the deadweight loss from non neutral capital income taxation abstract this paper develops an overlapping generations general equilibrium model that treats explicitly the role of capital goods in the production process and uses the model to measure the relative magnitudes of different distortions associated with capital income taxation across industries assets and time one of the main results is that uniform capital income taxation is almost certainly suboptimal theoritically but that optimal deviations from uniform taxation are empirically inconsequencial the paper also introduces and applies a general technique for distinguishing intergenerational transfers from efficiency gains in the analysis of the impact of policy changes on long run welfare

corporate taxation and capital accumulation evidence from sectoral panel data for 14 oecd countries abstract we present new empirical evidence that sector level capital output ratios are strongly influenced by corporate tax incentives as summarised by the tax component of a standard user cost of capital measure we use sectoral panel data for the usa japan australia and eleven eu countries over the period 1982 2007 our panel combines internationally consistent data on capital stocks value added and relative prices from the eu klems database with corporate tax measures from the oxford university centre for business taxation our results for equipment investment are particularly robust and strikingly consistent with the basic economic theory of corporate investment

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

devaluation investment and growth in ldcs abstract this paper examines the short and long run effects of devaluation in a model where following structuralist theories investment is treated as output of a composite good produced by combining domestic and imported components in fixed proportions introducing investment goods of this type alters a number of results most notably the marshall lerner condition is neither necessary nor sufficient for an expansionary outcome and under simple and plausible conditions a devaluation may worsen the payments balance

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

adjustment trade policy and investment slumps evidence from africa abstract this paper presents a model of investment in six african economies over the 1970s and 80s paying particular attention to the impact of the policy reforms which have accompanied structural adjustment programmes a priori the impact of trade reform on investment can be positive or negative in practise there is some evidence that it might be negative

the significance of tax law asymmetries an empirical investigation this study uses tax return data for u s nonfinancial corporations for the period 1971 1982 to estimate the importance of restrictions on the ability of firms to use tax credits and to obtain refunds for tax losses our results suggest that the incidence of such unused tax benefits increased substantially during the early 1980s though we do not find these increases attributable to increased investment incentives during that period we present estimates of the marginal tax rate on interest payments which take into account unused tax benefits and emphasize the importance of distinguishing current tax payments from marginal tax rates in estimating the incentive to invest

poverty alleviation as business strategy evaluating commitments of frontrunner multinational corporations summary in the debate on how to combat poverty the positive role of mncs is frequently mentioned nowadays although doubts and criticism remain facing this societal debate mncs feel the pressure to formulate a position this paper analyzes mncs policies on their poverty alleviating potential frontrunner mncs turn out not to be very outspoken especially not on those issues that have the largest potential to help alleviate poverty placed in the context of other mncs behavior a sector coordinated morality seems important which means that a meso approach to poverty alleviation needs to complement the current global macro and individual company micro focus

tax policy and heterogeneous investment behavior abstract we estimate the effect of temporary tax incentives on equipment investment using shifts in accelerated depreciation analyzing data for over 120 000 firms we present three findings first

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

foreign direct investment and domestic investment in the host country evidence from panel study this article examines the impact of inward foreign direct investment fdi on host countries domestic investment utilizing data from 50 countries over the period of 1970 to 2004 we find that inward fdi has a negative contemporaneous effect on domestic investment while the cumulative effect of fdi over time tends to be positive in addition we separately study fdi in developed countries dcs and less developed countries ldcs the effect of contemporaneous fdi on domestic investment is negative in dcs and the cumulative effect of fdi is neutral strong evidence suggests that the contemporaneous effect of fdi on domestic investment is neutral in ldcs while the cumulative effect of fdi is positive

investment ramifications of distortionary tax subsidies abstract this paper examines the investment effects of tax subsidies for which some assets and not others are eligible distortionary tax subsidies concentrate investments in tax favored assets thereby reducing the expected pre tax profitability of investment and reducing payoffs to bondholders in the event of default anticipation of asset substitution encourages lenders to require covenants in debt contracts which only imperfectly address asset substitution and distort investment the result is that borrowing is made more expensive which in turn discourages investment borrowing rates can react so strongly that aggregate investment may rise very little or even fall in response to higher tax subsidies debt issued by u s firms in risk of default after the 2002 introduction of bonus depreciation for u s equipment investment contained many more covenants than in other periods a pattern that reversed when bonus depreciation was discontinued after 2004 furthermore firms at risk of default borrowed less and were more apt to lease capital than were other firms during the bonus depreciation period

growth oriented adjustment programs a statistical analysis after the fall in average per capita gdp growth that took place in the 1980s adjustment lending programs supported by the international monetary fund imf and the world bank wb were launched in response to the deteriorating external environment the purpose of this paper is to evaluate and to assess statistically the extent to which adjustment programs supported by the imf and the wb have restored growth the evaluation relied on a large sample of countries 93 and controls for some of the statistical difficulties associated with measuring the effectiveness of adjustment programs the paper reviews the environment under which imf wb lending took place the rationale for adjustment lending and the distribution of adjustment loans through time the results of the statistical evaluation suggest that after controlling for external factors and for initial conditions growth is not higher in countries that receive imf wb funds but that investment was significantly lower than for non recipient countries the paper also examines further long term growth prospects

civil society collaboration with business bringing empowerment back in abstract strategic partnerships between civil society organizations csos and businesses are widely promoted as important new strategies to encourage corporate citizenship in the global south this study tested these claims by examining 10 cases of collaboration between csos and businesses in brazil india and south africa findings suggest a sobering view of the benefits that civil society organizations and their constituencies can expect from collaboration development impacts may be more likely in sectors clearly linked to business interests such as education and employment generation goals of organizational capacity building are more likely to be satisfied than those of citizen empowerment csos and businesses reap mutual benefits from collaboration but csos tend to shoulder more of the costs businesses can dominate collaborative decision making with negative results for sustainability the paper offers a number of propositions to guide further research and inform collaborative practice empowered civil society collaboration with business is suggested as a more appropriate model than strategic partnership for csos pursuing sustainable development

an empirical investigation of u s firms in reorganization the purpose of this paper is to understand the institutional features of chapter 11 from an empirical examination of thirty firms that have emerged from reorganization we find the recontracting framework of chapter 11 to be complex lengthy and costly violations of absolute priority in favor of stockholders are frequently encountered these deviations may result from the bargaining process of chapter 11 or from a recontracting process between creditors and stockholders which recognizes the ability of stockholder oriented management to preserve firm value an example of such recontracting addresses myers underinvestment problem an investigation of the effects of chapter 11 on the pricing of risky debt is also provided the purpose of this paper is to understand the institutional features of chapter

bond covenants and delegated monitoring this paper examines alternative contracting arrangements available to a firm seeking to finance an investment project the authors consider the choice between loan contracts with covenants based on noisy indicators of the firm s financial health and loan contracts enforced by a monitoring specialist in one interpretation the specialist is a financial intermediary the firm s choice is shown to depend upon the firm s credit rating the accuracy of financial indicators of the firm s condition the loss from premature liquidation of the firm s project and the cost of monitoring

how to deliver foreign aid the case of projects governed by the spanish international agency summary international agencies use two alternative modes of governance to deliver international aid projects under bilateral agreements with recipient governments in house or through incumbent ngos through the lenses of institutional and transaction cost economics this article examines 95 international aid projects delivered in morocco and ecuador by the spanish international agency finding that those projects delivered in house present different features than those projects outsourced through incumbent ngos specifically international aid projects delivered in house involve important investments in specific assets are much more complex and can turn the public agency into a hostage of its own disbursement

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

investment tax incentives prices and the supply of capital goods using data on the prices of capital goods this paper shows that much of the benefit of investment tax incentives does not go to investing firms but rather to capital suppliers through higher prices the reduction in the cost of capital from a 10 percent investment tax credit increases equipment prices 3 5 7 0 percent this lasts several years and is largest for assets with large order backlogs low import competition or with a large fraction of buyers able to use investment subsidies capital goods workers wages rise too instrumental variables estimates of the short run supply elasticity are around 1 and can explain the traditionally small estimates of investment demand elasticities in absolute value the demand elasticity implied here exceeds 1

does corporate lending by banks and finance companies differ evidence on specialization in private debt contracting this paper establishes empirically the existence of specialization in private market corporate lending adding a new dimension to the public versus private debt distinctions now common in the literature comparing corporate loans made by banks and by finance companies we find that the two types of intermediaries are equally likely to finance information problematic firms however finance companies tend to serve observably riskier borrowers particularly more leveraged borrowers evidence supports both regulatory and reputation based explanations for this specialization in passing we shed light on various theories of debt contracting and intermediation and present facts about finance companies

firm specific information and the correlation between individual stocks and bonds abstract this paper examines the correlation between the returns on individual stocks and the yield changes of individual bonds issued by the same firm and finds that they are negatively and contemporaneously correlated this suggests that individual stocks and bonds are driven by firm specific information that is predominantly related to the mean rather than the variance of the firm s underlying assets furthermore i find that lagged stock returns have explanatory power for current bond yield changes while current stock returns are unrelated to lagged bond yield changes this shows that stocks lead bonds in reflecting firm specific information

can the world cut poverty in half how policy reform and effective aid can meet international development goals abstract poverty in the developing world will decline by about one half by 2015 if the trends of the 1990s persist most of this poverty reduction will occur in asia however while poverty will decline only slightly in africa effective aid could make a contribution to greater poverty reduction in lagging regions even more potent would be significant policy reform in these countries we develop a model of efficient aid in which flows respond to policy improvements that create a better environment for poverty reduction and effective aid we investigate scenarios of policy reform and efficient aid that point the way to how the world can cut poverty in half in every major region

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

an empirical estimate of corporate tax refundability and effective tax rates the provisions of generous tax incentives during the 1970s and the recession of the early 1980s led to a marked increase in the number of nontaxable corporations in canada during the 1977 to 1982 period over 40 percent of investment was done by corporations that were rarely taxable 30 percent by corporations that were normally taxable and the balance undertaken by corporations that were taxable about half the time 1 the degree to which taxable losses can be used to shelter other forms of taxable income has important implications with regard to the study of effective tax rates on capital income this paper attempts to quantify the impact of imperfect loss offsetting or refundability on industry effective tax rate measurements section ii of this note provides an estimate of the extent to which tax losses are written off current or future taxable income in a present value sense refundability is measured by discounting the estimated proportion of a taxable loss written off by companies through carryback and carryforward provisions section iii uses the refundability measures to estimate effective tax rates on canadian firms by industry three cases are compared i the taxpaying firm this firm expects to use all deductions and credits immediately ii the nontaxpaying firm this firm expects to be nontaxpaying with probability 1 in the period in which new investment is undertaken marginal tax losses on new investment are used up slowly over time

tax policy and capital allocation summary the purpose of this paper is to analyze the impact of u s tax policy on the efficiency of capital allocation to achieve this objective we employ an intertemporal general equilibrium model of the u s economy implemented econometrically for annual data covering the period 1955 1980 we present a detailed model of the provisions of u s tax law applicable to income from capital we use intertemporal equilibrium paths corresponding to alternative tax policies to evaluate proposals for tax reform we find that dramatic gains in economic welfare would result from a shift from direct to indirect taxation

investment incentives and corporate tax asymmetries abstract recent facts on the importance of corporate losses motivate more careful study of the impact of tax incentives for investment on firms that lose money i model firm investment decisions in a setting featuring financing constraints and carrybacks and carryforwards of operating losses i estimate investment responses to tax incentives allowing effects to vary with cash flows and taxable status results suggest that asymmetries in the corporate tax code could have made recent bonus depreciation tax incentives at most 4 less effective than they would have been if all firms were fully taxable cash flows have more important effects on the impact of tax incentives recent declines in cash flows would predict a 24 decrease in the effectiveness of bonus depreciation results thus suggest that tax incentives have the smallest impact on investment exactly when they are most likely to be put in place during downturns in economic activity when cash flows are low

the dynamic effects of tax law asymmetries under the laws of most countries a distinction is made between gains and losses by businesses losses that must be carried forward are subjept to two penalties a loss of interest and expiration previous examinations have focused on the higher expected tax payments such a tax system without full loss offset imposes on risky projects this paper presents a dynamic analysis of the impact of taxation on investment when gains and losses are treated asymmetrically the results demonstrate how firm characteristics and the timing of taxes can influence behaviour under current u s tax law a distinction is made between gains and losses by businesses for corporations gains are taxed at what is essentially a flat rate of 46 while losses do not necessarily qualify for a refund at the same rate to obtain an immediate refund the taxpayer must have had taxable income during the three previous years in excess of the current loss any losses that cannot be carried back in this fashion must be carried forward subject to two implicit penalties such loss carryforwards earn no interest and they expire after fifteen years similar provisions apply in other countries hence businesses investing in risky projects for which the probability of having to carry losses forward is positive can expect to pay higher taxes than they would under a system with full loss offset i e the immediate refund of taxes for losses incurred many corporations

macroeconomic determinants of domestic private investment in africa an empirical analysis during the late 1970s and early 1980s many african countries experienced a profound slowdown in economic growth the growth rate of real per capita gdp fell from 0 4 per year during the 1973 80 period to 1 2 per year during the 1980 89 period the causes internal and external of africa s economic decline and the strategies for restoring economic growth are much debated nevertheless broad consensus has emerged on the importance of i increasing total investment and ii promoting private sector development and increasing its share of total investment for long term growth 2 it is widely recognized that gross domestic investment fell substantially in africa during the 1980s and remains severely depressed across the region the proportion of total domestic investment in gdp fell from 20 8 per year during 1973 80 to 16 1 per year during 1980 89 in some countries investment has fallen to less than 10 of gdp a level that is insufficient even to replace depreciated capital in africa the minimum investment needed to replace depreciated capital is estimated at 13 of gdp 3 in recent years there has also been a growing recognition among many african leaders faced with new realism and pragmatism that the private sector could play a significant role in economic development the focus in the longer term of structural adjustment programs and sectoral reforms adopted by these countries is on creating more appropriate incentives and a framework for private sector development as the basis for achieving sustainable economic growth in addition multilateral and bilateral institutions have developed new initiatives with priorities for private sector development in 1989 the international finance corporation an affiliate of the world bank es

economic stabilization conditionality and political stability imf conditionality is seldom so important that it dominates all other considerations for political stability imf stabilization programs often shift benefits from one group to another they expose elites to charges of selling the sovereignty of their countries the imposition of imf conditions particularly subsidy cuts may lead to sharp outbreaks of civil disorder nonetheless the imf provides resources that make adjustment easier and thus may lessen the chances of political instability for a country imf programs are seldom implemented fully as negotiated and the penalties for partial compliance are not great debtor countries have more flexibility in imposing austerity measures and the economic constraints are less binding than often assumed the very availability of alternatives to imf programs results in internal divisions because some favor debt repudiation and others oppose it groups now contend over solutions to the debt problems of their countries

targeting aid to the needy and deserving nothing but promises by reallocating aid to where it is needed most and where a productive use is most likely donors could help alleviate poverty in developing countries the rhetoric of donors suggests that this insight has increasingly shaped the allocation of aid we assess the poverty and policy orientation of bilateral and multilateral aid in different ways in addition to presenting stylised facts based on bivariate correlations we apply a tobit model that captures both altruistic and selfish donor motives we find little evidence supporting the view that the targeting of aid has improved significantly most donors provide higher aid to relatively poor countries but so far the fight against poverty has not resulted in a stronger focus on needy recipients with favourable local conditions the estimation results reveal that the policy orientation of aid critically depends on how local conditions are measured in general however donors appear to be less policy oriented than poverty oriented the response of donors to changing institutional and policy conditions in recipient countries turns out to be fairly weak we reject the proposition that multilateral aid is clearly superior to bilateral aid in terms of rewarding poor countries with better policies and institutions

keeping a low profile what determines the allocation of aid by non governmental organizations ngos play an important role in international development cooperation but the allocation of ngo aid has rarely been mapped let alone explained based on a representative dataset for 61 important ngos from various oecd countries we analyze the targeting of ngo aid across a large number of recipient countries by jointly considering major determinants of ngo aid in a multivariate regression framework while our results show that ngos are more active in the neediest countries we reject the hypothesis that ngos complement official aid through engaging in so called difficult institutional environments rather they tend to replicate the location choices of official backdonors moreover ngos follow other ngos so that aid gets clustered finally ngos select recipient countries with common traits related to religion or colonial history taken together our findings suggest that ngos keep a low profile rather than distinguishing themselves from other donors and trying to excel under risky conditions

participation social capital and intersectoral problem solving african and asian cases abstract cooperation in policy program implementation between state and nongovernmental actors can sometimes solve intractable development problems but such cooperation must span gaps in culture power resources and perspective this article provides a comparative analysis of 13 cases of intersectoral cooperation among public agencies nongovernmental organizations grassroots groups and international donors the analysis reveals two successful implementation patterns nongovernment organization ngo mediated cooperation and grassroots centered cooperation different forms of social capital are central to the two patterns indigenous ngos with credibility across sectors are critical to the former while grassroots organizations are vital to the latter participatory decision making and mutual influence are essential to grassroots centered cooperation but less so for ngo mediated collaboration

security pricing and deviations from the absolute priority rule in bankruptcy proceedings claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of 30 filings under the 1978 bankruptcy reform act we measured the amount paid to shareholders in excess of that which they would have received under the absolute priority rule and found that this amount represents on average 7 6 of the total awarded to all claimants evidence is also reported that common share values reflect a significant proportion of value ultimately received in violation of absolute priority suggesting that deviations from the rule were expected by the equity markets the absolute priority rule hereafter apr states that a bankrupt firm s value is to be distributed to suppliers of capital such that senior creditors are fully satisfied before any distributions are made to junior creditors and junior creditors are paid in full before common shareholders bankruptcy reorganization proceedings however are leaving shareholders and junior creditors with valuable assets even when senior claimants receive only partial settlements as barrett and sullivan 1988 noted traditionally shareholders have been last in line their claims on a troubled company s assets have had the lowest priority and their impact on the course of bankruptcy code proceedings generally has been next to nil but lately the balance of power has been shifting warner 1977 provided one of the early discussions of the implications of deviations from the apr baldwin and mason 1983 pp 510 511 examined the resolution of claims in the massey ferguson reorganization and provided no support for the hypothesis that the market believes absolute priority rules will be enforced if the firm defaults on its financial obligations franks and torous 1989 analyzed a sample of bankruptcies that occurred during the period 1970 through 1984 and found that 21 of 27 sample cases exhibited departures from the apr more recently weiss 1990 examined 37 firms that filed for bankruptcy between 1980 and 1986 and reported that 27 of the cases involved apr violations

debt crisis adjustment policies and capital formation in developing countries where do we stand abstract this paper documents the decline in investment rates observed in developing countries after 1982 and explores analytically and empirically the factors contributing to explain it the paper focuses on the impact of macroeconomic adjustment and reform measures on private investment particularly in latin america and east asia and underscores the importance of macroeconomic uncertainty policy credibility and potential coordination failures in shaping the response of investment to the changes in economic incentives brought about by structural reforms the analysis concludes with some policy recommendations to improve the design of sustainable growth oriented adjustment programs

assessing the impact of nigeria s naira depreciation on output and inflation empirical evidence in support of the argument that keeping real exchange rate persistently devalued may lead to a permanent higher level of inflation have been provided kamin 1985 calvo et al 1994 however probably because of the relatively recent origin of serious exchange rate depreciation in sub saharan africa countries especially nigeria when compared with other regions e g latin america and asia not many studies have been reported on the subject the existing studies on effect of persistent exchange rate depreciation in nigeria are based on either regression or simulation approach rather than var approach this present study intends to fill these gaps by not only focusing the study on nigeria but also adopting restricted vector autoregressive model thereby providing basis for comparison with existing results obtained for other countries this abstract was borrowed from another version of this item

tax avoidance and the deadweight loss of the income tax traditional analyses of the income tax greatly underestimate deadweight losses by ignoring its effect on forms of compensation and patterns of consumption the full deadweight loss is easily calculated using the compensated elasticity of taxable income to changes in tax rates because leisure excludable income and deductible consumption are a hicksian composite good microeconomic estimates imply a deadweight loss of as much as 30 of revenue or more than ten times harberger s classic 1964 estimate the relative deadweight loss caused by increasing existing tax rates is substantially greater and may exceed 2 per 1 of revenue

the administrative costs of corporate bankruptcy a note in this paper we present evidence on the direct administrative costs of corporate bankruptcy the investigation is directed toward providing evidence that may be helpful in answering questions about the role of bankruptcy costs as a determinant of corporate capital structures the importance of bankruptcy costs as a determinant of corporate financing policy has been extensively debated in the finance literature the origins of the debate can be traced to modigliani and miller 8 and robichek and myers 9 under the assumption that debt is default free and interest payments are taxdeductible modigliani and miller demonstrated that firms will maximize their market values by maximizing their use of debt financing robichek and myers demonstrated that this conclusion also holds when debt is not default free but bankruptcy is costless to explain observed corporate debt to total value ratios which typically fall in the range of 20 percent to 30 percent robichek and myers 9 and baxter 1 appealed to the existence of bankruptcy costs as a possible counterweight to the tax deductibility of interest payments subsequently kraus and litzenberger 5 scott 10 lee and barker 6 kim 4 and turnbull 13 developed formal models in which firms maximize value by increasing their use of debt financing to the point where the marginal present value of future tax shields equals the marginal present value of future bankruptcy costs the bankruptcy cost literature has identified three types of costs as potentially relevant to the determination of a firm s optimal mix of debt and equity financing 1 the direct administrative expenses paid to various third parties involved in the bankruptcy proceedings 2 the shortfall in realized value when assets are sold in liquidation or the indirect costs of reorganization and 3 the loss of tax credits which the firm would have received had it not gone bankrupt contrarily haugen and senbet 3 and to a lesser extent miller 7 and warner 14 have argued that the only bankruptcy costs relevant to the determination of a firm s optimal capital structure are the direct administrative costs of bankruptcy the crux of their argument is that the shortfall costs of liquidation the indirect costs of reorganization and the loss of tax credits which occurs upon dissolution of the firm are in fact relevant to the liquidation investment decisions of the firm these costs would be borne by the security holders of a failing firm

an innovative public private partnership new approach to development abstract this paper is focused on the development of new services by nonprofit organizations for groups of companies within a particular sector in industry it is based on a case study of an actual implementation by united nations industrial development organization unido in collaboration with a number of other organizations to upgrade the capabilities of automotive component suppliers in india to enable them to supply to world class manufacturers we draw upon the traditional literature available on new product and service development for firms introducing new products and services for maximizing profit and contrast those approaches with the approach adopted by nonprofit organizations we also carry out a comparative analysis between unido s partnership model and the traditional model to highlight the innovation aspects and advantages of the former from the developmental perspective an attempt is also made to illustrate the pre formation formation and post formation challenges faced by the new cooperation model that envisages the participation of public and private partners

tax policy and business fixed investment in the united states abstract this paper derives and estimates models of nonresidential investment behavior in which current and future tax conditions directly affect the incentive to invest the estimates suggest that taxes have played an independent role in affecting postwar u s investment behavior particularly for investment in machinery and equipment in addition the paper develops a method for assessing the impact of tax policy on the volatility of investment when such policy is endogenous illustrative calculations using this technique based on the paper s empirical estimates suggest that tax policy has not served to stabilize investment in equipment or nonresidential structures during the sample period

exchange rate management and stabilization policies in developing countries abstract we outline three channels via which a devaluation has a direct contractionaly impact on the aggregate supply side of the economy local currency costs of intermediate imports wage indexing in the presence of food imports and reduced volume of real credit to firms contractionary effects via the supply side are more damaging than krugman taylor effects via aggregate demand since a cut in aggregate supply leads to upward pressure on inflation while a cut in aggregate demand tends to abate inflation upward pressure on inflation may over time threaten the increase in competitiveness a nominal devaluation also intends to achieve we also discuss the implications of a substantial foreign debt we demonstrate that a successful devaluation raises the real in terms of domestic goods debt service burden causing a krugman taylor like contractionary effect on aggregate demand we then analyse the effects of a preannounced slowdown of the rate of depreciation our results of course do not imply that a devaluation should never be considered they do suggest however that a devaluation is likely to be an ineffective tool for demand management since it may cut aggregate supply as much or more in the short run

investment incentives debt and warrants abstract this paper models and characterizes investment incentive problems associated with debt financing the decision problem of residual claimants is explicity formulated and their investment policies are characterized the paper also analyzes the use of conversion features and warrants to control distortionary incentives these claims reverse the convex shape of levered equity over the upper range of the firm s earnings and this mitigates the incentive to take risk it is shown that under certain conditions such claims can be constructed to restore net present value maximizing incentives and simultaneously meet the financing requirements of the firm

aid allocation and poverty reduction the authors derive a poverty efficient allocation of aid and compare it with actual aid allocations they build the poverty efficient allocation in two stages first they use new world bank ratings of 20 different aspects of national policy to establish the current relationship between aid policies and growth onto that they add a mapping from growth to poverty reduction which reflects the level and distribution of income they compare the effects of using headcount and poverty gap measures of poverty they find the actual allocation of aid to be radically different from the poverty efficient allocation in the efficient allocation for a given of poverty aid tapers in with policy reform in the actual allocation aid tapers out with reform in the efficient allocation aid is targeted disproportionately to countries with severe poverty and adequate polices the type of country where 74 percent of the world s poor live in the actual allocation such countries receive a much smaller share of aid 56 percent than their share of the world s poor with the present allocation aid is effective in sustainably lifting about 30 million people a year out of absolute poverty with a poverty efficient allocation this would increase to about 80 million people even with political constraints introduced to keep allocations for india and china constant poverty reduction would increase to about 60 million reallocating aid is politically difficult but it may be considerably less difficult than quadrupling aid budgets which is what the authors estimate would be necessary to achieve the same impact on poverty reduction with existing aid allocations

too close for comfort the impact of official aid on nongovernmental organizations abstract in promoting a new policy agenda bilateral and multilateral donor agencies are keen to finance nongovernmental organisations ngos and grassroots organizations gros on the grounds of their economic efficiency and contribution to good governance this paper reviews the impact of this trend on ngo gro programming performance legitimacy and accountability if finds that much of the case for emphasizing the role of ngos gros rests on ideological grounds rather than empirical verification in addition though the evidence is inconclusive there are signs that greater dependence on official funding may compromise ngo gro performance in key areas distort accountability and weaken legitimacy

the maturity structure of corporate debt we provide an empirical examination of the determinants of corporate debt maturity our evidence offers strong support for the contracting cost hypothesis firms that have few growth options are large or are regulated have more long term debt in their capital structure we find little evidence that firms use the maturity structure of their debt to signal information to the market the evidence is consistent however with the hypothesis that firms with larger information asymmetries issue more short term debt we find no evidence that taxes affect debt maturity

a theory of debt and equity diversity of securities and manager shareholder congruence this paper shows how the optimal financial structure of a firm complements incentive schemes to discipline managers and how the securities return streams determine the claim holders incentives to intervene in management the theory rationalizes 1 the multipucity of securities 2 the observed correlation between return streams and control rights of securities and 3 the partial congruence between managerial and equity holder preferences over policy choices and monetary rewards as well as the low level of interference of equity in management the theory also offers new prospects for a reappraisal of the earlier corporate finance literature

is corporate aid targeted to poor and deserving countries a case study of nestle s aid allocation summary empirical evidence on the targeting of private aid is largely lacking even though corporate donors are an increasingly important source of aid we contribute to closing this gap by performing a case study of nestle the allocation of nestle s aid is compared to that of swiss oda and ngo aid testing for both altruistic and selfish aid motivations we conclude that nestle s aid clearly lacks focus in terms of targeting poor countries which appears to be the downside of the strong link between commercial presence and aid moreover according to our tobit estimations nestle grants more aid to recipient countries with stronger democratic but also more corrupt institutions

temporary investment tax incentives theory with evidence from bonus depreciation even modest reductions in the after tax cost of capital purchases provide strong incentives for increased investment indeed for tax subsidies that are temporary and for capital goods that are very long lived the incentive to invest when the after tax price is temporarily low is essentially infinite firms that would have purchased new capital equipment in the future instead make their purchases during the period of the subsidy for tax increases the effects are the opposite firms that would have normally invested now delay until the tax rate returns to normal we present a model of the equilibrium effects of temporary investment tax incentives the model reveals a simple relationship between the shadow price of investment goods and the size of a temporary investment tax incentive specifically for sufficiently long lived capital goods goods with very low rates of economic depreciation and for sufficiently short lived investment tax subsidies the shadow value of capital should be nearly unchanged and thus the pre tax shadow price of capital goods should fully reflect the magnitude of the tax subsidy this result holds regardless of the elasticity of investment supply and regardless of the underlying demand for capital instead it relies only on the firm s ability to arbitrage predictable movements in the after tax price of long lived capital over time two conclusions immediately follow first observ ing price increases following a temporary tax incentive is not evidence that investment supply is relatively inelastic a temporary investment tax subsidy can substantially affect investment even if it bids up the price of investment sharply second because economic theory dictates that the shadow price of investment moves one for one with a temporary tax subsidy the elasticity of supply can be inferred from quantity data alone recent changes in us tax law allow us to use the model and its implications to estimate struc tural parameters that govern the supply of investment the 2002 and 2003 tax bills provided temporarily accelerated tax depreciation called bonus depreciation for certain types of qualified capital goods under the 2002 bill firms could immediately deduct 30 percent of investment purchases and then depreciate the remaining 70 percent under standard depreciation schedules

do corrupt governments receive less foreign aid critics of foreign aid programs argue that these funds often support corrupt governments and inefficient bureaucracies supporters argue that foreign aid can be used to reward good governments this paper documents that there is no evidence that less corrupt governments receive more foreign aid on the contrary according to some measures of corruption more corrupt governments receive more aid also we could not find any evidence that an increase in foreign aid reduces corruption in summary the answer to the question posed in the title is no

macroeconomic issues for latin america abstract recent macroeconomic issues in latin america are reviewed with an emphasis on theory topics covered include multiple equilibria from hysteresis or increasing returns exchange rate management and the output and asset market effects of devaluation speculation interest rate management and financial reform government behavior income distribution and growth inertial inflation and heterodox policy shocks and disequilibrium theories

debt and seniority an analysis of the role of hard claims in constraining management we argue that long term debt has a role in controlling management s ability to finance future investments a company with high widely held debt will find it hard to raise capital since new security holders will have low priority relative to existing creditors conversely for a company with low debt we show there is an optimal debt equity ratio and mix of senior and junior debt if management undertakes unprofitable as well as profitable investments we derive conditions under which equity and a single class of senior long term debt work as well as more complex contracts for controlling investment behavior

tax reform and u s economic growth in this paper we evaluate the impact of the tax reform act of 1986 on u s economic growth we first calculate effective tax rates on income from capital employed in corporate noncorporate and household sectors we then project the future growth of the u s economy with and without the 1986 tax reform we find that much of the potential gain in welfare was dissipated through failure to index the income tax base for inflation the most promising avenue for future reform is to include income from household assets in the tax base while reducing tax rates on business income