Tax transparent limited liability entities (TTLLEs) such as the GmbH & Co. KG in Germany, the trading trust in Australia, or the S Corporation and the LLC in the U.S., can be found in many developed economies. While these entities are to a large extent functionally equivalent, their underlying legal mechanics are very different. The article traces the convergent evolution of six TTLLEs in five jurisdictions along three different paths, and describes central determinants of path dependencies. It demonstrates that the demand for TTLLEs is universal and that their availability reduces distortions caused by a traditional tax system. Furthermore, the article argues that the often reviled distortive influence of tax law on the choice of business entity, which drove the evolution of TTLLEs, sparked innovations in the law of business organizations that would probably not have occurred otherwise, or only much later. Finally, the article recommends making transparent taxation and entity taxation optionally available to all types of business entities, and suggests carefully rationalizing the organizational law of TTLLEs while maintaining the diversity of forms that has evolved.
{"title":"Combining Limited Liability and Transparent Taxation: Lessons from the Convergent Evolution of GmbH & Co. KG, S Corporation, LLC and Co.","authors":"Erik Röder","doi":"10.2139/SSRN.2968296","DOIUrl":"https://doi.org/10.2139/SSRN.2968296","url":null,"abstract":"Tax transparent limited liability entities (TTLLEs) such as the GmbH & Co. KG in Germany, the trading trust in Australia, or the S Corporation and the LLC in the U.S., can be found in many developed economies. While these entities are to a large extent functionally equivalent, their underlying legal mechanics are very different. The article traces the convergent evolution of six TTLLEs in five jurisdictions along three different paths, and describes central determinants of path dependencies. It demonstrates that the demand for TTLLEs is universal and that their availability reduces distortions caused by a traditional tax system. Furthermore, the article argues that the often reviled distortive influence of tax law on the choice of business entity, which drove the evolution of TTLLEs, sparked innovations in the law of business organizations that would probably not have occurred otherwise, or only much later. Finally, the article recommends making transparent taxation and entity taxation optionally available to all types of business entities, and suggests carefully rationalizing the organizational law of TTLLEs while maintaining the diversity of forms that has evolved.","PeriodicalId":300059,"journal":{"name":"Max Planck Institute for Tax Law & Public Finance Research Paper Series","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-05-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114353181","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We aim at characterizing which kind of functions can be rationalized as the best reply of payo¤-maximizing agents in contests for a fixed prize. We show that the rationalizability strongly di¤ers between Decisive Contests, where the prize is allocated with certainty, and Possibly Indecisive Contests, where the prize may not be awarded. In the latter, any arbitrary set of best reply functions is rationalizable, thus "anything goes." In the former, and on the contrary, the best reply functions have to satisfy strong conditions.
{"title":"Properties of Contests: Constructing contest success functions from best-responses\"","authors":"Luis C. Corchón, Marco Serena","doi":"10.2139/ssrn.2882537","DOIUrl":"https://doi.org/10.2139/ssrn.2882537","url":null,"abstract":"We aim at characterizing which kind of functions can be rationalized as the best reply of payo¤-maximizing agents in contests for a fixed prize. We show that the rationalizability strongly di¤ers between Decisive Contests, where the prize is allocated with certainty, and Possibly Indecisive Contests, where the prize may not be awarded. In the latter, any arbitrary set of best reply functions is rationalizable, thus \"anything goes.\" In the former, and on the contrary, the best reply functions have to satisfy strong conditions.","PeriodicalId":300059,"journal":{"name":"Max Planck Institute for Tax Law & Public Finance Research Paper Series","volume":"13 5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-01-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122581657","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper estimates the wage di¤erential between public sector employees and their private sector counterparts in a developing country, the Philippines. It finds that public sector workers in this country are receiving an hourly wage premium over private sector employees of similar background. This wage premium is associated with a higher degree of pro-social behaviour among government workers relative to private sector workers. However, government employees are found to be working fewer hours than their counterparts in the private sector. College graduates are more likely to work in the government than non-college graduates but among college graduates, those with more specialized skills tend to be employed in the private sector rather than the public sector.
{"title":"Public-Private Wage Differentials and the Quality of Government Workers in the Philippines","authors":"R. Molato","doi":"10.2139/ssrn.2616204","DOIUrl":"https://doi.org/10.2139/ssrn.2616204","url":null,"abstract":"This paper estimates the wage di¤erential between public sector employees and their private sector counterparts in a developing country, the Philippines. It finds that public sector workers in this country are receiving an hourly wage premium over private sector employees of similar background. This wage premium is associated with a higher degree of pro-social behaviour among government workers relative to private sector workers. However, government employees are found to be working fewer hours than their counterparts in the private sector. College graduates are more likely to work in the government than non-college graduates but among college graduates, those with more specialized skills tend to be employed in the private sector rather than the public sector.","PeriodicalId":300059,"journal":{"name":"Max Planck Institute for Tax Law & Public Finance Research Paper Series","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-05-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130208091","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A lack of sufficient diversification in research strategies has been identified as an important problem for delegated research. We show that this problem can be solved by local competition (such as bribery, lobbying, rent seeking, competition at the patent office) among players who apply the same search strategies or develop the same design. Such competition can restore full efficiency in the non-cooperative equilibrium. Local competition interacts with the choice of whether to cluster or diversify, and rather than adding a further inefficiency to the existing ones, it eliminates inefficiency. The results are robust and hold under simultaneous search strategy choices as well as for sequential choices.
{"title":"Search Duplication in Research and Design Spaces - Exploring the Role of Local Competition","authors":"Kai A. Konrad","doi":"10.2139/ssrn.2511230","DOIUrl":"https://doi.org/10.2139/ssrn.2511230","url":null,"abstract":"A lack of sufficient diversification in research strategies has been identified as an important problem for delegated research. We show that this problem can be solved by local competition (such as bribery, lobbying, rent seeking, competition at the patent office) among players who apply the same search strategies or develop the same design. Such competition can restore full efficiency in the non-cooperative equilibrium. Local competition interacts with the choice of whether to cluster or diversify, and rather than adding a further inefficiency to the existing ones, it eliminates inefficiency. The results are robust and hold under simultaneous search strategy choices as well as for sequential choices.","PeriodicalId":300059,"journal":{"name":"Max Planck Institute for Tax Law & Public Finance Research Paper Series","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117306425","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a simple symmetric principal-agent model with two banks, we study the effects of both bailouts and bonus taxes on risk taking and managerial compensation. We assume financial institutions to be systemic only on a collective basis, implying support with bailouts only if they both fail collectively. This too-many-to-fail assumption generates incentives for herding and collective moral hazard. If banks can anticipate bailouts, they can coordinate on an equilibrium in which they collectively incentivize higher risk-taking. A bonus tax can prevent this excessive risk-taking, even if it is implemented unilaterally: proper bonus taxation reduces risk-taking of the taxed bank(s) and, consequentially, rules out the equilibrium with excessive risk-taking of both banks and reestablishes market discipline.
{"title":"Too Many to Fail -- How Bonus Taxation Prevents Gambling for Bailouts","authors":"Michael J. Hilmer","doi":"10.2139/ssrn.2506526","DOIUrl":"https://doi.org/10.2139/ssrn.2506526","url":null,"abstract":"Using a simple symmetric principal-agent model with two banks, we study the effects of both bailouts and bonus taxes on risk taking and managerial compensation. We assume financial institutions to be systemic only on a collective basis, implying support with bailouts only if they both fail collectively. This too-many-to-fail assumption generates incentives for herding and collective moral hazard. If banks can anticipate bailouts, they can coordinate on an equilibrium in which they collectively incentivize higher risk-taking. A bonus tax can prevent this excessive risk-taking, even if it is implemented unilaterally: proper bonus taxation reduces risk-taking of the taxed bank(s) and, consequentially, rules out the equilibrium with excessive risk-taking of both banks and reestablishes market discipline.","PeriodicalId":300059,"journal":{"name":"Max Planck Institute for Tax Law & Public Finance Research Paper Series","volume":"311 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-10-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122976843","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the role of an imbalance in fighting strengths when players bargain in the shadow of conflict. Our experimental results suggest: In a simple bargaining game with an exogenous mediation proposal, the likelihood of conflict is independent of the balance of power. If bargaining involves endogenous demand choices, however, the likelihood of conflict is higher if power is more imbalanced. Even though endogenous bargaining outcomes reflect the players' unequal fighting strengths, strategic uncertainty causes outcomes to be most efficient when power is balanced. In turn, the importance of exogenous mediation proposals depends on the balance of power.
{"title":"Balance of Power and the Propensity of Conflict","authors":"Luisa Herbst, Kai A. Konrad, Florian Morath","doi":"10.2139/ssrn.2471532","DOIUrl":"https://doi.org/10.2139/ssrn.2471532","url":null,"abstract":"We study the role of an imbalance in fighting strengths when players bargain in the shadow of conflict. Our experimental results suggest: In a simple bargaining game with an exogenous mediation proposal, the likelihood of conflict is independent of the balance of power. If bargaining involves endogenous demand choices, however, the likelihood of conflict is higher if power is more imbalanced. Even though endogenous bargaining outcomes reflect the players' unequal fighting strengths, strategic uncertainty causes outcomes to be most efficient when power is balanced. In turn, the importance of exogenous mediation proposals depends on the balance of power.","PeriodicalId":300059,"journal":{"name":"Max Planck Institute for Tax Law & Public Finance Research Paper Series","volume":"49 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-07-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124092268","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the role of beliefs about how own appearance and performance affect the subjective probability of being audited in a compliance situation, e.g. at customs. In an experiment in which underreporting has a higher expected payoff than truthful reporting we find an increase in compliance of about 80% if subjects have reason to believe that their appearance or performance influences their subjective audit probability. We find that higher compliance is driven by subjective beliefs, rather than by social and psychological effects of personal contact. In contrast, we do not find evidence for individuals who believe that their personal performance can reduce the subjective probability of an audit. Our results suggest that individuals’ beliefs about their subjective audit probability are important. An institutional framework with personal contact and with discretion about whom to audit can therefore improve compliance.
{"title":"Compliance and the Subjective Audit Probability","authors":"Kai A. Konrad, Tim Lohse, Salmai Qari","doi":"10.2139/ssrn.1971605","DOIUrl":"https://doi.org/10.2139/ssrn.1971605","url":null,"abstract":"This paper studies the role of beliefs about how own appearance and performance affect the subjective probability of being audited in a compliance situation, e.g. at customs. In an experiment in which underreporting has a higher expected payoff than truthful reporting we find an increase in compliance of about 80% if subjects have reason to believe that their appearance or performance influences their subjective audit probability. We find that higher compliance is driven by subjective beliefs, rather than by social and psychological effects of personal contact. In contrast, we do not find evidence for individuals who believe that their personal performance can reduce the subjective probability of an audit. Our results suggest that individuals’ beliefs about their subjective audit probability are important. An institutional framework with personal contact and with discretion about whom to audit can therefore improve compliance.","PeriodicalId":300059,"journal":{"name":"Max Planck Institute for Tax Law & Public Finance Research Paper Series","volume":"122 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134633626","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recently, early investments in the human capital of children from socially disadvantaged environments have attracted a great deal of attention. Programs of such early intervention, aiming at children's health and well-being, are spreading considerably in the U.S. and are currently tested in several European countries. In a discrete version of the Mirrlees model with a parents' and a children's generation we show the intra-generational and the inter-generational redistributional consequences of such intervention programs. It turns out that the parents' generation always loses when such intervention programs are implemented. Among the children's generation it is the rich who always benefit. Despite the expectation that early intervention puts the poor descendants in a better position, our analysis reveals that the poor among the children's generation may even be worse off if the effect of early intervention on their productivity is not large enough.
{"title":"Investments in the Human Capital of the Socially Disadvantaged Children – Effects on Redistribution","authors":"Tim Lohse, Peter F. Lutz, Christian J. Thomann","doi":"10.2139/SSRN.1971628","DOIUrl":"https://doi.org/10.2139/SSRN.1971628","url":null,"abstract":"Recently, early investments in the human capital of children from socially disadvantaged environments have attracted a great deal of attention. Programs of such early intervention, aiming at children's health and well-being, are spreading considerably in the U.S. and are currently tested in several European countries. In a discrete version of the Mirrlees model with a parents' and a children's generation we show the intra-generational and the inter-generational redistributional consequences of such intervention programs. It turns out that the parents' generation always loses when such intervention programs are implemented. Among the children's generation it is the rich who always benefit. Despite the expectation that early intervention puts the poor descendants in a better position, our analysis reveals that the poor among the children's generation may even be worse off if the effect of early intervention on their productivity is not large enough.","PeriodicalId":300059,"journal":{"name":"Max Planck Institute for Tax Law & Public Finance Research Paper Series","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-10-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133437783","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies corporate tax competition if it is costly to learn some of the elements that determine the effective tax burden. Search cost may, but need not, eliminate the tax competition pressure. The outcome depends on the boundaries of tax rate and tax base choices. Search cost can explain the empirically observed tax cuts cum base broadening.
{"title":"Search Costs and Corporate Income Tax Competition","authors":"Kai A. Konrad","doi":"10.2139/ssrn.1695935","DOIUrl":"https://doi.org/10.2139/ssrn.1695935","url":null,"abstract":"This paper studies corporate tax competition if it is costly to learn some of the elements that determine the effective tax burden. Search cost may, but need not, eliminate the tax competition pressure. The outcome depends on the boundaries of tax rate and tax base choices. Search cost can explain the empirically observed tax cuts cum base broadening.","PeriodicalId":300059,"journal":{"name":"Max Planck Institute for Tax Law & Public Finance Research Paper Series","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-10-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127907049","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze the incidence and welfare effects of unit sales tax increases in experimental monopoly and Bertrand markets. We find, in line with economic theory, that firms with no market power are able to shift a high share of the tax burden to consumers, independent of whether buyers are automated or human players. In monopoly markets, a monopolist bears a large share of the burden of a tax increase. With human buyers, however, this share is smaller than with automated buyers, as the presence of human buyers constrains the pricing behaviour of a monopolist. Several control treatments corroborate this finding.
{"title":"Taxation and Market Power","authors":"Kai A. Konrad, Florian Morath, Wieland Müller","doi":"10.2139/ssrn.1545747","DOIUrl":"https://doi.org/10.2139/ssrn.1545747","url":null,"abstract":"We analyze the incidence and welfare effects of unit sales tax increases in experimental monopoly and Bertrand markets. We find, in line with economic theory, that firms with no market power are able to shift a high share of the tax burden to consumers, independent of whether buyers are automated or human players. In monopoly markets, a monopolist bears a large share of the burden of a tax increase. With human buyers, however, this share is smaller than with automated buyers, as the presence of human buyers constrains the pricing behaviour of a monopolist. Several control treatments corroborate this finding.","PeriodicalId":300059,"journal":{"name":"Max Planck Institute for Tax Law & Public Finance Research Paper Series","volume":"96 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-12-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131953161","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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