nep-law New Economics Papers
on Law and Economics
Issue of 2020‒08‒24
seventeen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The Impact of the First Professional Police Forces on Crime By Bindler, Anna L; Hjalmarsson, Randi
  2. Taxing hidden wealth: the consequences of U.S. enforcement initiatives on evasive foreign accounts By Johannesen, Niels; Langetieg, Patrick; Reck, Daniel; Risch, Max; Slemrod, Joel
  3. The Persistence of the Criminal Justice Gender Gap: Evidence from 200 Years of Judicial Decisions By Bindler, Anna L; Hjalmarsson, Randi
  4. The Impact of Sodomy Law Repeals on Crime By Ciacci, Riccardo; Sansone, Dario
  5. Public and reputational sanctions: The case of cartels By Franco Mariuzzo; Peter Ormosi; Zherou Majied
  6. Going Bankrupt in China By Bo Li; Jacopo Ponticelli
  7. Beyond justices: The legal culture of judges in Mexico By Aguiar Aguilar, Azul América
  8. Bonum requirements of the beneficiary in the corporate rights protection system in Ukraine: Implementing best practices By Anatoliy Kostruba; Roman Maydanyk; Volodymyr Luts
  9. Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy By Moretti, Enrico; Wilson, Daniel J
  10. Multivariability of Rights in the Structure of Corporate Legal Relations By Anatoliy Kostruba; Dmytro Lukianov
  11. Does Better Information Curb Customs Fraud? By Cyril Chalendard; Alice Duhaut; Ana Margarida Fernandes; Aaditya Mattoo; Gael Raballand; Bob Rijkers
  12. Pre-packs in the Indian Insolvency Regime By Ram Mohan, M.P.; Raj, Vishakha
  13. Hide and Protect : A Role of Global Financial Secrecy in Shaping Domestic Institutions By Sharafutdinova,Gulnaz; Lokshin,Michael M.
  14. Imperfect Information, Social Norms, and Beliefs in Networks By Rapanos, Theodoros; Sommer, Marc; Zenou, Yves
  15. Court efficiency and aggregate productivity: the credit channel By Guzmán González-Torres; Giacomo Rodano
  16. Legal Drinking, Injury and Harm: Evidence from the Introduction and Modifications of Age Limits in Denmark By Datta Gupta, Nabanita; Nilsson, Anton
  17. International Disease Epidemics and the Shadow Economy By Aziz Berdiev; Rajeev K. Goel; James W. Saunoris

  1. By: Bindler, Anna L; Hjalmarsson, Randi
    Abstract: This paper evaluates how the introduction of professional police forces affected crime using two natural experiments in history: the 1829 formation of the London Metropolitan Police (the first police force ever tasked with deterring crime) and the 1839 to 1856 county roll-out of forces in England and Wales. The London Met analysis relies on two complementary data sources. The first, trial data with geocoded crime locations, allows for a difference-in-differences estimation that finds a significant and persistent reduction in robbery but not homicide or burglary. A pre-post analysis of the second source, daily police reports of both cleared and uncleared crime incidents, finds a significant reduction in all violent crimes but offsetting changes in uncleared (decrease) and cleared (increase) property crimes. These (local) reductions in crime are not just due to crime displacement but represent true decreases in overall crime. Difference-in-difference analyses of the county roll-out find that only sufficiently large forces, measured by the population to force ratio, significantly reduced crime. The results are robust to controlling for spill-over effects of neighboring forces.
    Keywords: crime; deterrence; economic history; institutions; Police
    JEL: H0 K42 N93
    Date: 2019–10
  2. By: Johannesen, Niels; Langetieg, Patrick; Reck, Daniel; Risch, Max; Slemrod, Joel
    Abstract: In 2008, the IRS initiated efforts to curb the use of offshore accounts to evade taxes. This paper uses administrative microdata to examine the impact of enforcement efforts on taxpayers’ reporting of offshore accounts and income. We find that enforcement caused approximately 50,000 individuals to disclose offshore accounts with a combined value of about $100 billion. Most disclosures happened outside offshore voluntary disclosure programs, by individuals who never admitted prior noncompliance. Disclosed accounts were concentrated in countries often characterized as tax havens. Enforcement-driven disclosures increased annual reported capital income by $2-$4 billion, corresponding to $0.6-$1.2 billion in additional tax revenue.
    JEL: H24 H26 K34
    Date: 2020–08–01
  3. By: Bindler, Anna L; Hjalmarsson, Randi
    Abstract: We document persistent gender gaps favoring females in jury convictions and judge sentences in nearly 200 years of London trials, which are unexplained by case characteristics. We find that three sharp changes in punishment severity locally affected the size and nature of the gaps, but were generally not strong enough to offset their persistence. These local effects suggest a mechanism of taste-based discrimination (paternalism) where the all-male judiciary protected females from the harshest available punishment.
    Keywords: crime; discrimination; Gender; Gender Gap; History; sentencing; verdict
    JEL: J16 K14 K40 N33
    Date: 2019–10
  4. By: Ciacci, Riccardo; Sansone, Dario
    Abstract: We exploit variation in the timing of decriminalization of same-sex sexual intercourse across U.S. states to estimate the impact of these law changes on crime. We provide the first evidence that sodomy law repeals led to a decline in the number of arrests for disorderly conduct, prostitution, and other sex offenses. Furthermore, we show that these repeals led to a reduction in arrests for drug and alcohol consumption.
    Keywords: sodomy laws; LGBTQ; crime
    JEL: I18 J15 K14 K39
    Date: 2020–07–13
  5. By: Franco Mariuzzo (Centre for Competition Policy and School of Economics, University of East Anglia); Peter Ormosi (Centre for Competition Policy and Norwich Business School, University of East Anglia); Zherou Majied (Rayyan Al-Iraq Group, Baghdad, Iraq)
    Abstract: In this article, we revive an old debate in the law and economics literature: the relative role of public and reputational sanctions in deterring misconduct. We propose an empirical framework, which accounts for public sanctions and a more direct measure of reputational sanctions, harnessing recent developments in opinion mining. We use the intensity and the sentiment of media exposure of misconduct as a measure of reputational effect and thus approximation of the reputational sanction. As a demonstration, we combine an event study approach, sentiment analysis, and econometric techniques on a sample of 339 listed cartel member firms, prosecuted by the European Commission between 1992 and 2015. Our results offer evidence that in the context of cartels, public and reputational sanctions act as substitutes.
    Keywords: Cartels, event study, public sanctions, reputational sanctions, sentiment analysis
    JEL: L4 K4
    Date: 2019–12–01
  6. By: Bo Li; Jacopo Ponticelli
    Abstract: Using new case-level data we document a set of stylized facts on bankruptcy in China and study how the staggered introduction of specialized courts across Chinese cities affected insolvency resolution and the local economy. For identification, we compare cases handled by specialized versus traditional civil courts within the same city. Specialized courts hire better-trained judges and cut case duration by 35%. State-owned firms experience larger declines in case duration relative to privately-owned firms, consistent with higher judicial independence. Cities introducing specialized courts experience faster firm entry, larger increase in average capital productivity and reallocation of employment out of "zombie" firms-intensive sectors.
    JEL: G33 K22 O16
    Date: 2020–07
  7. By: Aguiar Aguilar, Azul América
    Abstract: Judges' ideas, beliefs, and values are central to adjudication. Empowering the courts was a crucial step in third-wave democracies and, after some unfulfilled promises regarding the potential of the judicialization of politics for rights expansion, we need to learn more about the individuals that were empowered and what their legal culture can tell us about judicial behavior. Do judges consider themselves political actors having a legislative role? What type of legal culture do they have? To advance our understanding of these key determinants of judicial behavior, I use a survey with federal judges in Mexico to explore to what extent judges adhere to a positivist or a principle-based constitutionalist legal culture. Findings suggest that there is a tension in the judiciary, with some judges embracing the idea of legislating from the bench while others prefer to play the role of being "the mouthpiece of the law.
    Date: 2020
  8. By: Anatoliy Kostruba (Vasyl Stefanyk Precarpathian National University); Roman Maydanyk; Volodymyr Luts
    Abstract: In the process of interaction of corporate governing bodies with other entities of corporate legal relations to ensure its organizational and economic activity, situations are possible when the parties to such interaction pursue multi-vector or mutually exclusive goals, which is caused by the polar pursuit of corporate interests. The purpose of the paper is to identify the peculiarities of bonum requirements of the beneficiary in the system of corporate rights protection in Ukraine and to study foreign experience in this aspect. The concept of bonus requirements of the beneficiary was considered as a means of protecting corporate rights and a way of resolving a corporate conflict; derivative (indirect) action was investigated as a way of resolving corporate conflict in other countries; the theoretical and statutory consolidation of the basis of civil liability of the corporation governing body is determined; the responsibility of the governing body of the corporation for the damage caused and the principle of protection of the weaker party are outlined; the concept and legal nature of the derivative action as a way of protecting the rights for damages caused by the governing body of the corporation on the basis of the dictionary definitions of the term are provided. It was concluded that the principle of protection of a weaker party in the corporate law of Ukraine is a general idea of providing legal protection of a party of legal relations, which is limited by the appropriate possibility due to self-regulated and purposeful legal actions (creation of a legal subject-legal entity) as a form of compensation of identical level of legal possibilities of participants of civil law relations.
    Keywords: civil legislation,business activity,conflict,bonum requirement,beneficiary,derivative action,Corporations
    Date: 2020–07–27
  9. By: Moretti, Enrico; Wilson, Daniel J
    Abstract: We study the effect of state-level estate taxes on the geographical location of the Forbes 400 richest Americans and its implications for tax policy. We use a change in federal tax law to identify the tax sensitivity of the ultra-wealthy's locational choices. Before 2001, some states had an estate tax and others didn't, but the tax liability for the ultra-wealthy was independent of their domicile state due to a federal credit. In 2001, the credit was phased out and the estate tax liability for the ultra-wealthy suddenly became highly dependent on domicile state. We find the number of Forbes 400 individuals in estate tax states fell by 35% after 2001 compared to non-estate tax states. We also find that billionaire's sensitivity to the estate tax increases significantly with age. Overall, billionaires' geographical location appears to be highly sensitive to state estate taxes. We then estimate the effect of billionaire deaths on state tax revenues. We find a sharp increase in tax revenues in the three years after a Forbes billionaire death, totaling $165 million for the average billionaire. In the last part of the paper, we study the implications of our findings for state tax policy. We estimate the revenue costs and benefits for each state of having an estate tax. The benefit is the one-time tax revenue gain when a wealthy resident dies, while the cost is the foregone income tax revenues over the remaining lifetime of those who relocate. Surprisingly, despite the high estimated tax mobility, we find that the benefit exceeds the cost for the vast majority of states.
    Date: 2019–10
  10. By: Anatoliy Kostruba (Vasyl Stefanyk Precarpathian National University); Dmytro Lukianov (Yaroslav Mudryi National Law University)
    Abstract: The research is devoted to the study of the structure of corporate legal relations, establishing the mechanism of their formation. Legal relations as a form of social relations are in constant development due to the activity of social ties in society. As a result, new types of social interaction emerge and develop that require an appropriate legal form of ordering. Such ordering is self-regulated by the participants of the respective relations in the process of accumulation of property, non-property components, organizational and so on. The study found that the formation of corporate legal relations is the result of a combination of property, non-property and organizational components. The organizational component of corporate relations is to streamline the activities of individuals in the process of combining their efforts at the stage of emergence of such relationships, as well as to streamline this activity of participants in corporate relationships in the process of their implementation. It can be concluded that the proprietary nature of corporate legal relationships is conditioned by the material interest of the participants in such relationships to receive appropriate satisfaction from their participation in them. The corporation is managed through a non-property segment.
    Keywords: corporate legal relations,civil legal relations,organizational relations,property relations,non-property relation,corporations,partnership,legal entities
    Date: 2019–12–31
  11. By: Cyril Chalendard; Alice Duhaut; Ana Margarida Fernandes; Aaditya Mattoo; Gael Raballand; Bob Rijkers
    Abstract: This paper examines how providing better information to customs inspectors and monitoring their actions affects tax revenue and fraud detection in Madagascar. First, an instrumental variables strategy is used to show that transaction-specific, third-party valuation advice on a subset of high-risk import declarations increases fraud findings by 21.7 percentage points and tax collection by 5.2 percentage points. Second, a randomized control trial is conducted in which a subset of high-risk declarations is selected to receive detailed risk comments and another subset is explicitly tagged for ex-post monitoring. For declarations not subject to third-party valuation advice, detailed comments increase reporting of fraud by 3.1 percentage points and improve tax yield by 1 percentage point. However, valuation advice and detailed comments have a significantly smaller impact on revenue when potential tax losses and opportunities for graft are large. Monitoring induces inspectors to scan more shipments but does not result in the detection of more fraud or the collection of additional revenue. Better information thus helps curb customs fraud, but its effectiveness appears compromised by corruption.
    Keywords: tariff evasion, tax enforcement, third-party information, performance monitoring, risk management, information provision, randomized control trial
    JEL: D73 F14 H26 K42
    Date: 2020
  12. By: Ram Mohan, M.P.; Raj, Vishakha
    Abstract: Pre-packaging allows a distressed company to negotiate a plan with its creditors and a purchaser before entering formal insolvency proceedings. By allowing the terms of a plan to be negotiated before formal proceedings, pre-packs provide a quick and discreet way of completing the insolvency resolution process. The speed and confidentiality offered by pre-packs have made them prevalent in the United Kingdom and the United States, however, these advantages come with trade-offs. Creditors’ voting rights under the regular insolvency resolution process are circumvented by the pre-pack process. The US has two pre-pack processes, one that requires creditor approval and another which does not. In the UK and the US, there has been opposition to regulating pre-packs that do not need creditor approval because reforms that increase creditor participation will reduce the speed associated with such pre-packs. In India, pre-packs have not evolved through the present regime as it does not allow for the assets of a debtor to be sold without its creditors’ approval. The Insolvency and Bankruptcy Board of India is considering introducing pre-packs in the Indian regime and faces unique challenges because of some of the features in India’s insolvency regime. Insolvency law in India prohibits the participation of a company’s directors and creditors in the pre-pack process. Indian insolvency law also has broad avoidance provisions which can complicate the implementation of pre-packs. This paper discusses these challenges and uses the experience of the UK and the US to suggest a framework for the introduction of pre-packaged insolvency in India. After evaluating the pre-pack regimes in the UK and the US, we conclude that it would be optimal for India to retain creditor protections and require creditor approvals in its pre-pack regime. This would ensure that pre-packs can be discreetly implemented and also avoids the disenfranchisement of creditors.
    Date: 2020–08–07
  13. By: Sharafutdinova,Gulnaz; Lokshin,Michael M.
    Abstract: This paper reviews the literature that explores the drivers and effects of financial secrecy on emerging economies. It shows that most of the research on financial secrecy has been focused on issues of tax avoidance, neglecting the problems of institutional arbitrage that go beyond taxation issues. The paper discusses the limits of the institutionalist paradigm that treats businesses solely as rule-takers and calls for more attention to business agency and responsibility. Discussions about corporate social responsibility in emerging economies should incorporate thinking about the potential role that businesses, and especially big corporations, could play in promoting more effective institutions at home. Further research is needed to understand the political and institutional effects of global financial secrecy at the domestic level. The paper suggests some promising avenues for future research as well as new items to be included on the policy-making agenda in relation to financial secrecy.
    Keywords: Social Policy,Common Property Resource Development,Legal Products,Regulatory Regimes,Legislation,Legal Reform,Financial Regulation&Supervision,Public Sector Economics,Taxation&Subsidies,Macro-Fiscal Policy,Public Finance Decentralization and Poverty Reduction,Economic Adjustment and Lending,Judicial System Reform,Financial Economics
    Date: 2020–08–03
  14. By: Rapanos, Theodoros; Sommer, Marc; Zenou, Yves
    Abstract: We develop a simple Bayesian network game in which players, embedded in a network of social interactions, bear a cost from deviating from the social norm of their peers. All agents face uncertainty about the private benefits and the private and social costs of their actions. We prove the existence and uniqueness of a Bayesian Nash equilibrium and characterize players' optimal actions. We then show that denser networks do not necessary increase agents' actions and welfare. We also find that, in some cases, it is optimal for the planner to affect the payoffs of selected individuals rather than all agents in the network. We finally show that having more information is not always beneficial to agents and can, in fact, reduce their welfare. We illustrate all our results in the context of criminal networks in which offenders do not know with certitude the probability of being caught and do not want to be different from their peers in terms of criminal activities.
    Keywords: Bayesian games; beliefs; Conformism; crime; networks; value of information
    JEL: C72 D82 D85 K42
    Date: 2019–10
  15. By: Guzmán González-Torres (Bank of Italy); Giacomo Rodano (Bank of Italy)
    Abstract: Credit contract enforcement influences financial market allocations and prices. Well-functioning credit markets enable firms to finance their operations. Can greater judicial efficiency therefore help to improve credit market allocations, by increasing firm dynamism and boosting aggregate productivity? We build a dynamic model of heterogeneous firms with short-term liquidity needs, in which two key features of enforcing credit contract proceedings, case resolution time and the expected recovery rate, directly affect credit supply. Once calibrated to replicate Italian firm dynamics, we use the model to analyze the extent to which court efficiency determines aggregate outcomes through the credit channel. In our economy, either increasing the average recovery rate on defaulted loans from 62 to 80 per cent, or reducing case resolution time from 9 to 5 years, raises average firm productivity by about 2 per cent. These gains are attained through a substantial improvement in the allocation of resources across firms.
    Keywords: financial markets, civil law, contracts, aggregate productivity, intertemporal firm choice
    JEL: E44 K12 O47
    Date: 2020–07
  16. By: Datta Gupta, Nabanita (Aarhus University); Nilsson, Anton (Lund University)
    Abstract: Alcohol is considered one of the most serious threats to population health, and to mitigate its negative consequences, most countries have implemented policies such as minimum legal drinking ages (MLDAs). Denmark, a country with an exceptionally liberal youth alcohol culture, introduced a minimum age for purchasing alcoholic beverages as late as in 1998, prohibiting those below 15 to buy alcohol. Previous studies from the U.S. and a few other contexts have provided substantial evidence that MLDA legislations influence outcomes such as car accidents, but there is little evidence from Europe. Moreover, there is limited evidence for injuries other than those due to vehicle accidents. We exploit the introduction and changes in the MLDA in Denmark to estimate effects on all classes of injuries, as well as alcohol-related outcomes such as intoxication and poisoning. We bring comprehensive evidence on the effects of a total of three reforms, which affected alcohol availability along different margins – 1) establishing an off-premise alcohol purchase age of 15 (1998), 2) raising the off-premise alcohol purchase age to 16 (2004), and 3) increasing the purchase age of beverages exceeding 16.5% in alcohol content from 16 to 18 (2011). Our findings show significant impacts of all the three reforms on injuries. We find that girls responded more to two first two reforms influencing alcohol availability, whereas boys responded more to the last reform, influencing availability of strong liquor. On the other hand, no consistent differences were found across different socioeconomic groups, perhaps reflecting similar patterns of drinking.
    Keywords: alcohol, minimum legal drinking ages, Difference-in-Differences, Denmark
    JEL: H00 I00 I12
    Date: 2020–06
  17. By: Aziz Berdiev; Rajeev K. Goel; James W. Saunoris
    Abstract: Adding to the emerging body of research related to the current coronavirus crisis, this paper studies the impact of disease epidemics on the worldwide prevalence of the shadow or the underground economy. The informal sector undermines compliance with government regulations and lowers tax collections. Our main hypothesis is that epidemics positively impacts the spread of the shadow economy. Using data on nearly 130 nations and nesting the empirical analysis in the broader literature on the drivers of the shadow sector, we find that both the incidence and the intensity of epidemics positively and significantly contribute to the spread of the underground sector. Numerically, a ten percent increase in the intensity of epidemics leads to an increase in the prevalence of the shadow economy by about 2.1 percent. These findings about the spillovers from epidemics have implications for economic policies in the current times of coronavirus.
    Keywords: shadow economy, epidemics, COVID-19, government, economic development
    JEL: I15 K42
    Date: 2020

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