stands in contrast with the literature and may appear counterintuitive, but is logical under plausible conditions.

Urban Crime and Labor Mobility

We present a model of crime where two municipalities exist within a metro area (MSA). Consistent with the literature, local law enforcement has a crime reduction effect and a crime diversion effect. The former confers a spillover benefit to the other municipality, while the latter a spillover cost. If the net spillovers are positive (negative), then the respective Nash enforcement levels are too low (high) from the perspective of the MSA. When we allow for Tiebout type mobility, labor will move to the location offering lower disutility crime (including the tax burden). To attract labor both jurisdictions would like to raise the relative crime that exists in the competing region. Interestingly, this could raise or reduce enforcement compared to the immobility case. If it was too high (low) under immobility, it will be raised (reduced) further under mobility. In the symmetric case, neither can gain any labor, but the competition for it pushes the jurisdictions further away from the efficient (cooperative) outcome. Thus, mobility must be welfare reducing. We also consider asymmetry in the context of differences in efficiency of enforcement. The low cost municipality has the lower crime damage (inclusive of the tax burden) and attracts labor. Mobility is necessarily welfare reducing for the high cost municipality and for the MSA, but it has an ambiguous effect on the low cost municipality.