New Economics Papers
on Law and Economics
Issue of 2013‒09‒26
six papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Accomplice-Witness and Organized Crime: Theory and Evidence from Italy By Acconcia, Antonio; Immordino, Giovanni; Piccolo, Salvatore; Rey, Patrick
  2. Economic Aspects of the complementarity between Corruption and Crime: Evidence from Italy in the period 1996-2005. By Caruso, Raul; Baronchelli, Adelaide
  3. Patents and Cumulative Innovation:Causal Evidence from the Courts By Galasso, Alberto; Schankerman, Mark
  4. Formal Institutions and the Trust Formation Process: A Psychological Approach to Explain the Relationship between Institutions and Interpersonal Trust By Tamilina, Larysa; Tamilina, Natalya
  5. How would the design of an alternative minimum tax impact the effective corporate tax rate in Belgium? By Daxbek, Vincent; Estache, Antonio
  6. Capital structure puzzle: the interrelationship between leverage, taxes and other micro economic factors By Sinha, Pankaj; Bansal, Vishakha

  1. By: Acconcia, Antonio; Immordino, Giovanni; Piccolo, Salvatore; Rey, Patrick
    Abstract: We develop an agency model of organized crime accounting for the main trade-offs involved by the introduction of an accomplice-witness program. We characterize the optimal policy and identify its main determinants in a framework where public officials can be dishonest. Our predictions are tested by using data for Italy before and after the introduction of the 1991 accomplice-witness program. As predicted by the model and the earlier antitrust literature, the program appears to have strengthened deterrence and enhanced prosecution. Moreover, consistently with a novel prediction of our theory, the evidence suggests that the program efficacy is affected by the judicial system efficiency.
    Keywords: Accomplice-witness; Criminal Organizations; Leniency; Whistleblowing
    JEL: K14 K42
    Date: 2013–07
  2. By: Caruso, Raul; Baronchelli, Adelaide
    Abstract: This paper empirically investigates the connection between corruption and crime. Such linkage has been often underestimated because corruption has been often analyzed as a white-collar crime. In fact it is not characterized by violence. Recently a theoretical connection has been suggested to highlight that corruption and crime can be considered strategic complements. This paper, therefore, delves into the link between corruption and crime investigating empirically this relation for Italian regions in the period 1996-2005. Results show that current crime is positively associated with past levels of corruption. This somehow confirms the complementary relationship between the two illicit phenomena.
    Keywords: Corruption, Crime, Complementarity, investment
    JEL: J47 K42
    Date: 2013–04
  3. By: Galasso, Alberto; Schankerman, Mark
    Abstract: Cumulative innovation is central to economic growth. Do patent rights facilitate or impede such follow-on innovation? This paper studies the causal effect of removing patent protection through court invalidation on subsequent research related to the focal patent, as measured by later citations. We exploit random allocation of judges at the U.S. Court of Appeal for the Federal Circuit to control for the endogeneity of patent invalidation. We find that patent invalidation leads to a 50 percent increase in subsequent citations to the focal patent, on average, but the impact is highly heterogeneous. Patent rights appear to block follow-on innovation only in the technology fields of computers, electronics and medical instruments. The effect is entirely driven by invalidation of patents owned by large patentees that triggers more follow-on innovation by small firms.
    Date: 2013–08
  4. By: Tamilina, Larysa; Tamilina, Natalya
    Abstract: While formal institutions are recognized as having an effect on trust formation, no theoretical or empirical models exist to formalize this relationship. This study introduces a new conceptual framework to explain trust building by individuals and the role that formal rules and laws may play in this process. Drawing on a social-cognitive theory of psychology, we present trust as composed of internal, interpersonal, and external components with the latter encompassing formal institutions. We further demonstrate that there are three mechanisms – sanction, legitimacy, and autonomy – through which formal institutions may affect trust levels either directly or indirectly. These propositions are tested empirically based on the European Social Survey data (2004) by using a variety of statistical techniques. Our empirical analysis demonstrates evidence of heterogeneity in institutional effects on trust, suggesting that the autonomy dimension of the institutional framework is particularly important for trust formation processes.
    Keywords: interpersonal trust, formal institutions, social-cognitive psychology, heterogeneity, trust formation process
    JEL: K42 Z10 Z13
    Date: 2013–06–01
  5. By: Daxbek, Vincent; Estache, Antonio
    Abstract: The main purpose of this paper is to provide an assessment of the impact of the introduction of an alternative minimum tax (AMT) in Belgium with a focus on the impact on various distortions margins. In the process, we provide an up-to date account of the state of effective corporate taxation in the country. The current ETR is 15.7%. For a 1% of GDP increase in revenue, the ETR of an income based AMT would increase to 24.3% illustrating the potential payoff of a significant simplification of the current system. For a politically viable asset based AMT, it would roughly double the ETR. An income based AMT would somewhat reduce the distortions across sectors and firms sizes while an asset based AMT would increase it. As expected, an asset based AMT would penalize more large firms since they are more capital intensive. Small firms could actually be better off under an asset based AMT than under an income based AMT. But any decision on the AMT in Belgium is likely to be polarizing. Small firms currently represent 84% of the number of businesses, 35% of the jobs and 22.4% of the tax revenue. Large and very large firms represent less than 4% of the number of business but almost 50% of the jobs and over 60% of the tax revenue.
    Keywords: alternative minimum taxes; Belgium; corporate taxes; effective tax rates; presumptive taxation; tax avoidance
    JEL: H20 H25 H26 H32
    Date: 2013–05
  6. By: Sinha, Pankaj; Bansal, Vishakha
    Abstract: The capital structure puzzle still remains unsolved. Every year there are many incidences of firms, reporting very high and risky levels of debt ratios. Since debt has tax advantages over other sources of capital, this paper employs simulated marginal tax rate (MTR) and its variants to study the tax effects on leverage ratios of profitable Indian companies. The paper analyses three different measures of leverage; debt to asset (DAR) ratio, incremental debt to total assets ratio (DINC) and debt to capital employed (DAR1) ratio. For each measure of leverage ratio, different specifications based on four variants of MTR have been considered. The results confirm significant tax effects on debt ratios of profitable Indian companies. It was found that DINC is highly autoregressive and independent variables considered in this paper explain around 55% of the variation in DAR1. The study suggests a new measure of retained earnings (ERTA).
    Keywords: Marginal tax Rate, debt, leverage, capital structure, tax, incremental debt, debt to equity ratio, capital employed, corporate finance, financial distress
    JEL: G32 G38
    Date: 2013–08–30

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