What Keynes would say about Japan

Keynesian macroeconomics

Keynesian macroeconomics (multiplier theory) had a pervasive influence on political debates over economic policies.

While economists' criticisms on the Keynesian theory were not influential, due to the theoretical arguments that Keynesian policy seems to make the economy get out of the recessive state easily. I use a simple but comprehensive macroeconomic model to introduce multiplier theory and its criticisms based on theoretical and empirical analyses.

"Taxing Multinationals: The Scope for Enforcement Cooperation"

co-written with Jean Hindriks.

Abstract: We present a tax-competition model with two policy instruments: the corporate tax rate and the tightness of tax enforcement (i.e., controls on profit shifting by multinational enterprises). Tougher enforcement increases the cost of profit shifting, and thus mitigates tax competition.

In a framework of noncooperative tax choices, we compare the equilibria of the noncooperative and cooperative enforcement choices. After showing that enforcement cooperation may not benefit the low-tax country, we indicate two drivers that promote enforcement cooperation.

The first driver of cooperation is complementarity (imperfect substitutability) of countries’ enforcement efforts, taking into account that dispersed enforcement efforts among the involved countries are less effective. We show that cooperation is more likely with greater enforcement complementarity.

The second driver of cooperation is tax leadership, which reduces the extent of disagreement on tax enforcement.