tax motivated transfer pricing and us intrafirm trade prices abstract this paper analyzes monthly data on us international trade prices between 1997 and 1999 in order to investigate the impact of tax influences on intrafirm trade prices results indicate that there is substantial evidence of tax motivated transfer pricing in us intrafirm trade prices there is a strong and statistically significant relationship between countries tax rates and the prices of intrafirm transactions controlling for other variables that affect trade prices as country tax rates are lower us intrafirm export prices are lower and us intrafirm import prices are higher this finding is consistent with theoretical predictions regarding tax motivated income shifting behavior

profit shifting and investment effects the implications of zero taxable profits abstract recent empirical research documents a tendency of multinational enterprise affiliates to bunch around zero reported profit we set up a theoretical model of multinational firm behavior in which we allow for corner solutions in the choice of the optimal transfer price due to insufficient profits or losses of affiliates such constraints in the choice of the transfer price induce bunching and generate investment effects in the low tax as well as the high tax country in equilibrium affiliates might overinvest and the investment effects generate a tendency for too high profit taxes the analysis provides a micro foundation for the investment effects that result from transfer pricing the finding stands in contrast to the existing literature where transfer pricing choices are unconstrained

fiscal paradise foreign tax havens and american business the tax haven affiliates of american corporations account for more than 20 percent of u s foreign direct investment and nearly a third of the foreign profits of u s firms american companies report extraordinarily high profit rates on their tax haven investments in 1982 this behavior implies that the revenue maximizing tax rate for a typical haven is around 5 8 percent american and foreign investment in tax havens has an uncertain effect on u s tax revenue but since low tax rates encourage american companies to shift profits out of high tax foreign countries it is possible that low foreign tax rates ultimately enhance u s tax collections

multinationals profit response to tax differentials effect size and shifting channels this paper provides a quantitative review of the empirical literature on profit shifting behavior of multinational firms we synthesize the evidence from 25 studies and find a substantial response of profit measures to international tax rate differentials accounting for misspecification biases by means of meta regressions we predict a tax semi elasticity of subsidiary pre tax profits of about 0 8 moreover we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel our results suggest that transfer pricing and licensing are the dominant profit shifting channel

does a common set of accounting standards affect tax motivated income shifting for multinational firms abstract i test whether adoption of ifrs by individual affiliates of multinational entities mnes for unconsolidated financial reporting facilitates tax motivated income shifting mnes often justify transfer prices to tax authorities by benchmarking intercompany profit allocations against a range of book profit rates reported by economically comparable independent firms that use similar accounting standards additional qualifying benchmark firms resulting from ifrs adoption could allow managers to support more tax advantaged transfer prices using a database of european unconsolidated financial and ownership information over 2003 2012 i first document an increase in the arm s length range of book profits reported by potential ifrs benchmark firms following affiliate adoption of ifrs i then estimate a statistically and economically significant 11 3 percent tax motivated change in reported book pre tax profits following affiliate ifrs adoption relative to pre adoption and non adopter affiliate years

what does tax aggressiveness signal evidence from stock price reactions to news about tax shelter involvement abstract we study the stock price reaction to news about corporate tax aggressiveness we find that on average a company s stock price declines when there is news about its involvement in tax shelters we find some limited evidence for cross sectional variation in the reaction for example the reaction is more negative for firms in the retail sector suggesting that part of the reaction may be a consumer taxpayer backlash in addition the reaction is less negative for firms that are viewed to be generally less tax aggressive as proxied by the firm s cash effective tax rate we interpret this as being consistent with the market reacting positively to evidence that a firm is trying to reduce taxes when their financial reports would lead one to believe the firm is not tax aggressive

cross jurisdictional income shifting and earnings valuation this research investigates the extent to which u s multinational enterprises mnes engage in tax motivated income shifting between the u s and foreign jurisdictions and whether investors differentially capitalize shifted income based on its true source or its reported source we find evidence that u s mnes facing foreign tax rates that on average exceed the u s statutory tax rate shift taxable income into the united states and that investors recognize firms income shifting patterns when valuing the foreign versus domestic components of reported earnings we examine u s multinational manufacturing companies from 1984 to 1992 to determine the cross sectional relation between firm level foreign profit margins and average foreign tax rates if u s mnes respond to high low foreign tax rates by shifting income into out of the united states then ceteris paribus we expect a negative relation between foreign profit margins and average foreign tax rates in addition

taxes tariffs and transfer pricing in multinational corporate decision making three interrelated aspects of u s multinational corporation activity are analyzed here the ability to shift profits from high tax countries to low tax countries the impact of host country taxes and tariffs on the distribution of real capital and the influence of these policies on international trade patterns of the united states and host countries the cross sectional empirical analysis indicates that the observed pattern of reported profits in high and low tax countries is consistent with income shifting behavior and that real investment responds to host country effective tax rates and tariffs the united states appears both to import more from and export more to low tax countries where mnc investment is greater but this bilateral focus must be amplified to consider multilateral effects if trade benefits are to be projected copyright 1991 by mit press

corporate taxes and the location of intangible assets within multinational firms intangible assets like patents and trademarks are increasingly seen as the key to competitive success and as the drivers of corporate profit moreover they constitute a major source of profit shifting opportunities in multinational enterprises mnes due to a highly intransparent transfer pricing process this paper argues that for both reasons mnes have an incentive to locate intangible property at affiliates with a relatively low corporate tax rate using panel data on european mnes and controlling for unobserved time constant heterogeneity between affiliates we find that the lower a subsidiary s corporate tax rate relative to other affiliates of the multinational group the higher is its level of intangible asset investment this effect is statistically and economically significant even after controlling for subsidiary size and accounting for a dynamic intangible investment pattern

social comparisons and contributions to online communities a field experiment on movielens we design a field experiment to explore the use of social comparison to increase contributions to an online community we find that after receiving behavioral information about the median user s total number of movie ratings users below the median demonstrate a 530 percent increase in the number of monthly movie ratings while those above the median decrease their ratings by 62 percent when given outcome information about the average user s net benefit score above average users mainly engage in activities that help others our findings suggest that effective personalized social information can increase the level of public goods provision

corporate multistate tax planning benefits of multiple jurisdictions abstract we investigate how firms use differences in state income tax regimes to lower their state tax burdens we develop a model that predicts that firms state effective tax rates first decrease then increase as a function of the number of states in which they file returns using firm level data we find evidence consistent with the model s predictions and we estimate that such rates are minimized at 24 states consistent with predictions from prior literature our evidence also suggests that firms use sales factor apportionment to reduce state tax burdens

taxes and the division of foreign operating income among royalties interest dividends and retained earnings abstract how do taxes influence the way u s corporations divide foreign affiliate operating income among royalties dividends interest and retained earnings the paper goes beyond previous work that focused largely on dividend repatriation behavior and provides a comprehensive analysis of the disposition of foreign subsidiary operating income the empirical results show that taxes have a large and statistically significant effect on the composition of payments own tax prices discourage the payment of dividends royalties and interest but dividend and other repatriation taxes do not increase retained earnings they only alter the composition of payments the results are therefore consistent with a generalized hartman sinn model of the mature controlled foreign corporation that has various alternative repatriation vehicles finally this paper integrates the choice of payments with income shifting among countries because the latter may be part of a low tax strategy for repatriations in this general framework conventional composite tax prices are not appropriate because the response to a change in a composite tax price depends on which components changed

credit and deferral as international investment incentives abstract many governments tax the foreign income of their firms using a system that grants credits for foreign taxes paid and permits tax deferral for unrepatriated income this paper shows that such tax systems encourage firms to restrict their equity stakes in new foreign investments and to finance their new investments with considerable debt these incentives exist even when transfer price regulation effectively limits the profit rates foreign subsidiaries can earn the behavior of the foreign subsidiaries of us multinationals in 1984 appears to be consistent with these incentives

international corporate tax avoidance a review of the channels magnitudes and blind spots this paper reviews the rapidly growing empirical literature on international tax avoidance by multinational corporations it surveys evidence on main channels of corporate tax avoidance including transfer mispricing international debt shifting treaty shopping tax deferral and corporate inversions moreover it performs a meta analysis of the extensive literature that estimates the overall size of profit shifting we find that the literature suggests that for the most recent year a 1 percentage point lower corporate tax rate compared to other countries will expand before tax income by 1 5 percent an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time the literature on tax avoidance still has several unresolved puzzles and blind spots that require further research

foreign earnings management of us multinational companies the role of decision rights us multinational corporations mncs need to allocate decision rights between parent companies and subsidiaries to manage global operations this article examines how the allocation of decision rights affects foreign earnings management of mncs i find that the extent of foreign earnings management increases when parents retain centralized decision rights but internal cross border frictions between parents and their foreign subsidiaries and the external local legal environment in which foreign subsidiaries operate can mitigate foreign earnings management despite parents having centralized decision rights this study provides evidence on how the decision structures of mncs affect where earnings are managed

lessons from the past capital markets during the 19th century and the interwar period on friday 13 august 1982 finance minster jesus silva herzog of mexico made a series of visits to the international monetary fund the federal reserve and the u s treasury his message to each was the same mexico could no longer continue to service its debt thus began a dramatic weekend of negotiations that marked the end of the preceding decade s buoyant expansion of developing country debt and the start of a still continuing response to the sudden collapse

central banks and financial stability rediscovering the lender of last resort practice in a finance economy the purpose of our paper is to assess whether central banks have adopted new practices of lending in last resort during the 2007 09 financial crisis we compare the current period with the classical period both featured by a finance economy with developed financial markets and unregulated institutions beyond the differences determined by the monetary regime and concerning the central bank rate policy we find similarities such as the enlargements of the set of counterparties and eligible collateral assets since the credit system is based on financial markets and innovations central banks have a wider involvement that goes beyond a narrow conception of the lender of last resort that prevailed under a regulated banking system we conclude that the historical roots of financial stabilisation by central banks in a finance economy have just been rediscovered and that the functions of lender of last resort and market maker of last resort may be analytically integrated copyright oxford university press

global organizations and taxes an analysis of the dividend interest royalty and management fee payments between u s multinationals foreign affiliates abstract we examine the effects of taxes on cross border dividend interest royalty and management fee payments between foreign affiliates of u s multinationals using 1990 tax return information on transfers totaling 22 8 billion and spanning 71 countries we find dividend royalty and sometimes interest payments between foreign affiliates are negatively correlated with the net tax levied on cross border transfers we find no evidence management fees are structured to mitigate non u s taxes thus taxes affect the location of the supplier and the terms of the contracts for the provision of equity and intangible capital within the worldwide organization

social norms and pro environmental behavior a review of the evidence in light of the growing attention that social norm interventions have garnered as policy tools we review the current body of evidence on their effectiveness with respect to pro environmental behaviors we identify the various conceptualizations of social norms currently in use and inventory the experimental economics and social psychology literature that has examined the impacts of social norm interventions on pro environmental behavior for each study included in this inventory we note several contextual features the data collection and analytical methods used and any significant main effects attributed to the social norm intervention we also review several theoretical models of behavior that incorporate social norms based on this empirical and theoretical review we draw a number of policy implications and identify avenues for future research on the role of social norms with respect to pro environmental behavior

state and provincial corporate tax planning income shifting and sales apportionment factor management abstract we empirically document a strategy through which corporations avoid state income taxes examining aggregated american state and canadian provincial data from 1983 1991 we find corporate income tax revenues are concave in corporate tax rates consistent with firms shifting their tax bases to more favourably taxed jurisdictions additional tests exploit unique features of state formula apportionment systems and find manufacturing shipments from states that tax outside their borders throwback states are decreasing in corporate income tax rates on sales

corporate tax systems multinational enterprises and economic integration abstract multinational firms are known to shift profits and countries are known to compete over shifty profits two major principles for corporate taxation are separate accounting sa and formula apportionment fa these two principles have very different qualities when it comes to preventing profit shifting and preserving national tax autonomy most oecd countries use sa in this paper we show that a reduction in trade barriers lowers equilibrium corporate taxes under sa but leads to higher taxes under fa from a welfare point of view the choice of tax principle is shown to depend on the degree of economic integration

accounting income stock price and managerial compensation abstract this paper employs an agency model where a manager has a two dimensional action choice to study how the information content of earnings affects the design of compensation contracts based on earnings and price price is modeled as an endogenous variable that reflects all available information including earnings two settings are contrasted in the first earnings and price reflect the same underlying information about firm value while in the second earnings reflect a subset of the information reflected in price it is shown that differences in information content substantially alter the characteristics of compensation contracts based on earnings and price

r d intensity and the effective tax rate a meta regression analysis we apply meta regression techniques to provide a quantitative review of the empirical literature on how research and development r d expenses affect the effective tax rate etr r d expenses relate to a well accepted profit shifting channel strategic placement of intellectual property within a multinational entity using a unique hand collected data set we add a new perspective to the current base erosion and profit shifting beps state of research and debate in three ways first observing that primary studies report mixed evidence on how r d expenses affect etr we provide a consensus estimate for this effect second we consider this effect in more detail by separating a tax accounting effect and a profit shifting effect which to our knowledge has not yet been investigated we detect that one third of the r d effect on the etr is due to the tax accounting effect and could be mitigated via book tax conformity we further find that 10 of the profit shifting effect can be traced back to r d tax credits third our meta regression reveals factors that are possible sources of variation and bias in previous empirical studies

evaluating the costs and benefits of appliance efficiency standards the available empirical evidence does not provide a very convincing case that mandatory appliance efficiency standards will increase economic efficiency or reduce energy consumption significantly there is a real chance that such standards could actually reduce economic efficiency and possibly lead to an increase in energy use a broader use of programs to provide consumers with better information seems to represent the most productive short run strategy consumer education would not only help to improve decisions but it will also provide time to better assess consumer behavior allow the market to reveal the technical and economic possibilities for appliance efficiency improvements and ultimately allow public policies to be based on more than guesswork 12 references

a real effects perspective to accounting measurement and disclosure implications and insights for future research accounting measurement and disclosure rules have a significant impact on the real decisions that firms make in this essay we provide an analytical framework to illustrate how such real effects arise using this framework we examine three specific measurement issues that remain controversial 1 how does the measurement of investments affect a firm s investment efficiency 2 how does the measurement and disclosure of a firm s derivative transactions affect a firm s choice of intrinsic risk exposures risk management strategy and the incentive to speculate 3 how could marking to market the asset portfolios of financial institutions generate procyclical real effects we draw upon these real effects studies to generate sharper and novel insights that we believe are useful not only for the development of accounting standards but also for guiding future empirical research

is the 2007 u s sub prime financial crisis so different an international historical comparison the first major financial crisis of the twentyfirst century involves esoteric instruments unaware regulators and skittish investors it also follows a well trodden path laid down by centuries of financial folly is the special prob lem of sub prime mortgages really different our examination of the longer historical record which is part of a larger effort on cur rency and debt crises finds stunning qualitative and quantitative parallels across a number of standard financial crisis indicators to name a few the run up in us equity and housing prices that graciela l kaminsky and reinhart 1999 find to be the best leading indicators of crisis in countries experiencing large capital inflows closely tracks the average of the previous 18 post world war ii banking crises in industrial countries so too does the inverted v shape of real growth in the years prior to the crisis despite widespread concern about the effects on national debt of the tax cuts of the early 2000s the run up in us public debt is actually some what below the average of other crisis episodes in contrast the pattern of us current account deficits is markedly worse at this juncture the book is still open on how the current dislocations in the united states will play out the precedent found in the aftermath of other episodes suggests that the strains can be quite severe depending especially on the initial degree of trauma to the financial system and to some extent the policy response the average drop in real per capita output growth is over 2 percent and it typically takes two years to return to trend for the five most catastrophic cases which include episodes in finland japan

coveting thy neighbor s manufacturing the dilemma of state income apportionment abstract this paper investigates the economic impact of the apportionment formulae used to divide corporate income taxes among the states most apportionment formulae by including payroll turn the state corporate income tax at least partially into a payroll tax using panel data from 1978 1994 the results show that this distortion has an important effect on state level employment for the average state reducing the payroll weight from one third to one quarter increases manufacturing employment around 1 1 concentrated in durable goods manufacturing and with larger effects in the long run the results also suggest that apportionment changes have important negative externalities on other states on average the aggregate effects of apportionment formula changes are close to zero

an experimental test of the effect of negative social norms on energy efficient investments abstract energy efficiency is an important economic and environmental concern and likewise the correction of current wasteful energy practices we document widespread tire pressure neglect three quarters of drivers waste gas driving on underinflated tires negative descriptive social norms are one potential cause but have not been tested in high neglect environments where those norms are widespread this confounds the mechanism are these norms signals of private value to consumers or do they imply standards for social judgment from others we conducted a field experiment at gas stations in chicago our intervention included treatments with information about tire pressure neglect promotions in the form of price reductions from 0 50 to free a descriptive norm of behavior and help in the form of air pump assistance the treatments are designed to provide the ability to consider four potential underlying drivers information monetary cost social norms and social pressure treatments that only included information were ineffective despite average fuel savings of 10 51 but small promotions had substantial impacts when the air pump price was free the social norm discouraged inflation however when the research assistant offered help inflation rates were buoyed by the social norm these results highlight the importance of incentives over mere information treatments and offer a new perspective on how information and monetary levers can influence decision making in the presence of negative social norms

do taxes matter the impact of the tax reform act of 1986 do taxes matter is the first systematic examination of the actual effects of the tax reform act of 1986 the most important u s income tax reform of the last four decades it presents basic information on and an analysis of a variety of different aspects of economic behavior in order to discover whether the observed changes coincide with the predictions of standard public finance models prior to implementation of the new law supporters and opponents made numerous forecasts about its effect on savings corporate investment and other major determinants of the country s economic health the general finding of these original contributions is that the effects of tax reform turned out to be smaller than had been anticipated commissioned by the office of tax policy research of the university of michigan eight of the studies focus on different sectors of the economy reviewing the predictions and carefully analyzing the evidence to determine actual effects the ninth study draws together the results to find lessons for future changes in tax policy joel slemrod is professor of business economics and public policy and director of the office of tax policy research at the university of michigan contents the economic impact of tax reform act of 1986 joel slemrod investment tax policy and the tax reform act of 1986 alan j auerbach kevin hassett the impact of the 1986 tax reform on personal saving jonathan skinner daniel feenberg effects of the tax reform act of 1986 on corporate financial policy and organizational form roger h gordon jeffrey k mackie mason taxation and housing markets preliminary evidence on the effects of recent tax reforms james m poterba the impact of the tax reform act of 1986 on foreign direct investment to and from the united states joel slemrod the impact of tax reform on charitable giving a 1989 perspective charles t clotfelter the impact of the tax reform act of 1986 on state and local fiscal behavior paul n courant edward m gramlich foreign responses to u s tax reform john whalley lessons for tax reform henry j aaron

the valuation of the foreign income of us multinational firms a growth opportunities perspective we demonstrate the value relevance of foreign earnings for us multinational firms by examining the associations between annual abnormal stock performance and changes in firms domestic and foreign incomes for 2570 tirm year observations between 1985 and 1993 both foreign and domestic earnings changes have significant positive associations with annual excess return measures however the association coefficient on foreign income is significantly larger than the association coefficient on domestic income we demonstrate this larger association coefficient for foreign income is consistent with differences in growth opportunities between domestic and foreign operations

empirical research on accounting choice abstract we review research from the 1990s that examines the determinants and consequences of accounting choice structuring our analysis around the three types of market imperfections that influence managers choices agency costs information asymmetries and externalities affecting non contracting parties we conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge we discuss opportunities for future research recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters

geographic income shifting by multinational corporations in response to tax rate changes we investigate geographic income shifting by 191 u s multinational corporations in response to worldwide changes in tax rates during 1984 90 between 1984 and 1986 the united kingdom reduced corporate tax rates from a maximum of 45 to 35 and in 1985 france reduced rates from 50 to 45 following these reductions in european rates the united states reduced top corporate tax rates from 46 to 34 between 1986 and 1988 canadian rates increased between 1984 and 1986 and then decreased through 1989 beginning in 1988 numerous countries enacted tax cuts apparently in response to those that occurred earlier in other countries as discussed in section 3 differential changes in tax rates provide incentives for geographic income shifting by multinational firms we identify two subperiods during 1984 90 in which relative tax rate changes

talk softly but carry a big stick transfer pricing penalties and the market valuation of japanese multinationals in the united states corporate income tax law in oecd countries requires multinational enterprises mnes to set their transfer prices according to the arm s length standard in 1990 the united states us government introduced a transfer pricing penalty for cases where mnes deviated substantially from this standard more than two dozen other governments have followed suit our paper uses event study methodology to assess the impact of the us transfer pricing penalty on the stock market valuation of japanese mnes with us subsidiaries in the 1990s we find that the penalty caused a drop in their cumulative market value of 56 1 billion representing 12 6 of their 1997 market value

the demand for tax haven operations what types of firms establish tax haven operations and what purposes do these operations serve analysis of affiliate level data for american firms indicates that larger more international firms and those with extensive intrafirm trade and high r and d intensities are the most likely to use tax havens tax haven operations facilitate tax avoidance both by permitting firms to allocate taxable income away from high tax jurisdictions and by reducing the burden of home country taxation of foreign income the evidence suggests that the primary use of affiliates in larger tax haven countries is to reallocate taxable income whereas the primary use of affiliates in smaller tax haven countries is to facilitate deferral of u s taxation of foreign income firms with sizeable foreign operations benefit the most from using tax havens an effect that can be evaluated by using foreign economic growth rates as instruments for firm level growth of foreign investment outside of tax havens one percent greater sales and investment growth in nearby non haven countries is associated with a 1 5 to 2 greater likelihood of establishing a tax haven operation

crisis and responses the federal reserve in the early stages of the financial crisis in summer 2007 u s and global financial markets found themselves facing a potential financial crisis and the u s federal reserve found itself in a difficult situation it was becoming clear that banks and other financial institutions would ultimately lose tens or even hundreds of billions of dollars from their exposure to subprime mortgage market loans bank lending is closely tied to bank capital or net worth specifically bank regulators require that loans not exceed a certain multiple of capital thus the federal reserve faced the danger of a sharp contraction in credit and bank lending in a way that threatened a deep recession or worse when this kind of event happens the job of the central bank is to assure that financial institutions have the necessary funds to conduct their daily business that they have the liquidity they need to make timely payments and transfers modern financial institutions need to replenish their funding every day in the united states alone literally trillions of dollars are transferred between banks each day to support the 50 trillion credit outstanding in the economy as a whole commercial banks require funds to initiate the mortgages auto loans and credit card debt they then sell into financial markets while investment banks finance much of their activity with daily borrowing in the early stages of the crisis the situation often arose in which a wellcapitalized bank was forced to make sudden large loans based on previously committed lines of credit in this circumstance central bank actions can ease

saving taxes through foreign plant ownership this paper analyzes to which extent foreign plant ownership involves lower tax payments than domestic plant ownership we employ a model of endogenous foreign subsidiary ownership to derive a set of empirically testable hypotheses about the differential taxation of foreign and domestically owned subsidiaries we assess these hypotheses in a data set of 33 577 european foreign and domestically owned manufacturing plants we identify a significant tax saving of endogenous foreign owner ship on average foreign owners pay 594 euros per employee or about 56 percent less than domestic owners of similar subsidiaries this effect is larger in thinner markets with fewer plants in markets with a greater relative presence of foreign owners and for foreign owners of larger plants

central banking in the credit turmoil an assessment of federal reserve practice abstract central banking is understood in terms of the fiscal features of monetary credit and interest on reserves policies monetary policy expanding reserves by buying treasuries transfers all revenue from money creation directly to the fiscal authorities credit policy selling treasuries to fund loans or acquire non treasury securities is debt financed fiscal policy interest on reserves frees monetary policy to fund credit policy independently of interest rate policy an ambiguous boundary of responsibilities between the fed and the fiscal authorities contributed to economic collapse in fall 2008 accord principles are proposed to clarify fed credit policy powers and secure its independence on monetary and interest rate policy the fed needs more surplus capital from the fiscal authorities to be fully flexible against both inflation and deflation at the zero interest bound

exploring the role delaware plays as a domestic tax haven abstract we examine whether delaware is a domestic tax haven we find that taxes play an economically important role in determining whether u s firms locate subsidiaries in delaware and that a delaware based state tax avoidance strategy lowers state effective tax rates by between 0 7 and 1 1 percentage points on average the tax savings represent a 15 24 decrease in the state income tax burden and translate to an increase in net income of 1 04 1 47 however we find that the tax benefits of delaware tax strategies are diminishing over time in response to initiatives by state governments to limit multistate tax avoidance

market and public liquidity as the record of federal reserve interventions over the past year from december 2007 to december 2008 makes abundantly clear a foremost concern of monetary authorities in responding to the financial crisis has been to avoid a repeat of the great depression and especially a repeat of the monetary contraction that milton friedman and anna schwartz 1963 have claimed as the major cause of the 1930s depression the fed has shown tremendous resourcefulness and inventiveness in its liquidity injections considerably widening the collateral eligible under the discount window and the term auction facility and setting up new programs targeted at primary dealers the commercial paper market and money market funds at the same time it has stepped in to offer guarantees on assets held by some financial institutions e g citigroup to avoid their bankruptcy see david enrich et al 2008 this unprecedented intervention has had the intended effect of averting a major systemic financial meltdown and it has kept some critical financial institutions afloat yet until now banks have mostly responded by cutting new lending and hoarding liquidity so that the ultimate goal of forestalling a credit crunch has not been achieved for the most part banks also are still holding most of the toxic assets that monetary policy liquidity and financial crises

foreign direct investment in a world of multiple taxes abstract governments impose multiple taxes on foreign investors though studies of the effect of tax policy on the location of foreign direct investment fdi focus almost exclusively on corporate income taxes this paper examines the impact of indirect non income taxes on fdi by american multinational firms using affiliate level data that permit the introduction of controls for parent companies and affiliate industries indirect tax burdens significantly exceed the foreign income tax obligations of foreign affiliates of american companies estimates imply that 10 higher local indirect tax rates are associated with 7 1 lower affiliate assets which is similar to the effect of 10 higher income tax rates affiliate output falls by 2 9 as indirect taxes rise by 10 while higher income taxes have more modest output effects high corporate income tax rates depress capital labor ratios and profit rates of foreign affiliates whereas high indirect tax rates do not these patterns reveal the impact of indirect taxes and suggest the mechanisms by which direct and indirect taxes affect fdi

the credit crisis conjectures about causes and remedies what caused the financial crisis that is sweeping across the world what keeps asset prices and lending depressed what can be done to remedy matters while it is too early to arrive at definite answers to these questions it is certainly time to offer informed conjectures and these are the focus of this paper this abstract was borrowed from another version of this item

monetary policy in a systemic crisis summary this paper examines the monetary policy followed during the current financial crisis from the perspective of the theory of the lender of last resort it is argued that standard monetary policy measures would have failed because the channels through which monetary policy is implemented depend upon the well functioning of the interbank market as the crisis developed liquidity vanished and the interbank market collapsed central banks had to inject much more liquidity at low interest rates than predicted by standard monetary policy models at the same time as the interbank market did not allow for the redistribution of liquidity among ban ks central banks had to design new channels for liquidity injection

cross jurisdictional income shifting by u s multinationals evidence from international bond offerings we examine whether tax incentives influence where u s multinationals locate their interest deductions worldwide our sample includes international bond offerings by u s multinationals during 1987 1997 denominated in the currencies of australia canada france germany italy japan or the united kingdom our results suggest that u s multinationals debt location decisions take into account the effect of jurisdiction specific tax loss carryforwards and binding foreign tax credit limitations on the value of debt tax shields our results are also consistent with u s multinationals locating interest deductions in different tax jurisdictions as a mechanism to achieve tax motivated income shifting

choice and procrastination author s o donoghue ted rabin matthew abstract recent models of procrastination due to self control problems assume that a procrastinator considers just one option and is unaware of her self control problems we develop a model where a person chooses from a menu of options and is partially aware of her self control problems this menu model replicates earlier results and generates new ones a person might forego completing an attractive option because she plans to complete a more attractive but never to be completed option hence providing a non procrastinator additional options can induce procrastination and a person may procrastinate worse pursuing important goals than unimportant ones

incentives to transfer profits a japanese perspective the intense interest in transfer pricing problems shown by academics and tax practitioners alike has deepened with the publication on 8 october 1997 of the uk inland revenue s consultative document and draft legislation on transfer pricing in particular there has been a spate of professional commentary and queries for example see atkinson and tyrrall 1997 bunn 1997 taylor 1997 antzcak 1998 fairpo 1998 the prevailing tone of many articles is an agreement that something needed to be done in this area to address a perceived problem in the growth and development of multinational corporations the removal of international trade barriers has created a global economy with unprecedented world trade world trade has increased by a factor of 16 since 1950 while total world output increased only 5 5 times intragroup transfers are a large proportion of this trade tax authorities are acutely aware of the need to protect their tax base by policing transfer pricing more actively than in the past atkinson and tyrrall 1997 p 18 goods which may be subject to transfer pricing account for about half of world trade adams 1997 much of the academic research on transfer pricing has concentrated on the global aspects of income shifting for example see harris 1993 harris et al 1993 klassen et al 1993 jacob 1996

income shifting investment and tax competition theory and evidence from provincial taxation in canada abstract we study corporate income taxation when firms operating in multiple jurisdictions can shift income using tax planning strategies because income of corporate groups is not consolidated for tax purposes in canada firms may use financial techniques such as lending among affiliates to reduce subnational corporate taxes a simple theoretical model shows how income shifting affects real investment government revenues and tax base elasticities depending on whether firms must allocate income to provinces or not we then analyze data from administrative tax records to compare the behavior of corporate subsidiaries that may engage in income shifting to comparable firms that must use the statutory allocation formula to determine their taxable income in each province the evidence suggests that income shifting has pronounced effects on provincial tax bases according to our preferred estimate the elasticity of taxable income with respect to tax rates for income shifting firms is 4 9 compared with 2 3 for other comparable firms

empirical tax research in accounting this paper traces the development of archival microeconomic based empirical income tax research in accounting over the last 15 years the paper details three major areas of research i the coordination of tax and non tax factors ii the effects of taxes on asset prices and iii the taxation of multijurisdictional international and interstate commerce methodological concerns of particular interest to this field also are discussed the paper concludes with a discussion of possible directions for future research r 2001 elsevier science b v all rights reserved jel classification m41 h25 k34 g32 f23

taxes and capital structure evidence from firms response to the tax reform act of 1986 while the theoretical relation between taxes and capital structure has been extensively analyzed the empirical evidence on this issue has thus far been inconclusive one of the main difficulties confronting previous empirical studies of the cross sectional relationship between taxes and leverage was the control of intervening variables the tax reform act of 1986 tra which drastically changed the tax regime provides a unique opportunity to assess the interaction between taxes and leverage decisions in a controlled environment the authors test the relationship between leverage and certain tax related variables for a large sample of companies in the years surrounding the enactment of tra the results support the tax based theories of capital structure the findings indicate that there exists a substitution effect between debt and nondebt tax shields and that both corporate and personal tax rates affect leverage decisions coauthors are dan givoly aharon r ofer and oded sarig article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

accounting earnings and top executive compensation abstract this paper investigates the role of accounting earnings in top executive compensation contracts it provides evidence in support of the hypothesis that earnings based incentives help shield executives from market wide factors in stock prices the paper demonstrates that earnings reflect firm specific changes in value but are less sensitive to market wide movements in equity values as a result the inclusion of earnings based performance measures in executive compensation contracts helps shield executives from fluctuations in firm value that are beyond their control the hypothesis is shown to explain cross sectional variation in the use of earnings based incentives

an evaluation of alternative measures of corporate tax rates abstract this paper examines the ability of financial statement measures of average and marginal tax rates mtr to capture tax attributes utilizing firm level tax and financial data the results suggest commonly used average tax rate measures provide little insight about statutory tax burdens and may introduce substantial bias into analyses of tax incidence financial statement based proxies for mtr particularly those based on simulation methods are found to perform well in estimating current year tax rates both current year and present value mtr are found to be highly correlated with an easily constructed binary proxy of firms tax status

taxes and firm size abstract firm size has been used as a proxy for the firm s political costs and hence managers proclivity to choose income reducing accounting procedures this study provides additional evidence on this topic by examining the association between firm size and effective corporate tax rates the latter are one component of a firm s political costs the roughly fifty largest u s exchange listed firms in particular oil and gas companies and manufacturing firms have significantly higher worldwide tax rates than other firms these higher tax rates are observed primarily after the implementation of the u s 1969 tax reform act and after the opec countries raised their tax rates on u s oil producers the findings which are insensitive to alternative sources of data alternative measures of firm size and alternative measures of effective tax rates are consistent with the use in previous studies of firm size as a proxy for the firm s political costs

european banks and tax havens evidence from country by country reporting banks in the european union have recently started publicly reporting data on profit employee numbers turnover and tax on a country by country basis this new data source is capable of indicating

tenure issues in higher education the system of tenure that dominates american higher education has long been a source of controversy the institution of tenure has been attacked for entrenching a lazy professoriate more interested in attending faraway conferences and producing unreadable research than in teaching or developing practical insights while on the other hand it has long been defended as an absolute necessity for the defense of open intellectual inquiry the tenure controversy has been sharpened in recent years by several events the end of mandatory retirement which was abolished by federal law effective january 1 1994 has heightened concerns about the productivity and commitment of professors who received tenure long ago and who no longer have the same incentives to invest in long term reputation there is also ongoing concern over the steadily rising cost of higher education which raises the question of what students as well as the taxpayers who support public institutions of higher education are getting for their money 1 the idea that tenure is a wasteful institution for universities runs up against the puzzling fact that the commitment to tenure is one that academic institutions impose on themselves although the american association of university professors aaup provides a powerful lobby in favor of tenure generally colleges and universities most notably private ones are under no legal requirement to observe tenure constraints although as administrators we certainly feel the weight of those constraints our view is that a tenure system in fact provides important benefits to society and to colleges and universities we argue here that the role of tenure is

taxes and transfer pricing income shifting and the volume of intra firm transfers this paper extends harris 1993 by linking the level of taxes paid by firms and the profits they report in various geographic areas to the volume of intergeographic area transactions within firms if firms use the prices for goods transferred internationally to minimize their global taxes it seems reasonable that the greatest opportunities and incentives for such manipulation exist for firms with large amounts of international intrafirm sales and with large differences in tax rates between regions following harris 1993 these firms constitute the flexibility partition with the greatest incentives and opportunities for transfer price management a

public pressure and corporate tax behavior we use a shock to the public scrutiny of firm subsidiary locations to investigate whether that scrutiny leads to changes in firms disclosure and corporate tax avoidance behavior actionaid international a nonprofit activist group levied public pressure on noncompliant u k firms in the ftse 100 to comply with a rule requiring u k firms to disclose the location of all of their subsidiaries we use this setting to examine whether the public pressure led scrutinized firms to increase their subsidiary disclosure decrease tax avoidance and reduce the use of subsidiaries in tax haven countries compared to other firms in the ftse 100 not affected by the public pressure the evidence suggests that the public scrutiny sufficiently changed the costs and benefits of tax avoidance such that tax expense increased for scrutinized firms the results suggest that public pressure from outside activist groups can exert a significant influence on the behavior of large publicly traded firms our findings extend prior research that has had little success documenting an empirical relation between public scrutiny of tax avoidance and firm behavior

financial instability reserves and central bank swap lines in the panic of 2008 in this paper we connect the events of the last twelve months the panic of 2008 as it has been called to the demand for international reserves in previous work we have shown that international reserve demand can be rationalized by a central bank s desire to backstop the broad money supply to avert the possibility of an internal external double drain a bank run combined with capital flight thus simply looking at trade or short term debt as motivations for reserve holdings is insufficient one must also consider the size of the banking system m2 here we show that a country s reserve holdings just before the current crisis relative to their predicted holdings based on these financial motives can significantly predict exchange rate movements of both emerging and advanced countries in 2008 countries with large war chests did not depreciate and some appreciated meanwhile those who held insufficient reserves based on our metric were likely to depreciate current account balances and short term debt levels are not statistically significant predictors of depreciation once reserve levels are taken into account our model s typically high predicted reserve levels provide important context for the unprecedented u s dollar swap lines recently provided to many countries by the federal reserve this abstract was borrowed from another version of this item

corporate profit tax capital mobility and formula apportionment abstract the paper develops an analytical framework in which regional governments strategically determine the structure of the corporate profit tax system when an apportionment formula determines the proportion of the firms income subject to regional taxation the conclusions can be summarized as follows i regional governments subsidize capital through the corporate tax system ii tax rates become higher and the portion of capital costs that can be deducted from taxable income becomes smaller as the formula weighs more production shares iii the regionally provided good may be below or above the efficient level iv the extent of the distortion depends on the particular formula put into practice v regional governments strictly prefer a formula that exclusively weighs the production proportion to any other alternative

the impact of state taxes on self insurance abstract this paper assesses whether insurers state taxes reduce purchases of property casualty coverage tests are conducted using state aggregates of insurer level data from publicly available annual accounting reports for 1993 1995 a positive relation between self insurance and state taxes is detected consistent with consumers opting to self insure rather than bear the incidence of higher insurer taxes as expected tax effects vary with the elasticity of demand when demand is largely inelastic e g automobile liability coverage taxes do not affect self insurance