New Economics Papers
on Law and Economics
Issue of 2005‒06‒05
ten papers chosen by
Jeong-Joon Lee, Towson University

  1. Citizenship Laws and International Migration in Historical Perspective By Graziella Bertocchi; Chiara Strozzi
  2. The Opium Wars, Opium Legalization, and Opium Consumption in China By Jeffrey A. Miron; Chris Feige
  3. Assigning Deviant Youths to Minimize Total Harm By Philip J. Cook; Jens Ludwig
  4. Reforming Japan's Capital Markets By Sadakazu Osaki
  5. Towards a General Theory of Financial Regulation: Predicting, Measuring and Preventing Financial Crises By Carolyn Currie
  6. Political Relationships, Global Financing and Corporate Transparency By Christian Leuz; Felix Oberholzer-Gee
  7. The Importance of Faith: Tax Morale and Religiosity By Benno Torgler
  8. It Is About Believing: Superstition and Religiosity By Benno Torgler
  9. Tax Morale in Asian Countries By Benno Torgler
  10. Corruption and Age By Benno Torgler; Neven T. Valev

  1. By: Graziella Bertocchi (Università di Modena e Reggio Emilia); Chiara Strozzi (Università di Modena e Reggio Emilia)
    Abstract: We investigate the origin, impact and evolution of citizenship laws. Citizenship laws originate from the common and civil law traditions, which apply jus soli and jus sanguinis, respectively. We compile a data set across countries of the world starting from the 19th century. The impact of the original, exogenously-given laws on international migration proves insignificant for the early, mass migration waves, which confirm to be driven primarily by economic incentives. Postwar convergence of citizenship laws is determined by legal tradition and international migration, but also by border stability, the establishment of democracy, the welfare burden, cultural factors and colonial history.
    Keywords: Citizenship laws, International migration, Legal origins, Democracy, Borders
    JEL: F22 K40 N30 O15
    Date: 2005–05
  2. By: Jeffrey A. Miron; Chris Feige
    Abstract: The effect of drug prohibition on drug consumption is a critical issue in debates over drug policy. One episode that provides information on the consumption-reducing effect of drug prohibition is the Chinese legalization of opium in 1858. In this paper we examine the impact of China's opium legalization on the quantity and price of British opium exports from India to China during the 19th century. We find little evidence that legalization increased exports or decreased price. Thus, the evidence suggests China's opium prohibition had a minimal impact on opium consumption.
    JEL: K4 N4
    Date: 2005–05
  3. By: Philip J. Cook; Jens Ludwig
    Abstract: A common practice in the fields of education, mental health, and juvenile justice is to segregate problem youths in groups with deviant peers. Assignments of this sort, which concentrate deviant youths, may facilitate deviant peer influence and lead to perverse outcomes. This possibility adds to the list of arguments in support of "mainstreaming" whenever possible. But there are other concerns that help justify segregated-group assignments, including efficiency of service delivery and protection of the public. Our analysis organizes the discussion about the relevant tradeoffs. First, the number of deviant youths (relative to the size of the relevant population, or to the number of assignment locations) affects whether the harm-minimizing assignment calls for diffusion or segregation. Second, the nature of the problematic behavior is relevant; behavior which has a direct, detrimental effect on others who share the assignment makes a stronger case for segregation. Third, the capacity for behavior control matters, and may make the difference in a choice between segregation and integration. We briefly discuss the empirical literature, which with some exceptions is inadequate to the task of providing clear guidance about harm-minimizing assignment strategies. Finally, we reflect briefly on the medical-practice principle "first do no harm," and contrast it with the claims of potential victims of deviants.
    JEL: I18 I2 K42
    Date: 2005–06
  4. By: Sadakazu Osaki (Nomura Institute of Capital Market Research)
    Abstract: The Japanese version of the Big Bang announced in November 1996 was a major plan to drastically reform the financial and capital markets in Japan through significant revisions to laws such as the Securities and Exchange Law. The Japanese Big Bang was planned because of mounting worries about the lowering of the international status of Japanese markets and deadlock of the existing financial structure which depended excessively on indirect financing, mainly of bank loans. The Japanese Big Bang was supposed to have been completed by the end of March, 2001, but in reality system reforms for financial and capital markets are still continuing including revisions of the Securities and Exchange Law and of the taxation system of securities. Reform of the financial structure -- the goal of Big Bang -- has not made notable progress, an example being that most privately held financial assets are still in the form of deposits, because of the following reasons. The first reason is that participation of individual investors in the security market has not significantly increased. This is due to lack of familiarity with security companies that broker investments in securities and lack of knowledge of the market and investments. The second reason is that the use of financial and capital markets to procure funds is being hindered by the irrational behavior of banks, an example of which is the placement of loans at interest rates which are not commensurate with the risks involved. This is particularly problematic. It is necessary to reveal the values of securities in the trading market to the maximum extent and to promote conversion of bank credit into securities in order to normalize the behavior of banks. To bring this about it is necessary to strengthen supervision to prevent unjust behavior in the market in order to raise investor confidence in the market. As a consequence of the Japanese Big Bang and subsequent reforms, the financial and capital market systems of Japan now bear comparison with those in the UK and the US, at least procedurally. However, the system reforms implemented in Japan may just become a state of tilling the ground and failing to sow if there is no change in the attitude of control that experts (including the managing authorities who design the systems) persist in maintaining and no change in the way of thinking of companies that regard procurement of funds in the market as merely being the means to make adjustments for bank borrowing.
    Keywords: financial reform, capital market, Japan, Security law, Exchange law, Big bang, bank borrowing
    JEL: P41 P11 K39 F31
    Date: 2005–01
  5. By: Carolyn Currie (School of Finance and Economics, University of Technology, Sydney)
    Abstract: Regulatory failure causing financial crises has occurred with great frequency in the last ten years in both advanced and emerging nations. Theories of regulation have failed to define and describe the meanings of deregulation, the range of regulatory models and their goals, the significance of regulatory failure, how to measure it and how to prevent it. This paper is motivated by the perception that incorrect design and failure to conduct ongoing performance monitoring of regulatory models in emerging economies as well as in some advanced industrial states is precipitating financial crises. Deregulation is redefined in a framework that recognises the diversity between financial systems that exists due to differences in regulatory models, in the ability to comply with best international structure, in the ownership of the means of production and in the calibre of human and social capital, within the framework of the limiting features of government goals and economic resources and infrastructure. Case studies of regulatory failure in an advanced and an emerging nation illustrate the necessity for a staged approach to liberalisation of a financial system, which takes account of the capacity of the underlying economy and society to conduct effective prudential supervision before attempts are made to remove protective measures. The comparison of fin de millennium solutions in advanced nations of integrated supervisors also illustrates the correct embodiment of government goals in regulatory models and the importance of feedback mechanisms such as the establishment of early warning systems.
    Keywords: regulatory failure; regulatory models, deregulation
    JEL: K2 N20 N40 P00
    Date: 2005–05–01
  6. By: Christian Leuz; Felix Oberholzer-Gee
    Abstract: This study examines the financing choices of firms operating in a weak institutional environment. We argue that in relationship-based systems, global financing and political connections are substitutes: Well-connected firms are less likely to access foreign capital markets because (state-owned) domestic banks provide capital at low cost. Moreover, the additional scrutiny that comes with foreign securities might be at odds with close political ties at home. Using data from Indonesia, we provide strong support for this hypothesis. Firms with close political ties to former President Soeharto are significantly less likely than non-connected firms to have publicly traded foreign securities. We also examine how returns before and during the Asian financial crisis differ between firms with and without foreign securities. The former performed significantly better during the crisis, and their performance advantage increases considerably once we control for a firm’s closeness to the Soeharto regime. We show that simple return regressions in earlier work are downward biased if domestic opportunities such as political connections are ignored.
    Keywords: Disclosure; Cross listing; Financing choices; Emerging market economies; Asian financial crisis; Indonesia; Cost of capital
    JEL: P16 G32 G38 K22 K42 M41 G18
    Date: 2003–08
  7. By: Benno Torgler
    Abstract: The intention of this paper is to analyze religiosity as a factor that potentially affects tax morale. For this purpose, a multivariate analysis has been done with data from the World Values Survey 1995- 1997, covering more than thirty countries at the individual level. Several variables, such as church attendance, religious education, being an active member of a church or a religious organization, perceived religiosity, religious guidance and trust in the church have been analyzed. The results suggest that religiosity raises tax morale.
    Keywords: Tax morale; Tax compliance; Religiosity
    JEL: H26 H73 K42
    Date: 2003–10
  8. By: Benno Torgler
    Abstract: This paper has a novel framework analysing what shapes superstition in a multivariate analysis. The results indicate that socio-demographic and socio-economic variables matter. The results also indicate that there is a certain concurrence between churches and superstitious beliefs. In most of the cases we observe a negative correlation between superstition and attendance of church and other religious activities. Closeness to the churches goes in line with lower superstition. On the other hand, a generally higher perceived religiosity increases superstition. Furthermore, there is the tendency that people without a religious denomination have the lowest belief in superstition. Finally, the results indicate that there is a strong variety in superstition among countries. Especially people from formerly Communist countries have a higher degree of superstition than others.
    Keywords: Superstition; Religiosity; Culture
    JEL: K42
    Date: 2003–12
  9. By: Benno Torgler
    Abstract: This paper analyses tax morale in several Asian countries. The descriptive analysis indicates that tax morale is very low in the Philippines and relatively high in Japan, China, and Bangladesh. In general Asia has a higher tax morale than OECD countries, which might indicate cultural differences. The paper also analyses tax morale as a dependent variable and thus gives answers to what shapes tax morale. Pooling the Asian countries we find, e.g., that trust in the government and the legal system have a positive effect on tax morale. These results remain robust for India and Japan in a time series analysis.
    Keywords: tax morale; tax evasion; shadow economy
    JEL: H26 K42
    Date: 2004–01
  10. By: Benno Torgler; Neven T. Valev
    Abstract: In recent years the topic of corruption has attracted a great deal of attention. However, there is still a lack of substantial empirical evidence about the determinants of corruption. This empirical study analyses a cross-section of individuals using the World Values Survey wave III (1995-1997), investigating the justifiability of corruption. The major aim in the paper is to investigate whether we observe differences between age groups. Despite an increasing interest of economists in the determinants of corruption, the factor age has been widely neglected in the literature. The results suggest that there is a strong age effect, controlling in a multivariate analysis for additional factors.
    Keywords: Corruption; Age; Bribe; Social Norms
    JEL: H10 J16 K42
    Date: 2004–10

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