The State of Impact Investing in Latin America

This report lays out an assessment of the current landscape, some of the critical challenges ahead and the likely path forward over the next five 5 to 10 years on impact investing in Latin America

Tax Havens: International Tax Avoidance and Evasion

Addressing tax evasion and avoidance through use of tax havens has been the subject of a number of proposals in Congress and by the President. Actions by the Organization for Economic Cooperation and Development (OECD) and the G-20 industrialized nations also have addressed this issue. In the 111th Congress, the HIRE Act (P.L. 111-147) included several anti-evasion provisions, and P.L. 111-226 included foreign tax credit provisions directed at perceived abuses by U.S. multinationals. Numerous legislative proposals to address both individual tax evasion and corporate tax avoidance have been advanced. Multinational firms can artificially shift profits from high-tax to low-tax jurisdictions using a variety of techniques, such as shifting debt to high-tax jurisdictions. Because tax on the income of foreign subsidiaries (except for certain passive income) is deferred until income is repatriated (paid to the U.S. parent as a dividend), this income can avoid current U.S. taxes, perhaps indefinitely. The taxation of passive income (called Subpart F income) has been reduced, perhaps significantly, through the use of hybrid entities that are treated differently in different jurisdictions. The use of hybrid entities was greatly expanded by a new regulation (termed check-the-box) introduced in the late 1990s that had unintended consequences for foreign firms. In addition, earnings from income that is taxed often can be shielded by foreign tax credits on other income. On average, very little tax is paid on the foreign source income of U.S. firms. Ample evidence of a significant amount of profit shifting exists, but the revenue cost estimates vary substantially. Evidence also indicates a significant increase in corporate profit shifting over the past several years. Recent estimates suggest losses that may approach, or even exceed, $100 billion per year. Individuals can evade taxes on passive income, such as interest, dividends, and capital gains, by not reporting income earned abroad. In addition, because interest paid to foreign recipients is not taxed, individuals can evade taxes on U.S. source income by setting up shell corporations and trusts in foreign haven countries to channel funds into foreign jurisdictions. There is no general third-party reporting of income as is the case for ordinary passive income earned domestically; the Internal Revenue Service (IRS) relies on qualified intermediaries (QIs). In the past, these institutions certified nationality without revealing the beneficial owners. Estimates of the cost of individual evasion have ranged from$40 billion to $70 billion. The Foreign Account Tax Compliance Act (FATCA; included in the HIRE Act, P.L. 111-147) introduced required information reporting by foreign financial intermediaries and withholding of tax if information is not provided. These provisions became effective only recently, and their consequences are not yet known. Most provisions to address profit shifting by multinational firms would involve changing the tax law: repealing or limiting deferral, limiting the ability of the foreign tax credit to offset income, addressing check-the-box, or even formula apportionment. President Obama’s proposals include a proposal to disallow overall deductions and foreign tax credits for deferred income, along with a number of other restrictions. Changes in the law or anti-abuse provisions have also been introduced in broader tax reform proposals. Provisions to address individual evasion include increased information reporting and provisions to increase enforcement, such as shifting the burden of proof to the taxpayer, increased penalties, and increased resources. Individual tax evasion is the main target of the HIRE Act, the proposed Stop Tax Haven Abuse Act, and some other proposals

The Eastward Enlargement of the Eurozone: Trade and FDI

Trade and FDI, Economic Integration

EQUITY AND RATE OF RETURN: ARE SMALL MANUFACTURING FIRMS HANDICAPPED BY THEIR OWN SUCCESS?

From a french pannel of manufacturing firm, this article aims to show that the terms of the debate on the capitalization of small manufacturing firms ought to be clarified. These firms are often said to be undercapitalized, because in relative terms their capital spending is often similar, or even greater, than that of their larger competitors. This means that their earnings are depleted by the higher depreciation charges for maintaining their fixed assets. Undercapitalization is also due to the fact that firms in this category have poor access to capital markets.equity, rate of retrurn, accumulation, sme's

MODELS FOR MEASURING THE RESEARCH PERFORMANCE AND MANAGEMENT OF THE PUBLIC LABS

The science sector, in some European countries, is doing a strategic restructuring due to budget cuts (e.g. Italy). Thus, the measure and evaluation of research performance (metrics) of its units (public research institute) is needed. General models to assess the R&D performance of a public research lab are presented here. The methodology uses the discriminant analysis and the results are two canonical discriminant functions (direct and Wilks methods) that could provide indications about the performance of research bodies. The functions are successfully applied to 200 public research institutes belonging to the Italian National Research Council. These functions are also tools for appropriate decisions and actions to improve research performance, especially by the more effective use of existing resources and for reducing the X-inefficiency. Some policy and management implications are discussed.Research performance, Performance measurement, Performance indicators, R&D evaluation, Public research lab, Discriminant analysis, X-inefficiency

Do procurement rules impact infrastructure investment efficiency ? an empirical analysis of inversao das fases in Sao Paulo state

As a means to reduce delays in public works implementation, a number of Brazilian states have recently reformed their procurement rules allowing contractor price proposals to be assessed before the technical evaluation of submitted bids is undertaken (in a procedure known as inversao das fases). In order to evaluate the effects of such reform, this paper adopts a difference-in-differences methodology to compare the procurement performance of Sao Paulo state (a reformer state) and Minas Gerais'(a non-reformer state) largest water and sewage utility along three efficiency dimensions: (i) procurement process duration; (ii) likelihood of complaint resolution litigation; and (iii) prices paid to contractors. The analysis finds that the reform is associated with a 24 day reduction in the duration of procurement processes for large projects and a 7 percentage point drop in the likelihood of court challenges irrespective of project size. Although both effects are economically important, only the latter is statistical significant. Finally, the paper finds no evidence of an effect of the procurement reform on prices paid.Government Procurement,E-Business,Public Sector Corruption&Anticorruption Measures,Contract Law,Investment and Investment Climate

Performance Evaluation with Stochastic Discount Factors

We study the use of stochastic discount factor (SDF) models in evaluating the investment performance of portfolio managers. By constructing artificial mutual funds with known levels of investment ability, we evaluate a large set of SDF models. We find that the measures of performance are not highly sensitive to the SDF model, and that most of the models have a mild negative bias when performance is neutral. We use the models to evaluate a sample of U.S. equity mutual funds. Adjusting for the observed bias, we find that the average mutual fund has enough ability to cover its transactions costs. Extreme funds are more likely to have good rather than poor risk adjusted performance. Our analysis also reveals a number of implementation issues relevant to other applications of SDF models.