Vol. 22, No. 1

Alfons J. Weichenrieder:
A Note on Local Public Investment and Debt Limitation in a Federation (pp. 3–8)


The paper considers the local provision of public infrastructure in symmetric jurisdictions when population is mobile. It shows that an inflexible deficit limitation may result in too little local public investment if the population is mobile. Conversely, given the existence of migration externalities, implementing Musgrave’s pay as you use finance, according to which new debt should match net investment, can lead to optimal local investment.

(JEL: H74, H54)

Andreas Pfingsten and Reiner Wolff:
Factor Supply Changes in Small Open Economies: Rybczynski Derivatives under Increasing Marginal Costs (pp. 9–20)


We discuss the validity of Rybczynski’s theorem under increasing marginal costs within firms or industries. In particular, we show that an extra supply of any factor may lead to an expansion of all sector outputs if at least one sector permits input substitution. We provide a corresponding necessary and sufficient condition. This condition can even be satisfied when the equilibrium is Walrasian and Marshallian stable. Our findings are also robust with respect to aggregate improvements in total factor productivity which raise the economy’s outputs beyond private returns.

(JEL: D50, F11)

Hovick Shahnazarian:
Does Tax Debt Capacity Matter? (pp. 21–30)


Nordic corporations to a large extent both pay corporate tax and abstain from utilizing their depreciation allowances to the maximum extent possible. In this paper, we attempt to explain the empirical observation that most firms fails to maximize their tax usage. The model employed takes into account the argument that shareholders for some non-tax reasons have a preference for dividends over retained earnings. Furthermore, we also investigate whether a policy of not claiming the maximum amount of depreciation allowances could be value maximizing for the firm.

(JEL: G30, G31, G32, G35, G39, H25)

Finnish Economic Papers 1/2009