nep-law New Economics Papers
on Law and Economics
Issue of 2018‒06‒25
thirteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Myths and Numbers on Whistleblower Rewards By Nyrerod, Theo; Spagnolo, Giancarlo
  2. Evolving Practice in Land Demarcation By Benito Arruñada
  3. Data Science for Institutional and Organizational Economics By Prüfer, Jens; Prüfer, Patricia
  4. Judicial Politics and Sentencing Decisions By Alma Cohen; Crystal Yang
  5. Industry vs services: do enforcement institutions matter for specialization patterns? disaggregated evidence from Spain By Juan S. Mora-Sanguinetti; Rok Spruk
  6. From Revolving Doors to Regulatory Capture? Evidence from Patent Examiners By Haris Tabakovic; Thomas G. Wollmann
  7. Common ownership and market entry: Evidence from the pharmaceutical industry By Melisa Newham; Jo Seldeslachts; Albert Banal-Estañol
  8. Is taxing waste a waste of time? Evidence from a Supreme Court decision By Carattini, Stefano; Baranzini, Andrea; Lalive, Rafael
  9. Do tax information exchange agreements curb transfer pricing-induced tax avoidance? By Diller, Markus; Lorenz, Johannes
  10. Tax consultants' incentives: A game-theoretic investigation into the behavior of tax consultants, taxpayers, and the tax authority in a setting of tax complexity By Grottke, Markus; Lorenz, Johannes
  11. Shadow Economy in Pakistan: Its Size and Interaction with Official Economy By Mughal, Khurrum; Schneider, Friedrich
  12. Combining Forces to Combat Elder Financial Victimization How Consumers Can Avoid the Financial Pitfalls of Cognitive Aging and What They Should Be Asking Their Financial Institutions By Rentezelas, Jeanne; Santucci, Larry
  13. Optimal Corporate Taxation under Financial Frictions By Hebert, Benjamin; Davila, Eduardo

  1. By: Nyrerod, Theo; Spagnolo, Giancarlo
    Abstract: Whistleblower rewards have been used extensively in the US to limit procurement fraud and tax evasion, and their use has been extended to fight financial fraud after the recent financial crisis. There is currently a debate on their possible introduction in Europe, but authorities there appear considerably less enthusiastic than their US counterparts. While it is important that these tools are scrutinized in a lively democratic debate, many things have been written - even by important institutional players - that have no empirical backing or that are in open contrast to the available evidence from independent research. In this paper we review some of the most debated issues regarding the potential benefits and costs of financial incentives for whistleblowers, while trying to separate existing evidence from conjectures with no empirical support, and myths in contrast to available evidence.
    Keywords: Corruption; Financial incentives; fraud; law enforcement; retaliation; tax evasion; whistleblower protection; Whistleblower rewards
    JEL: G38 K20 K42 L40 M41
    Date: 2018–05
  2. By: Benito Arruñada
    Abstract: This paper analyzes social choice with respect to the demarcation of land boundaries, distinguishing between physical and legal demarcation. In contrast with the influential “land administration” literature and the World Bank’s policy guidelines, the analysis supports voluntary—instead of mandatory—demarcation as well as non-integrated services for land administration. Consistent with these theoretical arguments, the paper empirically verifies that demarcation conflicts play a lesser role in title-, land- and property-related litigation, which seems to increase in all these areas after physical demarcation is made mandatory. Relying on World Bank data, it also observes that linking and merging cadastres and land registries does not correlate with lower transaction costs.
    Keywords: land, Property, boundaries, surveying, cadastres, land registry, land administration
    JEL: D73 K11 K34 K41 L85 O17 O18 Q15 Q24
    Date: 2018–05
  3. By: Prüfer, Jens (Tilburg University, TILEC); Prüfer, Patricia (Tilburg University, TILEC)
    Abstract: To which extent can data science methods – such as machine learning, text analysis, or sentiment analysis – push the research frontier in the social sciences? This essay briefly describes the most prominent data science techniques that lend themselves to analyses of institutional and organizational governance structures. We elaborate on several examples applying data science to analyze legal, political, and social institutions and sketch how specific data science techniques can be used to study important research questions that could not (to the same extent) be studied without these techniques. We conclude by comparing the main strengths and limitations of computational social science with traditional empirical research methods and its relation to theory.
    Keywords: data science; maching learning; institutions; text analysis
    JEL: C50 C53 C87 D02 K0
    Date: 2018
  4. By: Alma Cohen; Crystal Yang
    Abstract: This paper investigates whether judge political affiliation contributes to racial and gender disparities in sentencing using data on over 500,000 federal defendants linked to sentencing judge. Exploiting random case assignment, we find that Republican-appointed judges sentence black defendants to 3.0 more months than similar non-blacks and female defendants to 2.0 fewer months than similar males compared to Democratic-appointed judges, 65 percent of the baseline racial sentence gap and 17 percent of the baseline gender sentence gap, respectively. These differences cannot be explained by other judge characteristics and grow substantially larger when judges are granted more discretion.
    JEL: H1 J15 J71 K0 K14
    Date: 2018–05
  5. By: Juan S. Mora-Sanguinetti (Banco de España-Eurosystem); Rok Spruk (Faculty of Economics, university of Ljubljana–Laibach)
    Abstract: We exploit historical differences in foral law to consistently estimate the contribution of the quality of enforcement institutions to economic specialization across Spanish provinces in the period 1999-2014. The distribution of economic activity in Spain as of today shows a strong pattern of geographical specialization. Regions less specialized in manufacturing (industry) and oriented to services sectors (Andalusia, Extremadura) in the south are compared with industrialized/manufacturing regions in the north such as the Basque Country, Navarre or Aragon. We construct province-level congestion rates across three different jurisdictions (civil, labor and administrative) from real judicial data measuring the performance of the Spanish judicial system over time, and estimate the effect of judicial efficacy on the share of manufacturing and services in the total output. Using a variety of estimation techniques, the evidence unveils strong and persistent effects of judicial efficacy on province-level economic specialization with notable distributional differences. The provinces with a historical experience of foral law are significantly more likely to have more efficient enforcement institutions at the present day. In turn, greater judicial efficacy facilitates specialization in high-productivity manufacturing while greater judicial inefficacy encourages service-intensive specialization. The effect of judicial efficacy on economic specialization does not depend on confounders, holds across a number of specification checks and appears to be causal. Lastly, the three jurisdictions seem relevant to explain specialization, although the administrative jurisdiction appears to have a more pronounced impact than the labor or civil jurisdictions.
    Keywords: economic specialization, institutions, justice
    JEL: O1 K4
    Date: 2018–04
  6. By: Haris Tabakovic; Thomas G. Wollmann
    Abstract: Many regulatory agency employees are hired by the firms they regulate, creating a “revolving door” between government and the private sector. We study these transitions using detailed data from the US Patent and Trademark Office. We find that patent examiners grant significantly more patents to the firms that later hire them and that much of this leniency extends to prospective employers. These effects are strongest in years when firms are actively hiring, and these relationships hold for the intensive margin of intellectual property protection. Ultimately, this leads the agency to issue lower quality patents, which we measure in citations. Together with other supporting evidence, we argue these results are suggestive of regulatory capture.
    JEL: D72 K23 L51 O34
    Date: 2018–05
  7. By: Melisa Newham; Jo Seldeslachts; Albert Banal-Estañol
    Abstract: Common ownership - where two firms are at least partially owned by the same investor - and its impact on product market outcomes has recently drawn a lot of attention from scholars and practitioners alike. Theoretical and empirical research suggests that common ownership can lead to higher prices. This paper focuses on implications for market entry. To estimate the effect of common ownership on entry decisions, we focus on the pharmaceutical industry. In particular, we consider the entry decisions of generic pharmaceutical firms into drug markets opened up by the end of regulatory protection in the US. We first provide a theoretical framework that shows that a higher level of common ownership between the brand firm (incumbent) and potential generic entrant reduces the generic's incentives to entry. We provide robust evidence for this prediction. The effect is large: a one-standard-deviation increase in common ownership decreases the probability of generic entry by 9-13%. We extend our basic theoretical framework and allow for multiple entrants. Our model shows that for sufficiently high levels of common ownership, the classical idea of entry decisions being strategic substitutes can be reversed into being strategic complements. Our empirical results provide some support for these predictions.
    Keywords: Market Entry, Ownership Structure, Pharma
    JEL: G23 K21 L11 L41 L65
    Date: 2018–05
  8. By: Carattini, Stefano; Baranzini, Andrea; Lalive, Rafael
    Abstract: Environmental taxes are often underexploited. This paper analyses the effectiveness of a garbage tax, assessing its effects on multiple outcomes as well as its acceptability. We study how a Supreme Court decision, mandating the Swiss Canton of Vaud to implement a tax on garbage, affects garbage production and beliefs about the tax. We adopt a difference-in-differences approach exploiting that parts of Vaud already implemented a garbage tax before the mandate. Pricing garbage by the bag (PGB) is highly effective, reducing unsorted garbage by 40%, increasing recycling of aluminium and organic waste, without causing negative spillovers on adjacent regions. The effects of PGB seem very persistent over time. Our assessment of PGB looks very favourable. It may surprise that PGB is not implemented more often. Hence, we look at people's perceptions. We find that people are very concerned with PGB ex ante. Public opposition seems to be the main obstacle to PGB. However, implementing PGB reduces concerns with effectiveness and fairness substantially. After implementing PGB, people accept 70% higher garbage taxes compared to before PGB. We argue that environmental taxes could be much more diffused, if people had the chance to experience their functioning and correct their beliefs.
    Keywords: unit pricing; recycling; effectiveness; difference-in-differences; acceptability; social perceptions
    JEL: D62 D78 H23 Q53
    Date: 2018–06–01
  9. By: Diller, Markus; Lorenz, Johannes
    Abstract: We propose a game theoretical model where a multinational company with divisions in two countries and the respective tax authorities interact with each other. Prior to an audit the functional profile of the divisions is unknown to the tax authorities. In equilibrium, tax avoidance emerges in both countries. It turns out that the audit pressure is highest for firms with a hybrid functional profile, dampening their production and reducing their after-tax profit. We find that introducing a bilateral Tax Information Exchange Agreement reduces tax avoidance by aggressive transfer pricing in the high-tax ("domestic") country and precludes tax avoidance in the lowtax ("foreign") country. The volume of production increases. The foreign tax authority discontinues its audit activities, while the domestic tax authority audits less often at least if the foreign division is a toll manufacturer ("routine function"). While the expected net tax revenues increase in the foreign country, they may decrease in the domestic country.
    Keywords: transfer pricing,tax evasion,cooperation
    JEL: H26 F23 K34
    Date: 2017
  10. By: Grottke, Markus; Lorenz, Johannes
    Abstract: We propose a game-theoretic investigation to capture the interplay between the behavior of tax consultants, taxpayers, and the tax authority in a setting of tax complexity. Our purpose is to provide answers to two research questions: Which aspects of the strategic interaction between the players induce tax consultants to provide inaccurate consulting services? How can we change the incentive structure in order to improve tax consulting quality? We find that tax consultants can be best motivated to work accurately by exogenously increasing the probability of tax underpayment and by ensuring that the tax authority corrects both tax underpayment and tax overpayment.
    Keywords: tax consultant,tax law,game theory
    JEL: H2 M48 P48 K34
    Date: 2017
  11. By: Mughal, Khurrum; Schneider, Friedrich
    Abstract: Shadow economy encompasses wide array of activities that influence the official economy and government policies, either directly or indirectly. In this paper we estimate the shadow economy of Pakistan using currency demand approach with two econometric approached, i.e. one using Auto Regressive Distributed Lag (ARDL) model and two with Engel Granger two step approach. Additionally, we use a variant of currency demand approach where along with tax variable we include unemployment rate and intensity of government control as indicator variables of shadow economy, for the first time in case of Pakistan. The average shadow economy of Pakistan estimated from 1973-2015 as percentage of GDP is 26.41, 25.29, and 26.11 from Models 1, 2, and 3 respectively. Furthermore, we analyzed interaction between the official and shadow sector using ARDL model. Our results show a significantly increasing shadow economy in Pakistan with positive impact on the official sector in long run while negative impact in the short run. This again is a novelty in our paper where we observe short and long run impacts separately along with dynamic simulations to show Pakistan’s GDP per Capita in the absence of shadow economy.
    Keywords: Shadow Economy, Pakistan, Impact of the official Sector, Currency Demand Approach
    JEL: E26 H26 K42 O17
    Date: 2018–05–30
  12. By: Rentezelas, Jeanne (Federal Reserve Bank of Philadelphia); Santucci, Larry (Federal Reserve Bank of Philadelphia)
    Abstract: Medical research has linked financial vulnerability to accelerated cognitive aging — the process by which cognitive abilities decline with age. Consumers who understand the risks of cognitive aging and what their financial institutions are doing to detect and deter financial crimes are better positioned to safeguard their retirement savings. In this paper, we examine how consumers and financial institutions can prepare for the financial pitfalls of aging. We present seven important steps that consumers aged 50 or older can take to protect themselves. We also provide consumers with a list of six questions to determine how well their financial institutions are prepared to detect signs of diminished financial capacity, elder fraud, and financial abuse, and to prevent financial losses from occurring.
    Keywords: elder fraud; financial exploitation; retirement planning
    JEL: D18 G21 G28 J14 K22
    Date: 2018–06–14
  13. By: Hebert, Benjamin (New York University); Davila, Eduardo (Stanford University)
    Abstract: We study the optimal design of corporate taxation when firms are subject to financial constraints. We find that corporate taxes should be levied on unconstrained firms, since those firms value resources inside the firm less than financially constrained firms. When the government has complete information about which firms are and are not constrained, this principle is sufficient to characterize optimal corporate tax policy. When the government (and other outsiders) do not know which firms are and are not constrained, the government can use the payout policies of firms to elicit whether or not the firm is constrained, and assess taxes accordingly. Using this insight, we discuss conditions under which a tax on dividends paid is the optimal corporate tax. We then extend this result to a dynamic setting, showing that, if the government lacks commitment, the optimal sequence of tax mechanisms can be implemented with a dividend tax. With commitment, we reach a very different conclusion--a lump sum tax on firm entry is optimal. We argue that these two models demonstrate an underlying principle, that optimal corporate taxes should avoid exacerbating financial frictions, and demonstrate that the structure of the financial frictions can drastically change the optimal policy.
    JEL: G18 G33 K35
    Date: 2017–09

This nep-law issue is ©2018 by Eve-Angeline Lambert. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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