optimal monetary policy in an economy with inflation persistence abstract this paper studies optimal monetary policy in a model where inflation is persistent two types of price setters are assumed to exist one acts rationally given calvo type constraints on price setting the other type sets prices according to a rule of thumb this results in a phillips curve with both a forward looking term and a backward looking term the phillips curve nests a standard purely forward looking phillips curve as well as a standard purely backward looking phillips curve as special cases a cost push supply shock is derived from microfoundations by adding a time varying income tax and by making the elasticity of substitution between goods stochastic a central bank loss function for this model is derived from a second order taylor approximation of the household s welfare function optimal monetary policy for different relative values of the forward and backward looking terms is then analyzed for both the commitment case and the case of discretion

generating real persistent effects of monetary shocks how much nominal rigidity do we really need abstract this paper attempts to assess whether money can generate persistent economic fluctuations in dynamic general equilibrium models of the business cycle we show that a small nominal friction in the goods market can make the response of output to monetary shocks large and persistent if it is amplified by real wage rigidity in the labor market we also argue that for plausible levels of real wage rigidity a small degree of nominal stickiness is sufficient for money to produce economic fluctuations as persistent as those observed in the data

debt leases taxes and the endogeneity of corporate tax status we provide evidence that corporate tax status is endogenous to financing decisions which induces a spurious relation between measures of financial policy and many commonly used tax proxies using a forward looking estimate of before financing corporate marginal tax rates we document a negative relation between operating leases and tax rates and a positive relation between debt levels and tax rates this is the first unambiguous evidence supporting the hypothesis that low tax rate firms lease more and have lower debt levels than high tax rate firms many theories of capital structure imply that all else equal the incentive to use debt financing increases with a firm s marginal tax rate due to the tax deductibility of interest expense e g modigliani and miller 1963 deangelo and masulis 1980 conversely leasing models generally predict that firms with low marginal tax rates employ relatively more leases than do firms with high marginal tax rates the logic behind the leasinlg prediction is that leases allow for the transfer of tax shields from firms that cannot fully utilize the associated tax deduction lessees to firms that can lessors e g myers dill and bautista 1976 smith and wakeman 1985 ross westerfield and jaffe 1996 despite these straightforward predictions empirically testing for tax effects is difficult because a spurious relation exists between the financing decision and many commonly used tax proxies specifically both interest expense and lease payments are tax deductible thus a firm that finances its operations with debt or leases reduces its taxable income potentially lowering its expected marginal tax rate if not properly addressed this endogeneity of the tax rate can bias an experiment in favor of finding a negative

dynamic investment and financing under personal taxation this paper examines the effects of capital gains taxation on firms investment and financing decisions we develop a real options model in which the timing of investment the decision to default and the firm s capital structure are endogenously and jointly determined our analysis demonstrates that the asymmetric taxation of capital gains and losses fosters investment by eroding the option value of waiting it also shows that firms controlled by taxable investors employ more equity financing the higher the firm s stock price and the worse the firm s historical performance using a large sample of u s industrial firms that are owned by taxable investors between 1970 and 2008 we present new evidence on corporate investment and financing policies which is supportive of the model s predictions

foreign direct investment intra firm trade and ownership structure abstract asymmetric information about true opportunity cost in trade between a multinational and its foreign affiliate can alleviate the hold up problem in foreign direct investment selling shares in the affiliate to locals is also beneficial because it increases the parent multinational s information rent that is protected from a host government s confiscatory taxation

exchange rate pass through exchange rate volatility and exchange rate disconnect abstract this paper explores the hypothesis that high volatility of real and nominal exchange rates may be due to the fact that local currency pricing eliminates the pass through from changes in exchange rates to consumer prices exchange rates may be highly volatile because in a sense they have little effect on macroeconomic variables the paper shows the ingredients necessary to construct such an explanation for exchange rate volatility in addition to the presence of local currency pricing we need a incomplete international financial markets b a structure of international pricing and product distribution such that wealth effects of exchange rate changes are minimized and c stochastic deviations from uncovered interest rate parity together it is shown that these elements can produce exchange rate volatility that is much higher than shocks to economic fundamentals and disconnected from the rest of the economy in the sense that the volatility of all other macroeconomic aggregates are of the same order as that of fundamentals

taxes and financial frictions implications for corporate capital structure abstract according to data from compustat we observe three general trends between 1980 and 2012 first firms have been reducing their reliance on debt as leverage ratios have fallen and an increasing fraction of firms are now actually net lenders second the frequency at which firms neither issue external equity nor distribute dividends to shareholders has fallen third marginal corporate income tax rates have fallen significantly as well using compustat balance sheet data we structurally estimate a model in which heterogeneous firms finance investment with equity and debt our model incorporates costly external finance as well as a detailed tax structure including personal dividend and corporate income taxes we conclude that there has been a significant reduction in the cost of external equity while overall leverage ratios have fallen mainly because of a lower tax advantage of debt

endogenous transfer pricing and the effects of uncertain regulation abstract a scenario is constructed under which a multinational firm mnf faces a threat of a penalty the probability of which is based on the mnf s transfer price given this scenario the mnf s optimum transfer price could be in the interior and simultaneous interaction of the transfer price and real variables exists increased surveillance of the transfer price makes the mnf move its transfer price towards the arm s length price and checks fiscal abuses but it worsens the international allocation of resources even though the cost advantage of the exporting country increases still the impact on global welfare is ambiguous

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

a general unconstrained model for transfer pricing in multinational supply chains multinational supply chains operate in more than one country or tax jurisdiction and face decision problems concerned with trade flows of resources products and services transfer prices and allocation of transport costs between their divisions these decisions must consider for the sake of optimality corporate and governmental parameters such as the payment of dividends and royalties ownership of and control over subsidiaries income taxes differentials duties and quotas etc in this paper we generalize and extend the theory of the multinational firm to the case of multinational supply chains we propose a model that is more general and comprehensive than the previous ones proposed in the literature to be more specific our model integrates many of the previous research factors and includes new ones such as transport costs and duty drawbacks which are critical for supply chains that operate under international trade regulations under the maximization of the repatriated earnings objective we study the optimality conditions of the corporate decision variables to derive managerial guidelines and to determine how decisions regarding trade quantities transfer prices and transport cost allocations affect the amount of taxes to be paid to host governments as well as the total after tax repatriated earnings of the corporation

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

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

an open economy new keynesian phillips curve for the u k abstract we estimate a pricing equation or new keynesian phillips curve nkpc obtained from a structural dynamic model of price setting based on rotemberg 1982 sticky prices in the united states journal of political economy 90 6 1187 1211 and extended to capture employment adjustment costs and the openness of the united kingdom this model nests the baseline gali and gertler 1999 inflation dynamics a structural econometric analysis quarterly journal of economics 110 127 159 and sbordone 2002 prices and unit labor costs a new test of price stickiness journal of monetary economics 49 265 292 relationship between inflation and marginal cost in the limiting case of no employment adjustment costs no impact of relative prices of imported inputs on real marginal cost and a constant equilibrium markup our findings indicate that each of our modifications to the baseline nkpc model is important for u k data so that inflation in the u k is explained both by changes in employment and by changes in real import prices in general and real oil prices in particular external competitive pressures also seem to affect u k inflation via their impact on the equilibrium price markup of domestic firms

market valuation of tax timing options evidence from capital gains distributions we examine a distribution that is taxed as a capital gain rather than as a dividend since the distribution induces a realized capital gain while the price change is an unrealized gain ex day return behavior provides evidence of the value of tax timing capital gains we show that investors are compensated 7c in unrealized gains for each dollar of realized capital gains that is 1 of realized capital gains is equivalent to 93c of unrealized gains an investor with a tax rate on realized gains of 15 has an effective tax rate on unrealized capital gains of 8 6 capital gains taxes can be deferred until assets are sold this feature provides the investor who purchases a security with an option regarding the timing of the realization of capital gains and losses this option can be used to lower one s expected tax liability even if capital gains tax rates remain constant for different holding periods an investor who delays the realization of a gain effectively enjoys compound returns on the postponed taxes if capital losses are tax deductible or partially tax deductible tax timing is even more valuable since investors can follow the strategy of selling stocks with capital losses early while postponing the sale of winners recent evidence lends support to the contention that some investors respond to this tax timing option for example odean 1998 shows that u s investors are more likely to sell losers in december than other months similarly grinblatt and keloharju 2002 show that at the end of the tax year finnish investors are more likely to realize losses than gains this type of tax motivated trade seems to affect market returns as shown by poterba and weisbenner 2001 who demonstrate that end of year tax loss selling is related to return variation in the month of january

company tax reform with a water s edge this paper analyzes the effects of switching from a corporate tax system based on separate accounting sa towards a system in which two countries form a formula apportionment fa union while a third country sticks to sa water s edge our analysis draws a positive picture on the water s edge regulation in the short run for given tax rates the transition from sa to fa is likely to reduce profit shifting from the fa union to non fa tax havens in a long run tax competition analysis we find a negative water s edge externality under fa that tends to be less detrimental than the profit shifting externality under sa and may offset other externalities under fa

debt policy corporate taxes and discount rates abstract this paper applies the standard risk neutral valuation framework to tax shields generated by dynamic debt policies we derive a partial differential equation pde for the value of the debt tax shield for a class of dynamic debt policies that depend on the asset s free cash flows value and past performance we obtain closed form solutions for the pde we also derive the tax adjusted cost of capital for free cash flows and analyze the conditions under which the weighted average cost of capital is an appropriate discount rate finally we derive closed form solutions for equity betas which differ from the formulas that have traditionally been used to lever and unlever equity betas

foreign subsidiary transfer pricing and tariffs in the transfer pricing literature horst 12 concludes that the multinational firm mnf will generally charge a low transfer price ltp while other authors are ambivalent on this question this paper shows that less than whole ownership over the subsidiary generally makes the mnf change its transfer pricing strategy from desiring a ltp to wanting a high transfer price htp the conditions for an htp are fairly broad so that we are more likely to observe it than has been suggested in the literature the mnf literature also presumes that the host country loses revenue due to an htp however this view ignores the effects of tariffs on a government s revenue if tariff revenue is included an htp can increase the host country s revenue

taxes capital structure choices and equity value we use a multitude of tax reforms across the organisation for economic co operation and development oecd countries as natural experiments to estimate the market value of the tax benefits of debt financing we report time series evidence that tax reforms are followed by large changes in the value of corporate equity however the impact of tax reforms is greatly mitigated by the presence of leverage the value of debt tax savings is greater among top taxpayers among highly profitable firms and in countries where tax laws are more strongly enforced importantly the value of debt tax savings is in line with the benchmark implied by a traditional approach

factor hoarding and the propagation of business cycles shocks this paper analyzes the role of variable capital utilization rates in propagating shocks over the business cycle to this end we formulate and estimate an equilibrium business cycle model in which cyclical capital utilization rates are viewed as a form of factor hoarding we find that variable capital utilization rates substantially magnify and propagate the impact of shocks to agents environments the strength of these propagation effects is evident in the dynamic response functions of various economy wide aggregates to shocks in agents environments in the statistics that we construct to summarize the strength of the propagation mechanisms in the model and in the volatility of exogenous technology shocks needed to explain the observed variability in aggregate u s output other authors have argued that standard real business cycle rbc models fail to account for certain features of the data because they do not embody quantitatively important propagation mechanisms these features include the observed positive serial correlation in the growth rate of output the shape of the spectrum of the growth rate of real output and the correlation between the forecastable component of real output and various other economic aggregates allowing for variable capital utilization rates substantially improves the ability of the model to account for these features of the data

incorporating financing related determinants of value in the discounted cash flow model abstract the paper discusses how some of the main types of interaction between financing and value can be incorporated in the discounted cash flow model of valuation including effects arising from taxes transactions costs disclosure information asymmetry and agency problems it explains whether a given effect should appear in a project s cash flows in its cost of capital or as an upfront adjustment to value most of the effects imply that the principle of value additivity does not hold

effects of capital gains taxation on life cycle investment and portfolio management we examine the impact of capital income taxation both accrual forms of taxation and taxation of realized capital gains on total savings and the demand for corporate financial instruments we find that investors may hold both debt and equity in the face of effective collection of capital gains taxation even in a flat tax system we also find that the two taxes will have substantially different effects on saving and consumption behavior making it unlikely that the tax structure can be summarized by any single equivalent accrual tax rate this paper examines the impact of income taxation on the demand for various corporate financial instruments focusing on unique features due to taxation of realized capital gains we take a life cycle view of investment behavior and examine how accrual and realization taxation jointly affect an individual s allocation of intertemporal resources we shall consider the impact on his demand for debt and equity showing that taxation of realized capital gains generates an intrapersonal tax clientele effect at any one point of time an individual will strictly prefer either to buy debt or equity but that choice may be different at different ages therefore many individuals will simultaneously hold both debt and equity we also find that any attempt to measure the effective capital gains tax rate will be difficult and that existing approaches appear flawed since they do not correspond to the pattern of distortions which we find in this explicit model of asset demand and saving this analysis deviates from earlier work on capital gains taxation in several substantial dimensions whereas much of the capital gains taxation literature focuses on how capital gains tax regulations generate arbitrage opportunities in perfect capital markets the analysis used below essentially assumes effective enforcement of the intent of capital gains taxation this is desirable since contrary to the perfect capital market implication capital gains tax revenues are nontrivial therefore in examining the nature of asset demand and choice it is reasonable to assume somewhat effective collection of the capital gains tax liabilities our analysis will assume completely effective enforcement to highlight the impact of capital gains taxation it will be clear that several types of leakages will not substantially alter the qualitative conclusions

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

the taylor rule and optimal monetary policy where it denotes the fed s operating target for the federal funds rate pt is the inflation rate measured by the gdp deflator yt is the log of real gdp and y t is the log of potential output identified empirically with a linear trend the rule has since been subject to considerable attention both as an account of actual policy in the united states and elsewhere and as a prescription for desirable policy taylor argues for the rule s normative significance both on the basis of simulations and on the ground that it describes u s policy in a period in which monetary policy is widely judged to have been unusually successful taylor 1999 suggesting that the rule is worth adopting as a principle of behavior here i wish to consider to what extent this prescription resembles the sort of policy that economic theory would recommend i consider the question in the context of a simple but widely used optimizing model of the monetary transmission mechanism which allows one to reach clear conclusions about economic welfare the model is highly stylized but incorporates important features of more realistic models and allows me to make several points that are of more general validity out of concern for the robustness of the conclusions reached the analysis here addresses only broad qualitative features of the taylor rule and attempts to identify features of a desirable policy rule that are likely to hold under a variety of model specifications

modeling inflation in australia this article develops an empirically constant data coherent error correction model for inflation in australia the level of consumer prices is a markup over domestic and import costs with adjustments for dynamics and relative aggregate demand we address issues of cointegration general to specific modeling dynamic specification model evaluation and testing parameter constancy forecasting and exogeneity we also test this model against existing models of australian prices this model encompasses but is not encompassed by the existing models

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

optimal consumption and investment with capital gains taxes this article characterizes optimal dynamic consumption and portfolio decisions in the presence of capital gains taxes and short sale restrictions the optimal decisions are a function of the investor s age initial portfolio holdings and tax basis our results capture the trade off between the diversification benefits and tax costs of trading over an investor s lifetime the incentive to rediversify the portfolio is inversely related to the size of the embedded gain and investor s age contrary to standard financial advice the optimal equity holding increases well into an investor s lifetime in our model due to the forgiveness of capital gains taxes at death taxes play an important role in the decision making process of individuals concerning their consumption and investment plans the taxation of returns on financial assets alters the benefits of saving for future consumption and thus affects the trade off between current consumption and investment moreover the ability of investors to defer the taxation of capital gains alters the relative valuation of stocks and bonds and thus affects the optimal portfolio composition of investors the deferral feature of capital gains taxes also affects the trade off investors face regarding taxes and diversification investors would like to maintain an optimally diversified portfolio over time

the value of the tax subsidy on risky debt the effect of corporate taxes on the market value of a levered firm continues to be a central issue in recent contributions in finance theory e g miller 1977 deangelo and masulis 1980 kim 1982 modigliani 1982 in these and other studies e g krause and litzenberger 1973 scott 1976 brennan and schwartz 1978 kim 1978 the relationship between market value and capital structure is established by formulating a tax subsidy function that specifies the partial effect of debt on the expected tax savings at the corporate level under the existing u s tax code a working assumption in most of these studies is that both principal and interest are tax deductible this assumption is made in the spirit of the original modigliani and miller 1963 formulation in which debt is taken to be perpetual and riskless indeed it is well known that the tax shield provided by the deduction of principal in a singleperiod framework has the same value as the tax shield from interest deductions in the case of perpetual and riskless debt under this assumption it is shown that in the absence of non debtthis paper examines the relationship between leverage and the value of the firm when non debt related tax shields are available and the corporate tax is levied as an income tax in a previous paper de angelo and masulis argue that in the presence of nondebt related tax shields the relationship between debt and firm value is concave resulting in an interior optimal capital structure when there is a tax induced differential in the cost of corporate debt their result derives from the fact that they assume the payment of debt principal and non debt related depreciation charges are deductible however the former deduction is consistent with a wealth tax while the latter is consistent only with an income tax we show that if the interest alone is deductible the debt firm value function is convex resulting in corner solutions to the capital structure problem the authors wish to thank richard castanias richard green lemma senbet and especially an anonymous referee for helpful comments and richard green and robert dammon for computational assistance

perverse intra firm trade this paper shows that linkages between domestic costs and direction of intra firm trade break down when the multinational firms mnfs face tax rate differentials thus in the context of mnfs conclusions drawn on the assumption of equal or nonexistent tax rates cannot be assumed to extend to the general case of unequal tax rates further saving on profit taxes itself can be a powerful motive for internalisation

the phillips curve in australia abstract in this paper we discuss the development of phillips curves in australia over the forty years since phillips first estimated one using australian data we examine the central issues faced by researchers estimating australian phillips curves these include the distinction between the short and long run trade offs between inflation and unemployment and the changing level of the non accelerating inflation rate of unemployment nairu particularly in the 1970s we estimate phillips curves for prices and unit labour costs in australia over the past three decades these phillips curves allow the nairu to change through time and include a role for import prices and speed limit effects the paper concludes by discussing the changing role of the phillips curve in the intellectual framework used to analyse inflation within the reserve bank of australia over the past three decades

estimation and control of an optimization based model with sticky prices and wages abstract this paper provides estimates of an optimization based equilibrium model with sticky prices and wages the estimated model is used to analyse the welfare properties of various interest rate rules for conducting monetary policy an important feature of this model is that it involves a tradeoff between the variances of price and wage inflation and the output gap this tradeoff implies that it is desirable for the monetary authority to respond to wage inflation in addition to price inflation output and past interest rates when setting the current interest rate the issue whether wages and prices can be indexed to steady state inflation has important implications both for the characterization of optimal interest rate rules and interest rate volatility in particular optimal policy in the presence of indexation induces implausibly high steady state inflation

european inflation dynamics abstract we provide evidence on the fit of the new phillips curve npc for the euro area over the period 1970 1998 and use it as a tool to compare the characteristics of european inflation dynamics with those observed in the u s we also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs as well as that of its two main components namely labor productivity and real wages some of the findings can be summarized as follows a the npc fits euro area data very well possibly better than u s data b the degree of price stickiness implied by the estimates is substantial but in line with survey evidence and u s estimates c inflation dynamics in the euro area appear to have a stronger forward looking component i e less inertia than in the u s d labor market frictions as manifested in the behavior of the wage markup appear to have played a key role in shaping the behavior of marginal costs and consequently inflation in europe

multinational firms and government revenues abstract underinvoicing of intrafirm exports by a multinational firm mnf can increase the exporting country s revenue overinvoicing can increase the importing country s revenue when its tariff rate is higher than its profit tax rate and both countries revenues may change in the same direction transfer pricing increases the mnf s global tax burden unambiguously when the home profit tax rate is not smaller than the foreign and the mnf overinvoices and can increase it in other cases this last result arises when increase in the level of intrafirm trade which accompanies transfer pricing and or non wholly owned subsidiary are considered

the personal tax advantages of equity abstract we value a firm that pays its cash flows to equity through share repurchases in a dynamic environment where personal taxes are paid on capital gains upon realization the cost of capital is reduced by approximately 0 8 through the use of repurchases relative to dividends we use the empirical distribution of pre tax free cash flows in fama and french 1999 to evaluate the tradeoffs between the costs of financial distress the personal tax advantages of equity and the corporate tax advantage to debt the optimal capital structure is interior with a 3 bankruptcy cost

corporate income taxation of multinationals in a general equilibrium model abstract this paper contributes to the discussion on separate accounting versus formula apportionment in the corporate income taxation of multinational enterprises the innovation is that we consider a general equilibrium tax competition model with an endogenous interest rate in contrast to previous studies we show that tax rates are inefficiently low not only under separate accounting but also under formula apportionment moreover we identify a wide range of empirically relevant cases where formula apportionment is superior to separate accounting independent of the magnitude of the concealment cost of profit shifting the reason for the change in results is that one country s tax rate affects other countries additionally via changes in the interest rate

inflation dynamics marginal cost and the output gap evidence from three countries recent studies have argued that the new keynesian phillips curve calvo pricing model is empirically valid provided that real marginal cost rather than detrended output is used as the variable driving inflation one interpretation of this result is that real marginal cost is not closely related to the output gap and so models for monetary policy need to include labormarket rigidities an alternative interpretation is that marginal cost and the output gap are closely related but that the latter needs to be measured in a manner consistent with dynamic general equilibrium models to date there has been little econometric investigation of this alternative interpretation this paper provides estimates of the new keynesian phillips curve for the u s the u k and australia using theory consistent estimates of the output gap using this theory to measure the output gap leads to a considerable improvement in the empirical performance of output gapbased phillips curves

inflation risk premia and the expectations hypothesis abstract we study the properties of the nominal and real risk premia of the term structure of interest rates we develop and solve the bond pricing implications of a structural monetary version of a real business cycle model with taxes and endogenous monetary policy we show the relation of this model with the class of essentially affine models that incorporate an endogenous state dependent market price of risk we characterize and estimate the inflation risk premium and find that over the last 40 years the ten year inflation risk premium has been has averaged 70 basis points it is time varying ranging from 20 to 140 basis points over the business cycle and its term structure is sharply upward sloping the inflation risk premium explains 23 42 of the time variation in the five ten year forward risk premium and it plays an important role in help explain deviations from the expectations hypothesis of interest rates

the multinational firm with arm s length transfer price limits abstract a multinational firm faced with arm s length limitations on its transfer prices is examined where the limitations are determined by the firm s marginal cost and intracountry prices such a firm is shown to manipulate its production and sales in order to gain a more desirable transfer price comparative static results develop policy implications not found in simpler models which often assume the firm to be constrained by arm s length limits but to be unaware of the effects of its actions on the limits

transfer pricing regulation and tax competition abstract the paper analyzes multinational enterprises incentives to manipulate internal transfer prices to take advantage of tax differences across countries and implications of transfer pricing regulations as a countermeasure against such profit shifting we find that tax motivated foreign direct investment fdi may entail inefficient internal production but may benefit consumers thus encouraging transfer pricing behavior to some extent can enhance social welfare furthermore we consider tax competition between two countries to explore its interplay with transfer pricing regulations we show that the fdi source country will be willing to set a higher tax rate and tolerate some profit shifting to a tax haven country if the regulation is tight enough we also indicate a novel mechanism through which it is the larger country that undertakes tax motivated fdi the pattern we often observe in reality

the workweek of capital and its cyclical implications abstract the neoclassical growth model studied in the kydland and prescott time to build paper is modified to permit the capital utilization rate to vary the effect of this modification is to increase the amplitude of the aggregate fluctuations predicted by theory as the equilibrium response to technological shocks if following solow the changes in output not accounted for by changes in the labor and tangible capital inputs are interpreted as being the technology shocks the statistical properties of the fluctuations in the postwar united states economy are close in magnitude and nature to those predicted by theory

company taxation and tax spillovers separate accounting versus formula apportionment it is observed in the real world that taxes matter for location decisions and that multinationals shift profits by transfer pricing the us and canada use so called formula apportionment fa to tax corporate income and the eu is debating a switch from separate accounting sa to fa this paper develops a theoretical model that compares basic properties of fa to sa the focal point of the analysis is how changes in tax rates affect capital formation input choice and transfer pricing as well as on spillovers on tax revenue in other countries the analysis shows that a move from sa to fa will not eliminate such spillovers and will in cases identified in the paper actually aggravate them

a simple model of the taxable and tax exempt yield curves i examine the anomalous behavior of the taxable and tax exempt yield curves long municipal yields appear too high relative to the equivalent after tax yield that can be earned in treasury or corporate bonds i discuss existing explanations of the problem and propose a simple model that relates the yields of taxable bonds to the yield curve for par tax exempts the ratio of the tax exempt yield to the taxable yield increases with maturity in the model so it is consistent with observed phenomena such as inverted yield curves for taxables and contemporaneous rising yield curves for tax exempts statistical and descriptive comparisons between the yields predicted by the model and observed yields on par bonds that the model has some promise in explaining the apparent anomalies in the behaviors of the two yield curves article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies