Foreign Investment and Environment in a North-South Model

Valerica Vlad^a and Sajal Lahiri^b*
aPenn State Erie, The Behrend College
^bSouthern Illinois University Carbondale

Abstract

We develop a North-South model with cross-border pollution. In the South, pollution is abated by both private producers and the public sector. The North suffers from cross-border pollution from the South. The policy instruments are foreign aid for the North, and funds for public abatement, emission tax rate, and a tax on foreign capital, for the South. We characterize the Nash equilibrium under two scenarios: foreign investment is (i) exogenous, and (ii) endogenous. Under (i), we examine the effect of a reform where both foreign investment and aid are changed in an income-neutral way. In the latter case, we analyze the effect of a tax-induced change in foreign investment on pollution. In both scenarios, an inflow of foreign investment unambiguously reduces the net emission of pollution.

JEL Classifications: Q28, F35, H41

Keywords: cross-border pollution, foreign investment, foreign aid, public pollution abatement, private pollution abatement

Tax Evasion and the Optimal Tax Treatment of
Foreign-Source Income

Xiwen Fan^a and John Douglas Wilson^b*
aRadian Asset Assurance Inc.
^bMichigan State University

Abstract

This paper models a capital-exporting country that encounters difficulties in taxing foreign-source income, due to tax evasion problems. The paper compares the country’s optimal effective tax rates on the income from capital invested at home and abroad (including penalties levied on detected tax evaders). It finds that tax evasion abroad does not provide a justification for a relatively low effective rate on foreign-source income. Under a variety of circumstances, foreign-source income should actually be taxed at a relatively high effective rate, regardless of the severity of tax evasion problems abroad. However, tax evasion abroad does tend to reduce the optimal taxation of capital income both at home and abroad.

JEL Classification: H21, H25, H26, H87

 Incentives Towards Economic Integration
as the Second-best Tariff Policy

Kazuharu Kiyono^*a
aWaseda University

Abstract

Economic integration such as free trade areas (FTAs) and customs unions (CUs) allows importing countries to circumvent the constraint of non-discriminatory tariffs posed by the most favored nation clause in WTO and to employ (incomplete) tariff discrimination. Thus the second-best choice for the importing country, if it does regional integration, is to choose as the partner the exporting country that would have been subject to the lower tariff under the full tariff discrimination. Regardless of the mode of competition, we will find that such a partner tends to be less efficient than other exporting countries, which implies that voluntary regional integration leads the world economy to less efficient resource allocations.

JEL Classifications: F12, F13, F15

The Effects of Deferred Compensation and
Performance-based Compensation on Firm Value

Dong Heon Byun^a, Jinbae Kim^*b and Joon Yong Shin^b
aAgricultural and Fishery Marketing Corporation
^bKorea University

Abstract

This study empirically investigates the effects of two incentive systems: (i) the deferred compensation system, which involves paying lower (higher) compensation than the industry average during employees’ early (later) service periods; and (ii) the performance-based compensation system. Empirical results using employee-wage data from Korean firms show that both the deferred compensation system and the performance-based compensation system have positive associations with firm value measured by Tobin’s Q. However, the associations between the two types of incentive system and other value-relevant factors are not uniform. While the deferred compensation system contributes to the enhancement of ROA and an improvement in labor productivity, the performance-based compensation system stimulates sales growth.

JEL Classifications: J31, M52

Impact of Audit Fee Deregulation on
Audit-market Competition

Wen-Jing Chang^a, Yahn-Shir Chen^*b and Meng-Pei Chan^c
aNational Changhua University of Education
^bNational Yunlin University of Science and Technology
^cDeloitte & Touche, Taiwan

Abstract

In 1998, the audit fee standard was abolished by the Fair Trade Commission of Taiwan. This study aims to investigate the effects of the cancellation of the audit fee standard on audit-market competition of public companies during 1994–2002. The results indicate that after the event, the auditor excess entry rate, auditor excess exit rate and audit-market-share mobility all increased, which is consistent with the prediction of enhanced audit-market competition.

JEL Classifications: M42

Exploring the Effects of China’s Two-tier
Board System and Ownership Structure on Firm
Performance and Earnings Informativeness

Stella Cho^a* and Oliver M. Rui^b
aUnited International College, Beijing Normal University-Hong Kong Baptist University
^bThe Chinese University of Hong Kong

Abstract

This study empirically explores whether, and how, selected attributes of China’s two-tier board system affect Chinese firms’ performance and earnings informativeness. Using a database of 4,623 firm-year observations over the 1999 to 2003 period, we find some effects that mirror ones reported in non-Chinese settings, such as positive correlations between firm performance and the proportion of independent board of directors members (BoD) and the frequency of supervisory committee (SC) meetings; as well as positive correlations between earnings informativeness and the proportions of independent BoD and SC members. These exploratory findings provide impetus for further research in the Chinese setting.

JEL Classifications: M40, G30