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Jordan Barry

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Saint Mary's University (Canada)

The University of Sheffield

Armando Marques-Guedes

UNL - New University of Lisbon

Johannes Preiser-Kapeller

Austrian Academy of Sciences

Robert Kozinets

University of Southern California

ESSEC Business School

University of Sarajevo

Mochammad Fahlevi

BINUS University

Nanyang Technological University

Hercules Haralambides

Université Paris 1 - Panthéon-Sorbonne

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Papers by Jordan Barry

Takeover defenses: the lay of the land and disputed sign posts

Edward Elgar Publishing eBooks, Sep 30, 2016

Takeover defenses have long been a topic of considerable interest to scholars of finance and corp... more Takeover defenses have long been a topic of considerable interest to scholars of finance and corporate law. Yet the significant amount of attention that researchers have lavished on the topic have produced surprisingly little scholarly consensus. This chapter considers a number of major topics related to takeover defenses, including the importance and effects of poison pills and staggered boards, the causes and consequences of firms' varied levels of takeover defenses, the connection between takeover defenses and corporate myopia, and the implications of empty voting for takeover defense law and policy. In doing so, it provides an overview of some of the major results and ongoing debates in this sphere, some of the works driving those debates, and areas that seem likely to receive increased attention in the future.

Shareholder Decisionmaking in the Presence of Empty Voting and Hidden Ownership

Social Science Research Network, 2014

We consider securities markets in which economic interests in firms and shareholder voting rights... more We consider securities markets in which economic interests in firms and shareholder voting rights are traded independently; such markets allow for "empty voters" who hold voting rights in a firm that exceed their economic interests. We demonstrate that, in such settings, competitive equilibria generally do not exist and may be inefficient even when they do exist. As the competitive equilibrium solution concept does not provide useful predictions in the presence of empty voting, we focus on cooperative game-theoretic "core outcomes." We show that core outcomes always exist, are always efficient, and can be reached from any initial allocation through voluntary trading; moreover, at a core outcome, agents have efficient incentives with regards to information revelation.

Taxation and Innovation

Empty Voting and Social Welfare

Social Science Research Network, 2012

ABSTRACT Recent work (Hu and Black (2005, 2007, 2008); Dekel and Wolinsky (2012)) has detailed th... more ABSTRACT Recent work (Hu and Black (2005, 2007, 2008); Dekel and Wolinsky (2012)) has detailed the twin issues of empty voting and hidden/morphable ownership. The former arises when an actor has control rights over a corporation but no economic interest in that corporation, such as when an investor borrows shares. The latter arises when a shareholder has an economic or voting interest in a corporation but avoids regulatory disclosure requirements through derivatives transactions. Both offer significant challenges to financial regulatory systems.The lack of a framework for analyzing the problem has hindered attempts to respond to these challenges. Most economic models of financial markets do not incorporate control rights. And, once control rights are introduced, the standard competitive equilibrium concept is unsatisfactory: We show that once control rights are introduced, competitive equilibria may fail to exist and may be inefficient if they do exist. Allowing the transfer of control rights, such as through transactions in corporate stock, only exacerbates the problem. We show that if control rights may be traded independently of economic ownership rights - as modern derivatives markets increasingly allow - competitive equilibria essentially never exist.We propose an alternative equilibrium concept, the Core Outcome. A Core Outcome consists of an allocation of economic ownership, an allocation of control rights, and a set of voting behaviors such that no group of actors can improve the utility of its members by deviating. We show that Core Outcomes have several desirable properties as an equilibrium concept: They always exist, are always efficient, and can be reached through voluntary trading. Our model has strong implications for the regulation of securities markets in general and of derivatives markets in particular. We conclude that there are strong efficiency justifications in favor of an effective mandatory disclosure regime. We also find that, in certain circumstances, empty voting can act as a backstop to public regulation, allowing private actors to block socially inefficient actions that public regulation would permit.

To Thine Own Self Be True? Incentive Problems in Personalized Law

Social Science Research Network, 2020

Recent years have seen an explosion of scholarship on "personalized law." Commentators foresee a ... more Recent years have seen an explosion of scholarship on "personalized law." Commentators foresee a world in which regulators armed with big data and machine learning techniques determine the optimal legal rule for every regulated party, then instantaneously disseminate their decisions via smartphones and other "smart"

Pills and partisans: Understanding takeover defenses

University of Pennsylvania Law Review, Feb 1, 2012

defenses benefit or harm target corporations' shareholders or society generally. Much of the disa... more defenses benefit or harm target corporations' shareholders or society generally. Much of the disagreement surrounding takeover defenses stems from the lack of a fully developed formal analytical framework for considering their effects. Our Article presents several formal models built upon a common core of assumptions that together create such a theoretical framework. These models incorporate the reality that target corporate insiders have superior information about the target but are imperfect agents of its shareholders. They suggest that modern defenses enable target shareholders to extract value from acquirers by empowering corporate insiders, but that takeover defenses do not benefit society as a whole. They also help explain why corporations with different characteristics may choose to adopt varying levels of takeover defenses. Our findings have implications for the longstanding debate about who is best served by state-level control of corporate law and the desirability of increased federal involvement in corporate law.

When Second Comes First: Correcting Patent's Poor Secondary Incentives Through an Optional Patent Purchasing System

Social Science Research Network, Aug 18, 2011

As research has advanced, technologies have become more closely knit, and the relationships betwe... more As research has advanced, technologies have become more closely knit, and the relationships between them-both complementary and competitive-have become increasingly important. Unfortunately, the patent system's use of monopoly power to reward innovators creates inefficient results by overly encouraging the development of substitute technologies and discouraging the development of complementary technologies. This paper explains how an optional patent purchase system could help ameliorate such problems and discusses the implications of such a system.

Explanation of Issues in PPL Corporation v. Commissioner of Internal Revenue

Social Science Research Network, Feb 19, 2013

ABSTRACT

On Derivatives Markets and Social Welfare: A Theory of Empty Voting and Hidden Ownership

Social Science Research Network, 2012

The prevailing view among many economists is that derivatives markets simply enable financial mar... more The prevailing view among many economists is that derivatives markets simply enable financial markets to incorporate information better and faster. Under this view, increasing the size of derivatives markets only increases the efficiency of financial markets. We present formal economic analysis that contradicts this view. Derivatives allow investors to hold economic interests in a corporation without owning voting rights, or vice versa. This

Coasean Keep-Away: Voluntary Transaction Costs

Social Science Research Network, 2014

ABSTRACT The Coase Theorem predicts that, if there are no transaction costs, parties will always ... more ABSTRACT The Coase Theorem predicts that, if there are no transaction costs, parties will always contract their way to an efficient outcome. Thus, no matter which legal rules society chooses, &quot;Coasean bargains&quot; will lead to efficient results. There are always some transaction costs. However, transaction costs are often thought to be low when there are no structural impediments to negotiation, such as large numbers of parties or barriers to communication. When these obstacles are not present, it is commonly assumed that the parties will achieve an efficient result through Coasean bargaining. We show that this assumption is incorrect. In particular, we demonstrate that transaction costs can be high, even when there are no structural impediments to bargaining, because the parties themselves may intentionally create transaction costs. Intuitively, an individual may prefer the Coasean bargain that is struck when certain parties are excluded from negotiations. Accordingly, that individual will wish to create transaction costs that keep those parties — potentially including herself — away from the negotiating table. We show that there are many contexts in which the parties will choose to create these &quot;voluntary transaction costs,&quot; including environmental litigation, multilateral treaty negotiations, and creditor-debtor relationships. Because of the prevalence of voluntary transaction costs, Coasean logic applies to a significantly smaller class of cases than has previously been recognized. This renders law very important: Legal rules provide the starting point for the parties&#39; negotiation; we find that when the parties’ starting point is closer to the efficient result, they are more likely to achieve an efficient outcome through Coasean bargaining. This insight favors reasonable use rules and other legal rules that attempt to assign entitlements in an efficient manner. We also find that liability remedies are more likely to encourage efficient outcomes than injunctive remedies are.

Regulatory Entrepreneurship

Social Science Research Network, 2016

This Article examines what we term "regulatory entrepreneurship"pursuing a line of business in wh... more This Article examines what we term "regulatory entrepreneurship"pursuing a line of business in which changing the law is a significant part of the business plan. Regulatory entrepreneurship is not new, but it has become increasingly salient in recent years as companies from Airbnb to Tesla, and from DraftKings to Uber, have become agents of legal change. We document the tactics that companies have employed, including operating in legal gray areas, growing "too big to ban," and mobilizing users for political support. Further, we theorize the business and lawrelated factors that foster regulatory entrepreneurship. Well-funded, scalable, and highly connected startup businesses with mass appeal have advantages, especially when they target state and local laws and litigate them in the political sphere instead of in court.

Amicus Curiae Brief in Health and Human Services v. Florida (Affordable Care Act Litigation) on Behalf of Tax Law Professors in Support of Vacatur

Social Science Research Network, 2012

Collusion in Markets with Syndication

Journal of Political Economy, Oct 1, 2020

Many markets are syndicated, including markets for IPOs, club deal LBOs, and debt issuances: each... more Many markets are syndicated, including markets for IPOs, club deal LBOs, and debt issuances: each winning bidder invites competitors to join its syndicate to complete production. We show that collusion in syndicated markets may become easier as market concentration falls, and that market entry may facilitate collusion. In particular, firms can sustain collusion by refusing to syndicate with any firm that undercuts the collusive price (thereby raising that firm's production costs). Our results can thus rationalize the paradoxical empirical observations that many real-world syndicated markets exhibit seemingly collusive pricing despite low levels of market concentration.

Prosecuting the Exonerated: Actual Innocence and the Double Jeopardy Clause

Stanford Law Review, Mar 1, 2012

... Robert Weisberg, Miguel Mendez, George Fisher, Mark Kelman, Mariano-Florentino Cuéllar, Micha... more

The Emerging Consensus for Cutting the Corporate Income Tax Rate

Social Science Research Network, Sep 27, 2014

Explanation of the Anti-Injunction Act Issue in HHS v. Florida (Affordable Care Act Litigation)

Social Science Research Network, 2012

ABSTRACT

Taxation and Innovation: The Sharing Economy as a Case Study

Social Science Research Network, Dec 20, 2017

This chapter considers the relationship between the U.S. federal income tax system and innovation... more This chapter considers the relationship between the U.S. federal income tax system and innovation, using the sharing economy as a focal point for analysis. It makes two main points. First, the tax system is currently a questionable tool for encouraging innovation. Regulators are understandably concerned that taxpayers will use tax incentive provisions in unanticipated ways, and thus are inclined to tightly limit such provisions’ scope. This reduces incentive provisions’ net benefit to taxpayers, and can even cause such provisions to miss their marks entirely. Moreover, small and new companies are key drivers of innovation, and evidence suggests that they are relatively unresponsive to tax incentives. Second, innovation can help improve the tax system. To fix a problem, one must first identify it; innovation provides opportunities to see where tax law is achieving its goals and where it is falling short. The sharing economy experience suggests some strengths, such as the tax system’s definition of income, as well as weaknesses, such as the dividing line between independent contractors and employees.

When Second Comes First: Correcting Patent’s Poor Secondary Incentives through an Optional Patent Purchase System

bepress Legal Series, 2007

As research has advanced, technologies have become more closely knit, and the relationships betwe... more As research has advanced, technologies have become more closely knit, and the relationships between them-both complementary and competitive-have become increasingly important. Unfortunately, the patent system's use of monopoly power to reward innovators creates inefficient results by overly encouraging the development of substitute technologies and discouraging the development of complementary technologies. This paper explains how an optional patent purchase system could help ameliorate such problems and discusses the implications of such a system.

Rationalizing the Arbitrary Foreign Tax Credit

114th Annual Conference on Taxation, Nov 17, 2021

The foreign tax credit is a cornerstone of the United States&#39; international tax regime an... more The foreign tax credit is a cornerstone of the United States&#39; international tax regime and enjoys broad bipartisan support. Yet despite its enduring popularity, careful analysis reveals that the foreign tax credit is surprisingly arbitrary. Taxes are creditable in their entirety or not at all, and only &quot;pure&quot; income taxes receive a credit. Even a slight deviation from the law&#39;s narrow definition of an income tax renders a foreign tax completely uncreditable. The current approach is clearly problematic. It is a fundamental tenet of tax policy that the law should treat items based on their economic substance, but the credit&#39;s all-or-nothing approach does not. Nor do the policy rationales underlying the foreign tax credit support starkly different treatment for pure income taxes compared to all other taxes. We apply this reasoning to evaluate various possible reforms to the foreign tax credit. Depending on which goals policymakers choose to prioritize, plausible options range from eliminating the credit to greatly expanding its scope. But in any event, the way forward involves abandoning the credit&#39;s sharp, arbitrary distinction between pure income taxes and all other taxes.

Taxation and Innovation: The Sharing Economy as a Case Study

ERPN: Economic Development & Technological Change (Topic), 2017

This chapter considers the relationship between the U.S. federal income tax system and innovation... more This chapter considers the relationship between the U.S. federal income tax system and innovation, using the sharing economy as a focal point for analysis. It makes two main points. First, the tax system is currently a questionable tool for encouraging innovation. Regulators are understandably concerned that taxpayers will use tax incentive provisions in unanticipated ways, and thus are inclined to tightly limit such provisions’ scope. This reduces incentive provisions’ net benefit to taxpayers, and can even cause such provisions to miss their marks entirely. Moreover, small and new companies are key drivers of innovation, and evidence suggests that they are relatively unresponsive to tax incentives. Second, innovation can help improve the tax system. To fix a problem, one must first identify it; innovation provides opportunities to see where tax law is achieving its goals and where it is falling short. The sharing economy experience suggests some strengths, such as the tax system’s...

Takeover defenses: the lay of the land and disputed sign posts

Edward Elgar Publishing eBooks, Sep 30, 2016

Takeover defenses have long been a topic of considerable interest to scholars of finance and corp... more Takeover defenses have long been a topic of considerable interest to scholars of finance and corporate law. Yet the significant amount of attention that researchers have lavished on the topic have produced surprisingly little scholarly consensus. This chapter considers a number of major topics related to takeover defenses, including the importance and effects of poison pills and staggered boards, the causes and consequences of firms' varied levels of takeover defenses, the connection between takeover defenses and corporate myopia, and the implications of empty voting for takeover defense law and policy. In doing so, it provides an overview of some of the major results and ongoing debates in this sphere, some of the works driving those debates, and areas that seem likely to receive increased attention in the future.

Shareholder Decisionmaking in the Presence of Empty Voting and Hidden Ownership

Social Science Research Network, 2014

We consider securities markets in which economic interests in firms and shareholder voting rights... more We consider securities markets in which economic interests in firms and shareholder voting rights are traded independently; such markets allow for "empty voters" who hold voting rights in a firm that exceed their economic interests. We demonstrate that, in such settings, competitive equilibria generally do not exist and may be inefficient even when they do exist. As the competitive equilibrium solution concept does not provide useful predictions in the presence of empty voting, we focus on cooperative game-theoretic "core outcomes." We show that core outcomes always exist, are always efficient, and can be reached from any initial allocation through voluntary trading; moreover, at a core outcome, agents have efficient incentives with regards to information revelation.

Taxation and Innovation

Empty Voting and Social Welfare

Social Science Research Network, 2012

ABSTRACT Recent work (Hu and Black (2005, 2007, 2008); Dekel and Wolinsky (2012)) has detailed th... more ABSTRACT Recent work (Hu and Black (2005, 2007, 2008); Dekel and Wolinsky (2012)) has detailed the twin issues of empty voting and hidden/morphable ownership. The former arises when an actor has control rights over a corporation but no economic interest in that corporation, such as when an investor borrows shares. The latter arises when a shareholder has an economic or voting interest in a corporation but avoids regulatory disclosure requirements through derivatives transactions. Both offer significant challenges to financial regulatory systems.The lack of a framework for analyzing the problem has hindered attempts to respond to these challenges. Most economic models of financial markets do not incorporate control rights. And, once control rights are introduced, the standard competitive equilibrium concept is unsatisfactory: We show that once control rights are introduced, competitive equilibria may fail to exist and may be inefficient if they do exist. Allowing the transfer of control rights, such as through transactions in corporate stock, only exacerbates the problem. We show that if control rights may be traded independently of economic ownership rights - as modern derivatives markets increasingly allow - competitive equilibria essentially never exist.We propose an alternative equilibrium concept, the Core Outcome. A Core Outcome consists of an allocation of economic ownership, an allocation of control rights, and a set of voting behaviors such that no group of actors can improve the utility of its members by deviating. We show that Core Outcomes have several desirable properties as an equilibrium concept: They always exist, are always efficient, and can be reached through voluntary trading. Our model has strong implications for the regulation of securities markets in general and of derivatives markets in particular. We conclude that there are strong efficiency justifications in favor of an effective mandatory disclosure regime. We also find that, in certain circumstances, empty voting can act as a backstop to public regulation, allowing private actors to block socially inefficient actions that public regulation would permit.

To Thine Own Self Be True? Incentive Problems in Personalized Law

Social Science Research Network, 2020

Recent years have seen an explosion of scholarship on "personalized law." Commentators foresee a ... more Recent years have seen an explosion of scholarship on "personalized law." Commentators foresee a world in which regulators armed with big data and machine learning techniques determine the optimal legal rule for every regulated party, then instantaneously disseminate their decisions via smartphones and other "smart"

Pills and partisans: Understanding takeover defenses

University of Pennsylvania Law Review, Feb 1, 2012

defenses benefit or harm target corporations' shareholders or society generally. Much of the disa... more defenses benefit or harm target corporations' shareholders or society generally. Much of the disagreement surrounding takeover defenses stems from the lack of a fully developed formal analytical framework for considering their effects. Our Article presents several formal models built upon a common core of assumptions that together create such a theoretical framework. These models incorporate the reality that target corporate insiders have superior information about the target but are imperfect agents of its shareholders. They suggest that modern defenses enable target shareholders to extract value from acquirers by empowering corporate insiders, but that takeover defenses do not benefit society as a whole. They also help explain why corporations with different characteristics may choose to adopt varying levels of takeover defenses. Our findings have implications for the longstanding debate about who is best served by state-level control of corporate law and the desirability of increased federal involvement in corporate law.

When Second Comes First: Correcting Patent's Poor Secondary Incentives Through an Optional Patent Purchasing System

Social Science Research Network, Aug 18, 2011

As research has advanced, technologies have become more closely knit, and the relationships betwe... more As research has advanced, technologies have become more closely knit, and the relationships between them-both complementary and competitive-have become increasingly important. Unfortunately, the patent system's use of monopoly power to reward innovators creates inefficient results by overly encouraging the development of substitute technologies and discouraging the development of complementary technologies. This paper explains how an optional patent purchase system could help ameliorate such problems and discusses the implications of such a system.

Explanation of Issues in PPL Corporation v. Commissioner of Internal Revenue

Social Science Research Network, Feb 19, 2013

ABSTRACT

On Derivatives Markets and Social Welfare: A Theory of Empty Voting and Hidden Ownership

Social Science Research Network, 2012

The prevailing view among many economists is that derivatives markets simply enable financial mar... more The prevailing view among many economists is that derivatives markets simply enable financial markets to incorporate information better and faster. Under this view, increasing the size of derivatives markets only increases the efficiency of financial markets. We present formal economic analysis that contradicts this view. Derivatives allow investors to hold economic interests in a corporation without owning voting rights, or vice versa. This

Coasean Keep-Away: Voluntary Transaction Costs

Social Science Research Network, 2014

ABSTRACT The Coase Theorem predicts that, if there are no transaction costs, parties will always ... more ABSTRACT The Coase Theorem predicts that, if there are no transaction costs, parties will always contract their way to an efficient outcome. Thus, no matter which legal rules society chooses, &quot;Coasean bargains&quot; will lead to efficient results. There are always some transaction costs. However, transaction costs are often thought to be low when there are no structural impediments to negotiation, such as large numbers of parties or barriers to communication. When these obstacles are not present, it is commonly assumed that the parties will achieve an efficient result through Coasean bargaining. We show that this assumption is incorrect. In particular, we demonstrate that transaction costs can be high, even when there are no structural impediments to bargaining, because the parties themselves may intentionally create transaction costs. Intuitively, an individual may prefer the Coasean bargain that is struck when certain parties are excluded from negotiations. Accordingly, that individual will wish to create transaction costs that keep those parties — potentially including herself — away from the negotiating table. We show that there are many contexts in which the parties will choose to create these &quot;voluntary transaction costs,&quot; including environmental litigation, multilateral treaty negotiations, and creditor-debtor relationships. Because of the prevalence of voluntary transaction costs, Coasean logic applies to a significantly smaller class of cases than has previously been recognized. This renders law very important: Legal rules provide the starting point for the parties&#39; negotiation; we find that when the parties’ starting point is closer to the efficient result, they are more likely to achieve an efficient outcome through Coasean bargaining. This insight favors reasonable use rules and other legal rules that attempt to assign entitlements in an efficient manner. We also find that liability remedies are more likely to encourage efficient outcomes than injunctive remedies are.

Regulatory Entrepreneurship

Social Science Research Network, 2016

This Article examines what we term "regulatory entrepreneurship"pursuing a line of business in wh... more This Article examines what we term "regulatory entrepreneurship"pursuing a line of business in which changing the law is a significant part of the business plan. Regulatory entrepreneurship is not new, but it has become increasingly salient in recent years as companies from Airbnb to Tesla, and from DraftKings to Uber, have become agents of legal change. We document the tactics that companies have employed, including operating in legal gray areas, growing "too big to ban," and mobilizing users for political support. Further, we theorize the business and lawrelated factors that foster regulatory entrepreneurship. Well-funded, scalable, and highly connected startup businesses with mass appeal have advantages, especially when they target state and local laws and litigate them in the political sphere instead of in court.

Amicus Curiae Brief in Health and Human Services v. Florida (Affordable Care Act Litigation) on Behalf of Tax Law Professors in Support of Vacatur

Social Science Research Network, 2012

Collusion in Markets with Syndication

Journal of Political Economy, Oct 1, 2020

Many markets are syndicated, including markets for IPOs, club deal LBOs, and debt issuances: each... more Many markets are syndicated, including markets for IPOs, club deal LBOs, and debt issuances: each winning bidder invites competitors to join its syndicate to complete production. We show that collusion in syndicated markets may become easier as market concentration falls, and that market entry may facilitate collusion. In particular, firms can sustain collusion by refusing to syndicate with any firm that undercuts the collusive price (thereby raising that firm's production costs). Our results can thus rationalize the paradoxical empirical observations that many real-world syndicated markets exhibit seemingly collusive pricing despite low levels of market concentration.

Prosecuting the Exonerated: Actual Innocence and the Double Jeopardy Clause

Stanford Law Review, Mar 1, 2012

... Robert Weisberg, Miguel Mendez, George Fisher, Mark Kelman, Mariano-Florentino Cuéllar, Micha... more

The Emerging Consensus for Cutting the Corporate Income Tax Rate

Social Science Research Network, Sep 27, 2014

Explanation of the Anti-Injunction Act Issue in HHS v. Florida (Affordable Care Act Litigation)

Social Science Research Network, 2012

ABSTRACT

Taxation and Innovation: The Sharing Economy as a Case Study

Social Science Research Network, Dec 20, 2017

This chapter considers the relationship between the U.S. federal income tax system and innovation... more This chapter considers the relationship between the U.S. federal income tax system and innovation, using the sharing economy as a focal point for analysis. It makes two main points. First, the tax system is currently a questionable tool for encouraging innovation. Regulators are understandably concerned that taxpayers will use tax incentive provisions in unanticipated ways, and thus are inclined to tightly limit such provisions’ scope. This reduces incentive provisions’ net benefit to taxpayers, and can even cause such provisions to miss their marks entirely. Moreover, small and new companies are key drivers of innovation, and evidence suggests that they are relatively unresponsive to tax incentives. Second, innovation can help improve the tax system. To fix a problem, one must first identify it; innovation provides opportunities to see where tax law is achieving its goals and where it is falling short. The sharing economy experience suggests some strengths, such as the tax system’s definition of income, as well as weaknesses, such as the dividing line between independent contractors and employees.

When Second Comes First: Correcting Patent’s Poor Secondary Incentives through an Optional Patent Purchase System

bepress Legal Series, 2007

As research has advanced, technologies have become more closely knit, and the relationships betwe... more As research has advanced, technologies have become more closely knit, and the relationships between them-both complementary and competitive-have become increasingly important. Unfortunately, the patent system's use of monopoly power to reward innovators creates inefficient results by overly encouraging the development of substitute technologies and discouraging the development of complementary technologies. This paper explains how an optional patent purchase system could help ameliorate such problems and discusses the implications of such a system.

Rationalizing the Arbitrary Foreign Tax Credit

114th Annual Conference on Taxation, Nov 17, 2021

The foreign tax credit is a cornerstone of the United States&#39; international tax regime an... more The foreign tax credit is a cornerstone of the United States&#39; international tax regime and enjoys broad bipartisan support. Yet despite its enduring popularity, careful analysis reveals that the foreign tax credit is surprisingly arbitrary. Taxes are creditable in their entirety or not at all, and only &quot;pure&quot; income taxes receive a credit. Even a slight deviation from the law&#39;s narrow definition of an income tax renders a foreign tax completely uncreditable. The current approach is clearly problematic. It is a fundamental tenet of tax policy that the law should treat items based on their economic substance, but the credit&#39;s all-or-nothing approach does not. Nor do the policy rationales underlying the foreign tax credit support starkly different treatment for pure income taxes compared to all other taxes. We apply this reasoning to evaluate various possible reforms to the foreign tax credit. Depending on which goals policymakers choose to prioritize, plausible options range from eliminating the credit to greatly expanding its scope. But in any event, the way forward involves abandoning the credit&#39;s sharp, arbitrary distinction between pure income taxes and all other taxes.

Taxation and Innovation: The Sharing Economy as a Case Study

ERPN: Economic Development & Technological Change (Topic), 2017

This chapter considers the relationship between the U.S. federal income tax system and innovation... more This chapter considers the relationship between the U.S. federal income tax system and innovation, using the sharing economy as a focal point for analysis. It makes two main points. First, the tax system is currently a questionable tool for encouraging innovation. Regulators are understandably concerned that taxpayers will use tax incentive provisions in unanticipated ways, and thus are inclined to tightly limit such provisions’ scope. This reduces incentive provisions’ net benefit to taxpayers, and can even cause such provisions to miss their marks entirely. Moreover, small and new companies are key drivers of innovation, and evidence suggests that they are relatively unresponsive to tax incentives. Second, innovation can help improve the tax system. To fix a problem, one must first identify it; innovation provides opportunities to see where tax law is achieving its goals and where it is falling short. The sharing economy experience suggests some strengths, such as the tax system’s...