Propiedades mecánicas del concreto

In order to investigate the efficiency implications of lobbying, we first isolate the eco- nomic distortion due to non-cooperative governmental behavior and compare this af- terwards to the impact of political influence. In our model, this can be done by setting

θi

g equal to zero. In this case, each government is only concerned about its domestic

welfare and does not take into account the impact of its corporate taxation on the other jurisdiction. It is well known that the efficiency properties of the equilibrium tax rates can then be analyzed by investigating the fiscal externalities. These externali- ties describe the deviation from the cooperative tax policy that is chosen in order to maximize the joint welfare of the residents in the two jurisdictions without political

influence, which in our model is given byαiWi(τi, τj) +αjWj(τi, τj). We then find the fiscal externality in the symmetric equilibrium as

α∂W j ∂τi = α X g ∂W_gj ∂τi =α " nF z ∂Π ∂τi +n V 0 (y)dy j dτi # . (2.43)

According to equation (2.43), the fiscal externality can be divided in two parts, a negative income externality and a positive profit shifting externality. A rise in the corporate tax rate of country i reduces the after-tax profit of the multinational firm. Consequently, the first term reflects the associated decrease in the shareholders’ income in country j. However, a rise in (τi_{) increases profit shifting to the other country as}

well. As represented by the second term in (2.43), this constitutes a positive externality on country j as it broadens the tax base there. In comparison with the cooperative solution, the corporate tax rates are set inefficiently low (high) if the sum of these counteracting externalities is positive (negative). The efficiency implications of political influence can then be investigated when we compare the fiscal externality in (2.43) with the impact of political influence on the equilibrium corporate tax rates in (2.37).21 _For

the case of a symmetric equilibrium, this yields

α∂W j ∂τi (1−λ)≷θC ∂W_Ci ∂τi +θF " ∂W_Fi ∂τi +λ ∂W_Fj ∂τi # ≷0 ⇔ τ∗ _≷eτ _≷bτ , (2.44) where τ∗ and _bτ denote the corporate tax rate in the cooperative and non-cooperative equilibrium without political influence. We begin with the case of λ = 0, where all special interest groups are restricted to lobby only their domestic government. Follow- ing this, equation (2.44) shows that political influence can counterbalance the fiscal externalities in the non-cooperative equilibrium. For example, if the positive profit shifting externality dominates, we have α ∂Wj_/∂τi _{> 0 and thus, without political}

influence, inefficiently low tax rates. Moderate unilateral lobbying of domestic capital owners then improves efficiency as it increases the equilibrium corporate tax rate. In contrast, the corporate tax rate will be pushed even more in the direction of inefficiency 21_{Alternatively, rewriting (2.37) by adding∂W}j_/∂τi _{on both sides and employing symmetry gives}

α " ∂Wi ∂τi + ∂Wj ∂τi # =α∂W j ∂τi −θC ∂Wi C ∂τi −θF ∂Wi F ∂τi −λ " θF ∂W_Fj ∂τi +α ∂Wj ∂τi # .

In the cooperative equilibrium without lobbying, the left hand side of this equation has to be equal to zero. Consequently, the right hand side describes the deviations of the equilibrium corporate tax policy from the cooperative solution that are caused by the fiscal externality and political influence. Rearranging terms yields (2.44) as well.

if the firm owners are the only lobby group.22 Consequently, the overall impact of po- litical influence depends on the relative strength of the two lobbies. On the one hand, if θC∂WCi/∂τi < |θF∂WFi/∂τi|, the impact of corporate taxation on the organized

firm owners’ gross welfare dominates the effect on the capital owners’ lobby in the government’s first-order condition. Consequently, in this case the overall implication of political influence goes into the same direction as the fiscal externalities. On the other hand, ifθC∂WCi/∂τi >|θF ∂WFi/∂τi| the relation in (2.44) shows that lobbying

can improve the efficiency of corporate taxation. However, the impact of corporate taxation on the welfare of domestic capital owners receives a higher weight in the first- order condition of the government if the organizational degree of the lobby is large. As a result, ifθC∂WCi/∂τi+θF ∂WFi/∂τi > α ∂Wj/∂τi political influence pushes the

equilibrium corporate tax rate even above the efficient level. In that case, the efficiency implications of lobbying will be reversed. That is, political influence of the firm owners improves efficiency, whereas lobbying of the capital owners gives rise to inefficient over- taxation.23 _{However, in the case of α ∂W}j_/∂τi _{= θ}

C∂WCi/∂τi+θF ∂WFi/∂τi political

influence of the domestic residents fully internalizes the fiscal externalities.

For the case of α ∂Wj/∂τi < 0, the negative income externality predominates the positive profit shifting externality and we have inefficiently high tax rates in the non- cooperative equilibrium. Accordingly, the efficiency implications of political influence by the two residential groups will be the other way round. Moreover, note that we get

∂Wj_/∂τi _{= 0 if the two fiscal externalities in (2.43) outweigh each other. Without}

political influence, this implies that the corporate tax rates in the non-cooperative equilibrium are efficient. In that case, lobbying causes inefficient corporate taxation in the preferred direction of the politically stronger group. Finally, note from equation (2.37) that there will be no political distortion if θC = θF. This implies that the

efficiency properties will be unaffected by lobbying at all if the share of politically organized residents of both lobby groups is of an equal size.

For the case of λ = 1, we know that the externality from an increase in the corporate tax rate will already be taken into account by each government. Hence, the term on the left hand side in (2.44) vanishes, since international lobbying serves as an instrument to internalize the fiscal externality. Consequently, lobbying of the residents causes a deviation from the efficient corporate tax policy into the preferred direction of the po-

22_{Forλ= 0, note thatθ}

C∂WCi/∂τ i _=θ

CnCV0(y)dyi/dτi>0 and when we use condition (2.38),

we also haveθF∂WFi/∂τ i_{= [(α+θ} C)θFnCnF/β]z[dΠ/dτi]<0. 23_{Nevertheless, as long as 2α ∂W}j_/∂τi_{> θ} C∂WCi/∂τ i_+θ F∂WFi/∂τ

i_{, the corporate tax rate will}

still be closer to the efficient level than without political influence at all, i.e. |τ∗₋ e

τ|<|τ∗₋ b

litically stronger group, as shown by the right hand side in (2.44). However, in the case of λ = 1 this implies that the political opponent of the domestic capital owners becomes stronger as it now consists of the organized shareholders in both jurisdictions.24

Proposition 2.2

(a) Suppose that λ= 0.

(i) Ifα ∂Wj/∂τi = θC∂WCi/∂τi+θF∂WFi/∂τi >(<) 0, the fiscal externalities

will be fully internalized due to the political influence of domestic residents. (ii) If α ∂Wj_/∂τi _{> (<)θ}

C∂WCi/∂τi +θF∂WFi/∂τi > (<) 0, lobbying by do-

mestic capital (firm) owners improves the efficiency of corporate taxation, whereas lobbying by the firm (capital) owners pushes corporate taxation even more in the direction of inefficiently low (high) tax rates.

(iii) If θC∂WCi/∂τi +θF ∂WFi/∂τi > (<)α ∂Wj/∂τi > (<) 0, lobbying by do-

mestic firm (capital) owners improves the efficiency of corporate taxation, whereas political influence of the capital (firm) owners gives rise to ineffi- ciently high (low) tax rates.

(iv) Ifα ∂Wj/∂τi >(<) 0>(<)θC∂WCi/∂τi+θF∂WFi/∂τi, the overall impli-

cations of political influence aggravate the inefficiency in corporate taxation. (v) For α ∂Wj_/∂τi _{= 0, the equilibrium corporate tax rates will be inefficently}

low (high) if |θF ∂WFi/∂τi|>(<)θC∂WCi/∂τi.

(vi) The efficiency properties of corporate taxation are not affected by political influence if θC =θF.

(b) Suppose that λ = 1. The equilibrium corporate tax rates will be inefficiently low (high) if |θF(∂WFi/∂τi+∂W

j

F/∂τi)|>(<)θC∂WCi/∂τi.

So far, we have analyzed the structure and outcome of the political interaction of gov- ernments and special interest groups in terms of the equilibrium corporate tax policy. However, profit shifting and political influence can both be seen as instruments of tax avoiding behavior by a multinational firm. Hence, it seems reasonable to investigate their connection in more detail.

24_{Forλ= 1, note that using the government’s first-order condition in (2.38) yields θ}

F[∂WFi/∂τ i₊

∂W_Fj/∂τi_{] = (θ}