New Economics Papers
on Law and Economics
Issue of 2006‒01‒01
six papers chosen by
Jeong-Joon Lee, Towson University

  1. The Evolution of Tax Morale in Modern Spain By Jorge Martinz-Vazquez; Benno Torgler
  2. The Law and Economics of Self-Dealing By Simeon Djankov; Rafael LaPorta; Florencio Lopez-de-Silanes; Andrei Shleifer
  3. Hedging Strategies and the Financing of the 1992 International Oil Pollution Compensation Fund. By André SCHMITT; Sandrine SPAETER
  4. Identifying Reticent Respondents: Assessing the Quality of Survey Data on Corruption and Values By Omar Azfar; Peter Murrell
  5. How Independent are Independent Directors? The Case of Italy By Paolo Santella; Giulia Paone; Carlo Drago
  6. Uruguay Capital Market: Law-in-the-books or Law-in-action? By Eduardo Siandra

  1. By: Jorge Martinz-Vazquez; Benno Torgler
    Abstract: This paper studies the evolutions of tax morale in Spain in the post-Franco era. Tax morale, defined as the intrinsic motivation to pay taxes, might be a key determinant of the actual degree of tax compliance in a country. But despite its potential significance, most studies in the previous literature have treated tax morale as an exogenous residual. In contrast to the previous tax compliance literature, the current paper investigates tax morale as the dependent variable and attempts to answer what actually shapes tax morale. The empirical analysis uses survey data from two sources: the World Values Survey (WVS) and the European Values Survey (EVS). The data allow us to observe tax morale in Spain for the years 1981, 1990, 1995, and 1999/2000. The study of the evolution of tax morale in Spain over nearly a 20-year span is particularly interesting because it provides close to a natural experiment setting. Constitutional and political changes after Franco died in 1975 and the advent of a fully democratic state, deep tax reforms, a significant push for decentralization, joining the European Community, and so on, provide excellent benchmarks for institutional changes that are expected in the compliance literature to change tax morale.
    Keywords: Spain; Tax morale; Tax compliance; Constitutional and political changes
    JEL: H26 H73 K42 O17 Z13
    Date: 2005–12
  2. By: Simeon Djankov; Rafael LaPorta; Florencio Lopez-de-Silanes; Andrei Shleifer
    Abstract: We present a new measure of legal protection of minority shareholders against expropriation by corporate insiders: the anti-self-dealing index. Assembled with the help of Lex Mundi law firms, the index is calculated for 72 countries based on legal rules prevailing in 2003, and focuses on private enforcement mechanisms, such as disclosure, approval, and litigation, governing a specific self-dealing transaction. This theoretically-grounded index predicts a variety of stock market outcomes, and generally works better than the commonly used index of anti-director rights.
    JEL: G3 G38 K22
    Date: 2005–12
  3. By: André SCHMITT; Sandrine SPAETER
    Abstract: The maritime oil transport is regulated by the 1992 Civil Liability Convention for Oil Damage and the 1992 Oil Pollution Compensation Fund. In this compensation regime, contributions of oil firms are based on the aggregate risk of the Fund and are assessed each time an oil spill is registered. In this paper, we present the main characteristics of such a compensation regime and we explain why oil firms would benefit from a reorga- nization of the financing of the Fund by introducing appropriate hedging mechanisms. As standard insurance is shown to be too limited for the coverage of oil spills, we high- light the arguments that justify the introduction of financial hedging instruments in the management of the compensation system related to oil spills.
    Keywords: Oil spill, IOPC Fund, risk management, insurance, financial hedging.
    JEL: D80 G22 K32 Q25
    Date: 2005
  4. By: Omar Azfar (IRIS Center, Department of Economics, University of Maryland); Peter Murrell (Department of Economics, University of Maryland)
    Abstract: Randomized response methods, which were designed to elicit candid answers to sensitive questions, have not succeeded in eliminating reticence in survey responses. We implement a methodology that effectively stands the randomized response technique on its head, using it to identify reticent respondents. In a sample of Romanian company officials, we identify a specific 10% of respondents as reticent with near certainty and estimate that roughly 40% of the whole sample were actually reticent. The identifiably reticent respondents admit to corruption interactions significantly less often than others do. They are also more likely to state that it is impermissible to break socially beneficial rules. We show that reticence is related to the respondent's age and the colonial heritage of the respondent's region. These results suggest some difficulties in making cross-country comparisons of corruption and of values using the types of survey data often employed in social science research and policy analysis.
    Keywords: corruption, survey methods, randomized response, regulation, Romania
    JEL: D72 D82 H10 K40 N40 P51
    Date: 2005–12
  5. By: Paolo Santella (European Commission, DG Internal Market); Giulia Paone (Dartmouth College - Tuck School of Business); Carlo Drago (University of Naples 'Federico II')
    Abstract: In this article, we provide an interpretation for the voluntary independence requirements contained in the Italian Corporate Governance Code (Preda Code) checking them against a proxy for international best practice, the independence criteria provided in the EC Recommendation on non-executive and supervisory directors of 2005. We then check to what extent company disclosure for 2003 allows the verification of the independence of directors qualified as independent by the Italian 40 blue chips. We find that the Preda Code (currently under revision) should be updated in several respects in order to make it abreast with best practice in the European Union. We also find that for two key independence requirements (not to have business relationships with the company and not to have too many concurrent commitments outside of the company) the level of compliance is dramatically low (4% and 16% respectively). Overall, for only 5 out of the 284 directors declared as independent by the Italian blue chips is it possible to verify the respect of all the Italian independence standards (and for only 4 directors with respect to the EC standards). This raises the problem of who should monitor what listed companies declare.
    Keywords: Independent directors, Corporate governance
    JEL: G3 K K2 K22
    Date: 2005–12–25
  6. By: Eduardo Siandra (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: This paper discusses the process of legal infrastructure reform to build better institutions for capital market development in Uruguay during the 1990s. It contains a description, a brief literature survey, an explanation, and an evaluation. From this we draw lessons and make a prospective analysis of the fate of capital market development under the new political scenario shaped by the first left-wing government in the national history. In particular we find fascinating the conundrum of a legal reform in a country in which the legislator and the politician have played a first order role in the interpretation of the law and regulating the gap between "law-in-the-books" and "law-in-action".
    Keywords: bankruptcy, capital markets, finance, common law tradition, civil law tradition, disclosure, law, legal, reform, trust
    JEL: G K Z13
    Date: 2005–05

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