the value of tax shields is equal to the present value of tax shields abstract fernandez 2004b the value of tax shields is not equal to the present value of tax shields journal of financial economics 73 145 165 argues that the present value effect of the tax saving on debt cannot be calculated as simply the present value of the tax shields associated with interest this contradicts standard results in the literature it implies that even though the capital market is complete value additivity is violated as a consequence adjusted present value formulae of a standard sort cannot be used also fernandez s argument implies that the value of the tax saving differs from conventional estimates by a considerable amount we reconcile fernandez s results with standard valuation formulae for the tax saving from debt we show that as one would expect the value of the debt tax saving is the present value of the tax savings from interest the apparent violation of value additivity in the fernandez paper comes from mixing the miles and ezzell and miller and modigliani leverage policies

the effect of income on mortality evidence from the social security notch abstract legislation in the 1970s created a notch in social security payments with those born after january 1 1917 receiving sharply lower benefits using restricted use versions of the national mortality detail file combined with census data we use this quasi experiment to examine the income mortality link in an elderly population estimates from difference in difference and regression discontinuity models show the higher income group has a statistically significantly higher mortality rate contradicting the previous literature we also found that younger cohorts responded to lower incomes by increasing postretirement work effort suggesting that moderate employment has beneficial health effects for the elderly

the causal effect of income on health evidence from german reunification we investigate whether there was a causal effect of income changes on the health satisfaction of east and west germans in the years following reunification our data source is the german socio economic panel gsoep between 1984 and 2002 and we fit a recently proposed fixed effects ordinal estimator to our health measures and use a causal decomposition technique to account for panel attrition we find evidence of a significant positive effect of income changes on health satisfaction but the quantitative size of this effect is small this is the case with respect to current income and a measure of permanent income

a lifecycle perspective of stock market performance and wellbeing we estimate the effect of stock market fluctuations on subjective wellbeing and mental health using australian survey data over the period 2001 2012 which includes the global financial crisis a particular innovation of the paper is the use of three satisfaction measures overall financial employment and the use of a stylised lifecycle investment model these features coupled with a robust identification strategy based on comparing survey respondents interviewed in the same quarter and location allow us to better understand individual reactions to stock market changes we find that stock market increases lead to a significant but modest improvements in life satisfaction and mental health this effect is driven by young and middle aged males and is stronger for those with direct exposure to the stock market for young cohorts the stock market index acts as a leading indicator of employment prospects whilst for older cohorts it acts directly on financial satisfaction

do regulations work a comprehensive analysis of price limits and trading restrictions in experimental asset markets with deterministic and stochastic fundamental values abstract we examine how traders react to two prominent stock market regulations under a constant fundamental value fv process price limits and trading restrictions significantly reduce the price level and mispricing size when traders are inexperienced under a markov process fv there is no evidence for these regulations to reduce mispricing the novel markov process also serves as a testbed for several financial hypotheses related to the regulations we find that price limits do not improve reactions to market news and the binding of price limits magnifies the momentum in the price movements these findings suggest that the scope of these regulations is limited and that they can backfire in some market environments

the short term mortality consequences of income receipt many studies find that households increase their co nsumption after the receipt of expected income payments a result inconsistent wit h the life cycle permanent income hypothesis consumption can increase adverse healt h events such as traffic accidents heart attacks and strokes in this pape r we examine the short term mortality consequences of income receipt we find that mortality increases following the arrival of monthly social security payments re gular wage payments for military personnel the 2001 tax rebates and alaska permane nt fund dividend payments the increase in short run mortality is large potential ly eliminating some of the protective benefits of additional income

estimating the effect of income on health and mortality using lottery prizes as an exogenous source of variation in income a vast literature has established a strong positive relation between income and health status and a negative relation with mortality this paper studies the effects of income on health and mortality using only the part of income variation due to a truly exogenous factor monetary lottery prizes of individuals the findings are that higher income causally generates good health and that this effect is of a similar magnitude as when traditional estimation techniques are used a 10 percent income increase improves health by about 4 5 percent of a standard deviation

insights on unemployment unemployment insurance and mental health abstract this paper contributes to the growing literature on the relationship between business cycles and mental health it is one of the first applications in the economics literature to incorporate data on web searches from google insights for search and these unique data allow the opportunity to estimate the association between weekly unemployment insurance ui claims in addition to monthly unemployment rates and search indexes for depression and anxiety results from state fixed effects models yield 1 a positive relationship between the unemployment rate and the depression search index and 2 a negative relationship between initial ui claims on the one hand and the depression and anxiety search indexes on the other a lag analysis also shows that an extended period of higher levels of continued ui claims is associated with a higher depression search index

the debt equity choice when firms adjust their capital structures they tend to move toward a target debt ratio that is consistent with theories based on tradeoffs between the costs and benefits of debt in contrast to previous empirical work out tests explicitly account for the fact that firms may face impediments to movements toward their target ratio and that the target ratio may change over time as the firm s profitability and stock price change a separate analysis of the size of the issue and repurchase transactions suggests that the deviation between the actual and the target ratios plays a more important role in the repurchase decision than in the issuance decision

taxes and bank capital structure this paper shows that a reduction in tax discrimination between debt and equity funding leads to better capitalized financial institutions the paper exploits exogenous variation in the tax treatment of debt and equity created by the introduction of a tax shield for equity the results demonstrate that a more equal treatment of debt and equity increases bank capital ratios driven by an increase in common equity the change also leads to a significant reduction in risk taking for ex ante low capitalized banks overall the findings suggest that tax shields could be a valuable and innovative policy tool for bank regulators

exploring the health wealth nexus the causal links between health and economic resources have long concerned social scientists we use four waves of data from the panel study of income dynamics psid to analyze the impact of wealth upon an individual s health status the difficulty in approaching this task that has bedeviled previous studies is that wealth may be endogenous a priori it is just as likely that changes in health affect wealth as vice versa we argue that inheritance is a suitable instrument for the change in wealth and implement a straightforward instrumental variables strategy to deal with this problem our results suggest that the causal relationship running from wealth to health may not be as strong as first appears in the data wealth exerts a positive and statistically significant effect on health status but it is very small in magnitude instrumental variables estimation leaves the point estimate approximately the same but renders it insignificantly different from zero and even when the point estimate is increased by twice its standard error s e the quantitative effect is small we conclude that the wealth health connection is not driven by short run changes in wealth

macroeconomic conditions and well being do social interactions matter abstractwe investigate the role played by social interactions in the transmission of the effects of macroeconomic conditions on well being using survey data for a representative sample of italian individuals we find that social interactions play a dual role on the one hand the well being of people who spend more time with their friends or go out more often is less sensitive to macroeconomic fluctuations on the other hand social interactions are negatively affected by worsening macroeconomic conditions thus playing a relevant role in the transmission of macroeconomic shocks to subjective well being more specifically the negative impact of downturns on the frequency of going out and active participation in associations significantly contributes to the adverse effects of recessions on satisfaction with life and with individual life domains

differential payments within a bidder coalition and the shapley value bidder coalitions at english auctions frequently distribute collusive gains among members via a secondary auction or knockout when coalition members are sufficiently heterogeneous nested coalition structures are observed in which a knockout is conducted at each level of nesting the nested knockout s characteristics are investigated within many settings we find that the expected payments to coalition members via the nested knockout equal the shapley value incentive compatibility problems of the nested knockout are also analyzed

do taxes affect corporate debt policy evidence from us corporate tax return data abstract this paper uses u s statistics of income soi corporate income tax returns balance sheet data on all corporations to estimate the effects of changes in corporate tax rates on the debt policies of firms of different sizes small firms face very different tax rates than larger firms and relative tax rates have also changed frequently over time providing substantial information to identify tax effects the results suggest that taxes have had a strong and statistically significant effect on debt levels for example cutting the corporate tax rate by ten percentage points e g from 46 to 36 holding personal tax rates fixed is forecast to reduce the fraction of assets financed with debt by around 3 5 since small firms normally rely much more heavily on debt finance yet face much lower tax incentives to use debt the estimated effect of taxes would be strongly biased downwards without controls for firm size

how stable are corporate capital structures leverage cross sections more than a few years apart differ markedly with similarities evaporating as the time between them lengthens many firms have high and low leverage at different times but few keep debt to assets ratios consistently above 0 500 capital structure stability is the exception not the rule occurs primarily at low leverage and is virtually always temporary with many firms abandoning low leverage during the post war boom industry median leverage varies widely over time target leverage models that place little or no weight on maintaining a particular ratio do a good job replicating the substantial instability of the actual leverage cross section

an international comparison of capital structure and debt maturity choices this study examines how the institutional environment influences capital structure and debt maturity choices of firms in 39 developed and developing countries we find that a country s legal and tax system corruption and the preferences of capital suppliers explain a significant portion of the variation in leverage and debt maturity ratios specifically firms in more corrupt countries and those with weaker laws tend to use more debt especially short term debt explicit bankruptcy codes and deposit insurance are associated with higher leverage and more long term debt more debt is used in countries where there is a greater tax gain from leverage

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

debt and the marginal tax rate abstract do taxes affect corporate debt policy this paper tests whether the incremental use of debt is positively related to simulated firm specific marginal tax rates that account for net operating losses investment tax credits and the alternative minimum tax the simulated marginal tax rates exhibit substantial variation due to the dynamics of the tax code tax regime shifts business cycle effects and the progressive nature of the statutory tax schedule using annual data from more than 10 000 firms for the years 1980 1992 i provide evidence which indicates that high tax rate firms issue more debt than their low tax rate counterparts

income shocks and suicides causal evidence from indonesia we examine how income shocks affect the suicide rate in indonesia we use a difference in differences approach exploiting the cash transfer s nationwide rollout and corroborate the findings using

the top 1 percent in international and historical perspective world top incomes database at http topincomes parisschoolofeconomics eu and has represented a challenge to the economics profession stories based on the and has represented a challenge to the economics profession stories based on the supply and demand for skills are not enough to explain the extreme top tail of supply and demand for skills are not enough to explain the extreme top tail of the earnings distribution nor is it enough to look only at earned incomes different the earnings distribution nor is it enough to look only at earned incomes different approaches are necessary to explain what has happened in the united states over approaches are necessary to explain what has happened in the united states over the past century and also to explain the differing experience in other high income the past century and also to explain the differing experience in other high income countries over recent decades we begin with the international comparison in the countries over recent decades we begin with the international comparison in the fi rst section and then turn to the causes and implications of the evolution of top fi rst section and then turn to the causes and implications of the evolution of top income shares income shares

the role of economic shocks on health evidence from german reunification sudden economic shocks impact the everyday lives of people from one day to the next a number of studies have examined the association between economic fluctuations and health however no consensus on the nature of this relationship has been established by exploiting the dramatic economic fluctuations following the german reunification of 1990 which included a sudden change from a socialist to a capitalist system in east germany this study examines the association between broad negative economic shocks and health the article finds that increases in state unemployment rates are associated with large and statistically significant declines in health outcomes estimates are stronger for people who became unemployed shortly after reunification for low income individuals and for east germans a group confronted with larger economic fluctuations when examining potential mechanisms that could explain the observed health deteriorations the study finds significant reductions in exercise frequency and increases in economic uncertainty and overall stress

liquidity economic activity and mortality abstract we document a within month mortality cycle where deaths decline before the first day of the month and spike after the first this cycle is present across a wide variety of causes and demographic groups a similar cycle exists for a range of economic activities suggesting the mortality cycle may be due to short term variation in levels of economic activity we provide evidence that the within month activity cycle is generated by liquidity our results suggest a causal pathway whereby liquidity problems reduce activity which in turn reduces mortality these relationships may help explain the procyclical nature of mortality

top incomes in the long run of history a recent literature has constructed top income shares time series over the long run for more than twenty countries using income tax statistics top incomes represent a small share of the population but a very significant share of total income and total taxes paid hence aggregate economic growth per capita and gini inequality indexes are sensitive to excluding or including top incomes we discuss the estimation methods and issues that arise when constructing top income share series including income definition and comparability over time and across countries tax avoidance and tax evasion we provide a summary of the key empirical findings most countries experience a dramatic drop in top income shares in the first part of the twentieth century in general due to shocks to top capital incomes during the wars and depression shocks top income shares do not recover in the immediate postwar decades however over the last thirty years top income shares have increased substantially in english speaking countries and in india and china but not in continental european countries or japan this increase is due in part to an unprecedented surge in top wage incomes as a result wage income comprises a larger fraction of top incomes than in the past finally we discuss the theoretical and empirical models that have been proposed to account for the facts and the main questions that remain open

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

recession depression mental health effects of the 2008 stock market crash do sudden large wealth losses affect mental health we use exogenous variation in the interview dates of the 2008 health and retirement study to assess the impact of large wealth losses on mental health among older u s adults we compare cross wave changes in wealth and mental health for respondents interviewed before and after the october 2008 stock market crash we find that the crash reduced wealth and increased feelings of depression and use of antidepressant drugs and that these effects were largest among respondents with high levels of stock holdings prior to the crash these results suggest that sudden wealth losses cause immediate declines in subjective measures of mental health however we find no evidence that wealth losses lead to increases in clinically validated measures of depressive symptoms or indicators of depression

evidence on the insurance effect of redistributive taxation copyright 2010 by the president and fellows of harvard college and the massachusetts institute of technology

the impact of stock market fluctuations on the mental and physical well being of children the stock market crash of 2008 caused a severe impact to households earlier research has explored the impacts of a stock market crash on life well being psychological stress and adult health behaviors we extend this literature by documenting impacts of stock market fluctuations on a range of child outcomes including effects on both mental and physical health we show a negative effect of a market crash on hospitalizations child reported health status sick days from school and an aggregate health index measure both graphical and regression based analysis reveal that our results are not driven by a preexisting trend of declining child health before the market crash and extensive sensitivity analysis demonstrates that the results are robust to multiple empirical specifications jel i15 e32 j13

the debt tax shield in general equilibrium abstract we study the general equilibrium effects of the corporate debt tax shield in an endowment economy with a redistributive tax system that taxes firm profits and household income and redistributes tax revenues in an attempt to harmonize households lifetime consumption opportunities in general equilibrium the debt tax shield not only affects corporate capital structure and valuation but also causes poorer households to consume more and save less at a younger age without the debt tax shield the same welfare improvements for poorer households are achievable with significantly lower tax rates

taxes and corporate policies evidence from a quasi natural experiment we document important interactions between tax incentives and corporate policies using a quasi natural experiment provided by a surprise announcement that imposed corporate taxes on a group of canadian publicly traded firms the announcement caused a dramatic decrease in value prospective tax shields partially offset the losses adding 4 6 to firm value on average and vary with the tax status of the marginal investor further firms adjust leverage payout cash holdings and investment in response to changing tax incentives overall the event study and time series evidence supports the view that taxes are important for corporate decision making

stock market crash and expectations of american households this paper utilizes data on subjective probabilities to study the impact of the stock market crash of 2008 on households expectations about the returns on the stock market index we use data from the health and retirement study that was fielded in february 2008 through february 2009 the effect of the crash is identified from the date of the interview which is shown to be exogenous to previous stock market expectations we estimate the effect of the crash on the population average of expected returns the population average of the uncertainty about returns subjective standard deviation and the cross sectional heterogeneity in expected returns disagreement we show estimates from simple reduced form regressions on probability answers as well as from a more structural model that focuses on the parameters of interest and separates survey noise from relevant heterogeneity we find a temporary increase in the population average of expectations and uncertainty right after the crash the effect on cross sectional heterogeneity is more significant and longer lasting which implies substantial long term increase in disagreement the increase in disagreement is larger among the stockholders the more informed and those with higher cognitive capacity and disagreement co moves with trading volume and volatility in the market

crash and wait the impact of the great recession on the retirement plans of older americans this study uses data from pre and post crash surveys from the cognitive economics study to examine the impact of recent stock and labor market wealth losses on the planned retirement ages of older americans regression estimates imply that the average wealth loss between july 2008 and may june 2009 is associated with an increase in planned retirement age of approximately 2 5 months furthermore pessimism about future stock market returns is found to amplify the impact of wealth losses on retirement timing