In this paper we show that the ability of multinational firms to manipulate transfer prices affects the tax sensitivity of foreign direct investment (FDI). We offer a model of international capital allocation where firms are heterogeneous in their ability to manipulate transfer prices. Perhaps...

This paper is concerned with the impact of tax sparing provisions on the location choices of multinational enterprises. Special attention is paid to the economic in°uence of tax sparing because the OECD proposal to reconsider the inclusion of this provision in bilateral tax treaties is highly...

We investigate the effect of a rise in non-wage labour costs (NWLC) on real manufacturing labour costs in OECD countries, taking into account the degree of coordination in the wage bargaining process. We find that, in countries in which wage bargaining is not highly coordinated, 55% of an...

Time-inconsistency is an essential feature of many policy problems (Kydland and Prescott, 1977). This paper presents and compares three methods for computing Markov-perfect opti- mal policies in stochastic nonlinear business cycle models. The methods considered include value function iteration,...

This paper studies the wasteful effect of bureaucracy on the economy by addressing the link between rent-seeking behavior of government bureaucrats and the public sector wage bill, which is taken to represent the rent component. In particular, public officials are modeled as individuals...

Motivated by the high public employment, and the public wage premia observed in Europe, a Real-Business-Cycle model, calibrated to German data (1970-2007), is set up with a richer government spending side, and an endogenous private-public sector labor choice. To illustrate the effects of fiscal...

Motivated by the highly-unionized public sectors, the high public shares in total em- ployment, and the public sector wage premia observed in Europe, this paper examines the importance of public sector unions for macroeconomic theory. The model gen- erates cyclical behavior in hours and wages...

This paper examines whether efficiency considerations require that optimal labour income taxation is progressive or regressive in a model with skill heterogeneity, endogenous skill acquisition and a production sector with capital-skill complementarity. We find that wage inequality driven by the...

Recent work on optimal monetary and fiscal policy in New Keynesian models suggests that it is optimal to allow steady-state debt to follow a random walk. Leith and Wren-Lewis (2012) consider the nature of the timeinconsistency involved in such a policy and its implication for discretionary...

This paper analyses optimal income taxes over the business cycle under a balanced-budget restriction, for low, middle and high income agents. A model incorporating capital-skill complementarity in pro- duction and differential access to capital and labour markets is de- veloped to capture the...