The remedy may be worse than the disease; a critical account of The Code of Conduct

The Code of Conduct for business taxation may, diametrically opposed to its intention, aggravate tax competition between EU Member States. The reason is that it induces, by restricting harmful tax practices, cuts in generic tax rates that may reduce tax revenue even further. If one presupposes a benevolent utility maximising government, then this worsens the underprovision of public goods. We show within a standard tax competition framework that this scenario is more likely to unfold with a higher upper bound for nondistortionary taxes, a higher responsiveness of mobile capital to tax rate differentials, and a smaller endowment of internationally mobile capital.

How mobile is capital within the European Union?

The key result of the tax competition literature is that governments set inefficiently low tax rates on income from internationally mobile production factors. Therefore, there is a case for coordination of EU capital income taxes, provided that capital is mobile within the EU. We measure how the international allocation of capital depends on taxation by examining the relation between FDI positions and effective corporate income tax rates. An EU country typically increases its FDI position in another EU country by approximately four percent if the latter decreases its effective corporate income tax rate by one percentage point relative to the EU mean. This conditionally support the recent efforts of the EU to coordinate capital income taxation. The benefits or costs of tax coordination ultimately depend, however, on whether one views the government as a social welfare maximising agent or tax revenue maximising leviathan.

Investment risk taking by institutional investors

This paper is the first that formally compares investment risk taking by pension funds and insurance firms. Using a unique and extended dataset that covers the volatile investment period 1995-2009, we find that, in the Netherlands, insurers take substantially less investment risk than pension funds, even though a market risk capital charge for insurers is yet absent. This result can be explained from financial distress costs, which only insurers face. We also find that institutional investors' risk taking is determined by their risk bearing capacity, where this risk bearing capacity depends on capital, size, reinsurance, underwriting risk and human and financial wealth per pension plan participant. Finally, and in line with the ownership structure hypothesis, stock insurers are found to take significantly more investment risk than mutual insurers.Portfolio Choice, Insurance Companies, Pension Funds, Ownership Structure

The impact of labour market deregulation: lessons from the "Kiwi" and "Polder" models

Unemployment remains a major economic and social problem in many developed economies. This paper provides theoretical and empirical perspectives on the impact of labour market deregulation as a means of combatting unemployment and of enhancing competitive wage determination. The paper focusses specifically on The Netherlands and New Zealand, two small open economies in which unemployment rates reduced to half their respective previous peaks during the last decade. The labour market policies that contributed to this outcome are referred to as the "Polder" model and the "Kiwi" model respectively. Despite some similarities, there are significant differences between the models. These are highlighted in the paper. Methodological issues regarding empirical tests of the impact of labour market deregulation measures are also addressed. The paper concludes with a survey of remaining research issues.

Agglomeration economies in the Netherlands

In this paper we measure the strength of agglomeration economies on the basis of Dutch regional data. The drift to the city has been going on for hundreds of years. As a result, most economic activity is concentrated in small geographical areas. The advantages of proximity of people and firms go under the name 'agglomeration economies'. We regress regional labour productivity on a set of agglomeration indices, and find evidence for a productivity effect of concentration of production with a malus for industrial variety. Thus, the evidence supports Marschall-Arrow-Romer economies. The evidence does not support, however, Jacobs economies, nor variants of the Creative Class Hypothesis.

On the regulation of unobserved emissions

Regulation of nonpoint source pollution often relies in one way or another on policy instruments based on ambient indicators. For well-known reasons, enforcement of ambient-based policies is, at best, limited. If no individual choices or actions are observed, than ambient-based regulation might be the only feasible approach. Often, some relevant individual indicators, such as output or certain inputs, are observable. For such cases, we offer a regulation mechanism that does away with ambient indicators. The mechanism implements the optimal output-abatement-emission allocation and gives rise to the full information outcome when the social cost of transfers is nil. Special attention is given to the regulation of (unobserved) abatement.Nonpoint source pollution, abatement, asymmetric information, regulation mechanism, implementation., Environmental Economics and Policy,