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AbstractA growing economics literature argues that taxation can strengthen the quality of governance and public sector institutions by making governments more responsive and accountable to their citizens, building capacity, and improving public policy. In this paper, we provide some empirical support for this view. Using data on a cross‐section of developed and developing countries, we find that taxation improves the quality of governance and that those taxes that are borne most directly by citizens are the most important in improving governance. Our results are robust to different estimation methodologies, to variations in the country sample, and to controlling for the influence of variables that have been identified as affecting the quality of governance. The results suggest that policies aimed at mobilizing tax revenues may be justified based on the greater accountability of government that may result.

We use a hedonic pricing model to analyze in a risk-return framework the determinants of the pricing of a sample of over 5,000 syndicated credits granted to developing country borrowers between 1993 & 2001. We conclude that syndicated loans with riskier characteristics or granted to riskier borrowers are more expensive than others, although the effect of purely micro-economic price determinants is in several instances weaker when variables reflecting macro-economic conditions in borrowers' countries are introduced into the model. In addition to individual loan or borrower considerations, lenders seem to focus more on macro-economic factors to determine the pricing of their loans, such as the level of exports relative to debt service in the developing countries where the borrowers are located. For some, this means restricted access to external financing. We detect possible evidence of lenders exploiting their market power when lending to developing country borrowers. Certain banks appear to charge a premium to change initially agreed loan terms. Furthermore, discounts are granted on developing country loans provided by small groups or clubs of relationship banks rather than on facilities with participation by a large number of institutions. 11 Tables, 2 Appendixes, 48 References. Adapted from the source document.

An unprecedented process of financial consolidation has taken place in the European Union over the past decade. Building on earlier US evidence, we examine the impact of strategic similarities between bidders and targets on post-merger financial performance. We find that, on average, bank mergers in the European Union resulted in improved return on capital. By making the assumption that balance-sheet resource allocation is indicative of the strategic focus of banks, we also find significantly different results for domestic and cross-border mergers. For domestic deals, it could be quite costly to integrate dissimilar institutions in terms of their loan, earnings, cost, deposits and size strategies. For cross-border mergers and acquisitions (M&As), differences of merging partners in their loan and credit risk strategies are conducive to a higher performance whereas diversity in their capital, cost structure as well as technology and innovation investments strategies are counterproductive from a performance standpoint.