Differential Games in Economics and Management Science: Stochastic differential games

http://www.socialpolitik.ovgu.de/sozialpolitik_media/papers/Runkel_Marco_uid61_pid33.pdf

Firms’ financial choices and thin capitalization rules under corporate tax competition

This paper explores the role of internal debt as a vehicle for shifting profi ts to lowtax countries. Using data on German multinationals, it exploits differences in taxes in more than 100 countries over 10 years. The results confi rm that internal debt is used more by multinationals with affi liates in low-tax countries and increases with the spread between the host-country tax rate and the lowest tax rate among all affi liates. However, tax effects are small, suggesting that profi t shifting by means of internal debt is rather unimportant for German fi rms. Further testing indicates that this is partly due to the German controlled foreign corporation (CFC) rule.

http://www.ntanet.org/NTJ/66/1/ntj-v66n01p63-95-internal-debt-multinational-profit.pdf

Internal debt and multinational profit shifting: empirical evidence from firm-level panel data

Using a firm-level panel dataset covering the universe of Danish exports between 1999 and 2006, we find robust evidence for profit shifting by multinational corporations (MNC) through transfer pricing. Our triple difference estimation method corrects for a downward bias in previous studies. The bias results from MNCs adjusting their arm's length prices to obscure the extent of their transfer price manipulations. Our identification strategy exploits the movement in export prices to a destination in response to: (1) the establishment of a foreign affiliate by an exporter to that destination, and (2) a change in the foreign corporate tax rates. Once owning an affiliate in a country with a corporate tax rate lower than in the home country, Danish multinationals reduce the unit values of their exports there between 5.7 to 9.1 percent, on average. This reduction corresponds to $141 million in underreported export revenues in year 2006, which translates into a loss in tax income equal to 3.24 percent of Danish MNCs' tax returns.

Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships

We study whether the corporate tax system provides incentives for risky firm investment. We analytically and empirically show two main findings: first, risk-taking is positively related to the length of tax loss periods because the loss rules shift some risk to the government; and second, the tax rate has a positive effect on risk-taking for firms that expect to use losses, and a weak negative effect for those that cannot. Thus, the sign of the tax effect on risky investment hinges on firm-specific expectations of future loss recovery. JEL Classifications: H25; H32; G32.

/pdf/taxation-and-corporate-risk-taking-177il4u30f.pdf

Taxation and Corporate Risk-Taking

https://www3.nd.edu/~tgresik/EER/Eggert.pdf

Corporate taxation, debt financing and foreign-plant ownership

This paper investigates how two distinctive features of the German corporate governance system—concentrated ownership structure and representation of employees on firm supervisory boards—influence the sensitivity of managerial pay to firm profitability. There is a positive, though very small, link between pay and profitability for widely held firms. The presence of a largest owner seems hardly to affect this link in any economically significant way. However, the link between pay and profitability is smaller and indeed not significantly different from zero in firms whose largest owner is a German financial institution. This suggests that large owners tend to act as a substitute for rather than a complement to performance related pay in Germany.

Corporate governance and pay for performance: evidence from Germany

We introduce a common-pool contest into a continuous-time, differential game setting to model the dynamic behavior of agents facing a trade-off between socially productive activities and appropriation. We are able to identify multiple Markov perfect equilibrium strategies that are nonlinear in a state space, thus leading the economy to a state where epartial cooperation f occurs. We show that such cooperation can be seen as a response to conflict. We also discuss the consequences of changes in the effectiveness of appropriation, the number of contenders, and the rate of time preferences on contest equilibria.

/pdf/a-dynamic-model-of-conflict-and-cooperation-2i4k6j241a.pdf

A Dynamic Model of Conflict and Cooperation

The object of the paper is to investigate the dynamic behavior of contenders in a situation where each faces a trade-off between productive and appropriative activities. To this end, we extend the oneshot contest game presented by Hirshleifer (1991, 1995) and Skaperdas (1992) to the continuous-time dynamic game with the help of a differential game. We find that there may be multiple Markov perfect equilibria, but there are the only two long run equilibrium, one of which is a full fighting equilbrium and another is a partial cooperation equilbrium. We also conduct a comparative statics analysis on how alternations in the effectiveness of fighting technology, the number of contenders, and the rate of time preferences affect the long run

http://coe.math.sci.hokudai.ac.jp/research/advanced/08.pdf

Wolfgang Eggert

Papers

Corporate taxation, debt financing and foreign-plant ownership

Corporate governance and pay for performance: evidence from Germany

A Dynamic Model of Conflict and Cooperation

AD ynamic Model of Conflict and Coordination