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"Hallerberg, Mark"
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Remodeling the Competition for Capital: How Domestic Politics Erases the Race to the Bottom
This paper proposes and tests a new formal model of the competition for capital, using the analogy of a “tournament” as a substitute for the ”race-to-the-bottom” model. Our key insight is that political costs that accompany legislating have both direct and indirect effects on the likelihood and scale of reforms. While countries with higher political costs are less likely themselves to enact reforms, the presence of these costs also reduces competing countries' incentives to reform regardless of their own political costs. Domestic politics therefore mitigates the pressures for downward convergence of tax policy despite increased capital mobility. We examine the capital tax policies in OECD countries during the period from 1980 to 1997 and find that states are sensitive to tax reforms in competitor countries, although their responses to reforms are mediated by their own domestic costs to reform. We define two potential sources of political costs of reform: transaction costs, due to the presence of multiple veto players in the legislative process, and constituency costs, due to ideological opposition to policy changes that benefit capital. Our evidence reveals that a reduction in these costs either domestically or abroad increases the likelihood that a country enacts tax reforms.
Journal Article
Veto Players and the Choice of Monetary Institutions
I argue that two types of veto players matter in the choice of monetary institutions: party veto players and subnational governments, which are strong in federal systems but weak in unitary systems. A crucial issue is whether voters can readily identify the manipulation of the economy with party players. A second issue concerns the national party veto player's ability to control either fiscal or monetary policy. In one-party unitary governments identification and control are clear; parties where such governments are common prefer flexible exchange rates and dependent central banks. In multiparty coalition governments in unitary systems, identification is traditionally difficult, and the ability to target benefits to specific constituencies under fiscal policy makes fiscal policy autonomy more attractive for coalition governments. Such governments prefer central banks that are politically independent but that finance government debt. Under federalism, parties that constitute the central government have less control over fiscal policy and they prefer flexible exchange rates. Subnational governments do not support a dependent central bank that gives more power to the central government.
Journal Article
Principles of international political economy
This work bridges the gap between the real world of politics underlying the international economy and the tools that researchers use to understand IPE. Utilizing a central theoretical framework, it provides a systematic and widespread introduction to the standard topics covered in an IPE course.
Book
When Do You Get Economists as Policy Makers?
In Fall 2008, the Democratic candidate for president, Barack Obama, asked then-president and chief executive officer of the Federal Reserve Bank of New York, Timothy Geithner, whether he would consider serving as treasury secretary in a future administration. According to his autobiography, Geithner pointed out that he lacked the necessary political skills. The newly elected president from the ‘left’ party on the American political spectrum nevertheless chose the ‘economist’ after the election, and in the midst of a financial crisis. The new treasury secretary received daily training from the president’s chief of staff in an attempt to bolster his political skills but never really felt comfortable in his political role.
Journal Article
Executive Authority, the Personal Vote, and Budget Discipline in Latin American and Caribbean Countries
Recent scholarship on budgeting in Latin American and Caribbean (LAC) countries indicates that political institutions impact the level of budget discipline. Building upon this previous research, we argue that the principal problem that must be addressed in both the government and the legislature to insure strong fiscal discipline is the common pool resource (CPR) problem. At the cabinet level, the CPR problem arises because ministers consider the implications of decisions on their ministries only. The level of the CPR problem in the legislature depends upon the electoral system. Using a data set of LAC countries for the period 1988-97, we find that executive power in the budget process is most effective in reducing budget deficits when electoral incentives for the personal vote is high in the legislature, while strengthening the president (or prime minister) in countries where the personal vote is low in the legislature has no effect.
Journal Article
TAX REFORMS IN LATIN AMERICA IN AN ERA OF DEMOCRACY
When studying the politics of taxation it is important to evaluate changes to the tax code in terms of rates, bases, and exemptions instead of just revenues. With that objective in mind, we have compiled a more comprehensive database of tax reforms for Latin America. In this article, we present a description of the database as well as the stylized facts. We also explore the economic and political determinants of reform such as the role of the economic and politico-institutional variables, and compare the results to the consensus. We find two interesting results. First, determinants of reforms seem to have changed over the years as democracies have solidified. Second, disaggregating reforms in various ways is a better strategy for understanding the mechanisms behind tax reforms than looking at the overall number of reforms. Having developed an exhaustive database that allows such disaggregation we provide motivation for future research on this topic. Al estudiar la economía polìtica de los impuestos, es importante evaluar las reformas de acuerdo a los cambios legales que se hacen a las tasas, bases o exenciones, en lugar de observar únicamente cambios en la recaudación. Por ello, hemos recopilado una base de datos que incluye las reformas tributarias en todo el continente latinoamericano. En este trabajo, presentamos una descripción de la base y de los hechos estilizados que observamos. Asimismo, exploramos los determinantes económicos y políticos de las reformas tributarias, tales como diferencias en instituciones políticas y comparamos nuestros resultados con el consenso vigente. Dos resultados se destacan: en primer lugar, los déterminantes de las reformas parecen haber cambiado en el tiempo a medida que las democracias se han consolidado; en segundo, en lugar de sólo comparar el número de reformas, la desagregación de la información en diferentes maneras permite entender mejor los mecanismos subyacentes. Habiendo desarrollado una base de datos que permite tal desagregación, proveemos la motivación para investigaciones futuras sobre el tema.
Journal Article
Tax expenditure and the treatment of tax incentives for investment
Governments use tax expenditures to boost investment, innovation and employment. However, these schemes are largely opaque, costly and often ineffective in reaching their stated goals. They also frequently trigger unwanted side effects. In order to improve the performance of these tools, the authors present three concrete policy proposals: First, governments should increase transparency on tax benefits. G20 members should take the lead on this with frequent and comprehensive tax expenditure reports. Second, G20 governments should improve the design of tax incentives with the aim of minimizing the generation of windfall profits and negative spillover effects within and across (in particular, on poorer) countries. Third, governments should phase out tax expenditures that are environmentally harmful, including tax incentives for fossil fuels and other schemes that promote an unsustainable use of natural resources.
Journal Article
When all is said and done: updating “Elections, special interests, and financial crisis”
How do elections affect the costliness of financial crises to taxpayers? Previous research contends that more electorally competitive countries choose policies that are less costly to taxpayers. In this paper, we update Keefer’s seminal 2007 article published in International Organization with revised data. The original article found that more electorally competitive countries had lower fiscal costs from responding to crises. The commonly used IMF/World Bank data set Keefer employed has since been extensively corrected and expanded. We update the original analysis with the newest version of this data set. After doing so, we find no evidence for an association between electoral competitiveness and the fiscal costs of responding to financial crises both within the original sample and outside of it. Our update highlights a broader methodological lesson: that the costs of responding to financial crises can take many years to be settled. Future research should explicitly address and model this delayed cost resolution.
Journal Article