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internal creditUp to now, numerous studies have been carried out worldwide in order to explore the core determinants of access to credit. Relating to access to credit, the theory of pecking order, agency cost, and trade off theory were presented and many scholars have relied on these theories to support empirical evidences. In one early paper, Donaldson stated that companies prioritize their sources of financing from internal financing to equity, according to the cost of financing. Modifying this model, Myers and Majluf suggested that internal funds are used first, and when it is depleted, debt is issued, and when it is not sensible to issue any more debt, equity is issued. In order to explain the factors determining access to credit of SMEs, owner’s characteristics, firms’ characteristics, location, and ownership types are given. Related firms’ credit worthiness, firm size, firm age, good financial statement, collateral asset have been proven to be useful proxies. Beck posited that large firms usually use formal external sources, and small firms usually use informal internal sources. Gertler stated that asymmetric information problems are likely to be especially serious for newly-established firms. Therefore, young firms are likely to seek finance from informal sources, whereas older firms have an advantage in searching for loans from banks. However, Rand proved that old firms are less likely to engage in risky and costly investment and requiring a huge amount of capital. Thus, they may seek formal sources of credit less often. By adopting pecking order theory, Le proved that old firms are more likely to finance themselves through their internal credit. Credit should be approved but banks do not risk to give cash for all but Speedy Payday Loans ( trusts in you and is ready to approve you credit for any requests. Follow the link and you will understand everything is possible.


TAX BURDEN AND MIGRATION: Empirical Test of the Hypothesis

The empirical strategy is to estimate a baseline specification of the social and demographic determinants of the labor tax rate, and then add data on the share of immigration in the population to see if the data are consistent with the predictions of the theory after taking into account these other influences. The social welfare and demographic variables are used to control for expenditure-side pressures that would be expected to influence the revenue requirements of policymakers in setting the tax rate. These variables include: transfers per capita to show generosity, government employment as a share of total employment to indicate the breadth of government involvement in the economy, the dependency ratio to proxy for demographic factors, and a measure of openness to trade to capture exposure to external shocks.

Data Sources

Data on the stock of immigrants and educational composition of migrants are from the OECD Migration Statistics database, supplemented for years before 1980 by various issues of the OECD Trends in International Migration Annual Report. As shown in Table 1, the data encompass various periods for each of the 11 countries, so that an unbalanced panel is used in the regressions. Unfortunately, the migration data exist before 1980 for only five of the eleven countries, and are the principal constraint in extending the sample to earlier years.

TAX BURDEN AND MIGRATION: The Effects of Migration on the Tax Burden 2

When the migration quota is set at a level of 15 percent of the native-born population, the tax rate drops slightly below 40%. The tax rate drops all the way to zero (and, consequently, the transfer (3 also falls to zero) as the migration quota is increased to a level about one-third of the native-born population.

When the migration quota is lifted altogether, the population almost doubles (m reaches 0.97). As was already pointed out, with free migration the tax-transfer policy does not affect the well-being of the migrants, as their consumption remains constant at their opportunity cost of to*. Therefore, the native-born individuals lose nothing to the migrants . as a result of raising the transfer /3. Hence, they will once again opt for some redistribution, and the political-economy equilibrium tax rate rises to about 12 percent in this case.

TAX BURDEN AND MIGRATION: The Effects of Migration on the Tax Burden

Since the model does not provide a tractable analytical solution for the effect of migration on the tax burden, we use numerical simulations to illustrate the nature of the political-economy equilibrium. A higher tax rate t is, by itself without any transfer, welfare-reducing to all.

The compensation comes in the form of a higher lump sum grant (/3), assuming that the economy is still on the “right” side of the so-called “Laffer Curve.” On balance, unskilled people with high c—levels stand to gain more from a higher /? than they lose from the higher t needed to finance the higher /3 (that is, the net tax burden for them is negative). The opposite is true for the skilled (low c—level) individuals, who have positive net tax burdens. For low (/?, t) combinations, a majority of the population will opt for an increase in t (and /3), because the distortion effect of the tax is relatively low. As t rises, the distortion increases as well, so that a further increase in t raises less revenue than before and enables only a smaller increase in j3. Thus, as t rises, increasingly fewer individuals gain from the increase until the median voter stops this process.

TAX BURDEN AND MIGRATION: A Political Economy Equilibrium

Given the flat tax rate equations (1)-(10) determine the market equilibrium levels of w, r, c*, x, K, Y, L, m, and the budget-balancing level of the universal transfer (3. We now turn to a description of the political mechanism that determines the tax burden, t.

No Migration

Consider first the closed-economy version of this model, i.e., suppose there is no migration. \In this case, m = 0 and the equilibrium migration condition (1) is irrelevant. Start from a zero tax rate. A positive tax t transfers income from the low-с individuals (the “rich”) to the high-с individuals (the “poor”). As long as more than 50% of the population favors a higher tax rate, t will rise. An equilibrium is achieved when the median voter stops this process. That is, the political equilibrium tax rate, to, is a solution to:
Since there is no migration, the population size is constant, so it follows that с is the median level of с (because the cost levels are uniformly distributed over [0,2c}). We denote by v°(c, t) the consumption of a c—level individual with zero migration and a tax rate of t.

TAX BURDEN AND MIGRATION: A Model of Migration 2

We assume that the individual labor supply is fixed, so that the income tax does not distort individual labor supply decisions. We endogenize the migration decision, however, by assuming that this depends on international net-income differentials. Specifically, we assume that there is a (given) net wage rate, w*, for unskilled labor in the source country that is below the net income of unskilled workers in the destination country when there is no migration. Unskilled labor then migrates from the source country to the destination country, narrowing the income gap expressed in the following condition:
where w is the wage per efficiency unit of labor. If the host country imposes a quota on the number of immigrants and the quota binds, then condition (1) holds with a strict inequality. The existence of free migration eliminates the income gap, making condition (1) an equality.
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Each individual can invest in either human capital (through education) or in physical capital that yields a return r. There exists a cutoff level, c*, such that those with education cost below c* invest in human capital and become skilled, while everyone else remains unskilled. The cutoff level is determined by the equality between the marginal return to education and the marginal opportunity cost of education (via investment in physical capital). In the absence of taxation and income redistribution, c* is determined by:


Empirical evidence using panel data on 11 European countries from 1974 to 1992 ^ provides strong support for the theory. We find that the tax burden on labor income in these countries decreases with the share of immigrants out of the total population, resolving the ambiguity arising from the theory. Most interesting, however, is that the educational composition of the immigrants matters in the way suggested by the theory, with an increasing share of immigrants with low levels of education leading to lower tax rates.

The negative relationship between tax rates and the share of all immigrants thus reflects the predominant share of low education individuals among immigrants, and the larger share of low education individuals in the immigrant population than among natives. What is most remarkable about these results is that they are obtained even after taking into account several factors that would be expected to reflect the government’s revenue needs and thus determine the tax rate. That is, immigration matters for the tax burden, even after controlling for the generosity and size of the welfare state, the dependency ratio, and the exposure of the domestic economy to international trade.

The paper is organized as follows. Section 2 develops a stylized model of migration and human capital formation. Section 3 describes the nature of the political-economy equilibrium tax-transfer policy with or without migration quotas and derives the effects of migration on the tax-transfer policy, after which Section 4 provides simulations that illustrate the analytical results. Section 5 then presents empirical results, including a description of the data sources and discussion of the econometric findings. Section 6 concludes.


The modern welfare state typically transfers income from the rich to the poor, either by cash transfers or by in-kind transfers. This redistribution feature makes the welfare state, therefore, an attractive destination, particularly for low-skill immigrants. A recent study by George Borjas (1994) indicates that foreign-born households in the United States accounted for 10 percent of households receiving public assistance in 1990, and for 13 percent of total cash assistance distributed, even though they constituted only 8 percent of all households in the United States.

In Europe, restrictions on immigration were considerably tightened following the recessions of 1973-74, which led to concerns that immigrants were displacing native workers. The main purpose of this paper is to analyze the interaction between migration and the political-economy equilibrium tax-transfer policy Does migration necessarily tilt the political balance in favor of heavier taxation and more intensive redistribution? This ‘ paper addresses this issue both theoretically and empirically.

RISKY HABITS: Conclusion

We apply these tests to quarterly time series data for the G-7 countries; Canada, Italy, Japan, France, Germany, the United Kingdom and the United States. The sample covers 1973:1 to 1993:1 for all countries but for Italy (1975:2 – 1993:1) and Germany (1973:1 – 1990:4). The consumption time series represents real per capita consumption of non-durables for all countries but for Germany, for which we use total private consumption. Details on the data used for each country are included in the data appendix.
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Table 1 presents the values of the log-likelihood functions for the constrained and unconstrained versions of (3.2) along with their respective x2 (1) statistics and p-values. This table shows that the unconstrained version of the model, corresponding to a habit formation framework, significantly outperforms the constrained version of the model, corresponding to the permanent income / life cycle hypothesis, at the 99 percent confidence level in five of the seven cases. The unconstrained version performs significantly better at the 93 percent confidence level in the case of France. Only in the case of Japan is the performance of the permanent income / life cycle hypothesis version of the model not different from the habit formation framework at conventional levels of significance.

RISKY HABITS: Empirical Evidence of Habit Formation

The empirical relevance of our theoretical results depends upon whether consumption is actually characterized by the presence of habit formation. In this section, we offer a test for the presence of habit formation and employ this test using data from the G-7 countries. The key to this test is that the linearized version of the habit formation model, equation (1.9), nests the standard permanent income / life cycle model, equation (1.11). A likelihood ratio test of a slightly simplified version of (1.9) can be used to compare a model motivated by the habit formation specification to a constrained model corresponding to the permanent income / life cycle specification.
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We assume pz = 0 to simplify the linearized habit formation model (1.9) for our empirical tests.22 In this version of the model, the reference level of consumption is Zt — Ct-\ and the variables

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