1. Topic 8: Taxes, regulation, and government intervention

2. Dealing with Barriers Transfer pricing and tax evasion –Affiliate in high-tax country sells components at low price, minimizing profit there –Affiliate in low-tax country buys component, maximizing profit there Managing blocked currency funds –example: Pepsi Cola –example: Braniff Airlines

3. Taxation Why are there taxes? –Government spending –Inflation –Budget really is always balanced, either by taxes or inflation –Social engineering Different tax methods –Customs duties –Excise taxes & census taxes –Property taxes & poll taxes –Income tax (example: U.S.) –Sales tax –Value-added tax (examples: Germany, Japan, UK)

4. What Does Policy Impact? Regulatory Environment Government Spending –Consumption –Investment Locus of Decision-Making –Public Sector National State Local –Private Sector Issues: Efficiency, Effectiveness, and Fairness

5. Consequences of Poor Policy Economic inefficiency –Example: bank president cleans gutters –Example: highly-trained accountant mows lawn Slower growth Disincentives for investment Flight

6. Benefits of Good Policy Greater economic efficiency Faster growth Attract foreign investment Attract resources fleeing other countries