housing market responses to transaction taxes evidence from notches and stimulus in the uk we investigate housing market responses to transaction taxes using administrative data on all property transactions in the u k from 2004 to 2012 combined with quasi experimental variation from tax notches and tax stimulus we present two main findings first transaction taxes are highly distortionary across a range of margins causing large distortions to the price volume and timing of property transactions secondly temporary transaction tax cuts are an enormously effective form of fiscal stimulus a temporary elimination of a 1 transaction tax increased housing market activity by 20 in the short run due to both timing and extensive responses and less than half of the stimulus effect was reversed after the tax was reintroduced due to re timing because of the complementarities between moving house and consumer spending these stimulus effects translate into extra spending per dollar of tax cut equal to about 1 we interpret our empirical findings in the context of a housing model with downpayment constraints in which leverage amplifies the effects of transaction taxes

screening ethics when honest agents care about fairness we analyze a principal s ability to discriminate between honest and dishonest agents who have private information about the circumstances of the exchange honest agents reveal circumstances truthfully as long as the mechanism is suciently fair the probability that an equilibrium allocation is chosen by an agent who is lying should not be too large without intolerance for lying the agent is given proper incentives if dishonest and zero rent if honest with even a small intolerance for lying the optimal mechanism is discontinuously altered it may still involve ethics screening whereby some allocation chosen by a dishonest agent is never chosen by an honest agent it happens either when the dishonest is overstating circumstances or when the principal is forced to allow for some suboptimal announcements due to an excessive intolerance for lying with limited intolerance for lying ethics screening allows for doing better than in the standard setup where the agent is dishonest with certainty even if honesty is unlikely however if intolerance for lying is too strong the principal cannot improve upon the standard setup

fixed costs and long lived investments abstract fixed costs models are difficult to analyze because they feature non degenerate time varying distributions of capital across firms if investments are sufficiently long lived however then the cross sectional distribution of capital holdings has virtually no bearing on the equilibrium and the aggregate behavior of fixed cost models is essentially identical to neoclassical models the findings are due to a near infinite elasticity of investment timing for long lived investments a feature shared by fixed cost models and neoclassical models irrelevance results found in numerical studies of fixed cost models are not parametric special cases but instead are fundamental properties of models with long lived investment goods

the incidence and allocation effects of a tax on corporate distributions abstract to study the effects of double taxation first at the corporation level then at the shareholder level this paper analyzes a model with a tax on all corporate distributions to equity owners and no other taxes contrary to the common view the tax is shown to have no subtitution effect and in particular no effect on the corporate choice between debt and equity via retained earnings finance the analysis opens to question certain arguments commonly used to support integration of corporation and individual income taxes via dividend relief

capital tax reform and the real economy the effects of the 2003 dividend tax cut this paper tests whether the 2003 dividend tax cut one of the largest reforms ever to a us capital tax rate stimulated corporate investment and increased labor earnings using a quasi experimental design and us corporate tax returns from years 1996 2008 i estimate that the tax cut caused zero change in corporate investment and employee compensation economically the statistical precision challenges leading estimates of the cost of capital elasticity of investment or undermines models in which dividend tax reforms affect the cost of capital either way it may be difficult to implement an alternative dividend tax cut that has substantially larger near term effects jel c72 c78 c91

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

how responsive is business capital formation to its user cost an exploration with micro data abstract the response of business capital formation to its user cost is critical to evaluating tax reform deficit reduction and monetary policy evidence for a substantial user cost elasticity however is sparse most evidence has been based on aggregate data although several recent studies with firm level data report substantial effects with a particularly rich micro dataset containing over 26 000 observations this paper explores what can be learned about the user cost elasticity while the results depend to some extent on the specification and econometric technique various diagnostics lead us to prefer a precisely estimated but small elasticity of approximately 0 25 this paper is dedicated to the memory of robert eisner who labored early and ably on uncovering the determinants of investment spending and highlighting the importance of the question found in the title of this paper

tax adjusted q model with intangible assets theory and evidence from temporary investment tax incentives we propose a tax adjusted q model with physical and intangible assets and estimate the effect of bonus depreciation in the united states in the early 2000s we find that investment responds moderately to tax incentives but allowing for heterogeneity reveals that intangible intensive firms respond more than physical intensive firms and that this difference is accentuated among large firms accounting for intangible assets increases the estimated total investment response from 3 7 to 14 3 of aggregate investment in 2000 among the largest 500 firms our results suggest that understanding the behavior of large and intangible intensive firms matters for investment policy

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

the welfare effects of temporary tax cuts and subsidies theory estimation and applications this article presents a tractable and intuitive theory on the welfare effects of temporary tax cuts and subsidies fiscal policies that i generically term holidays the kaldor hicks efficiency effects are theoretically ambiguous with competing pro and anti efficiency effects on newly incentivized versus time shifted purchases to rectify this ambiguity i derive expressions for the welfare effects that are consistent with constant elasticity assumptions and depend only upon readily and reliably observed information to demonstrate the framework s broad applicability i analyze two different policies the 2009 cash for clunkers program and states sales tax holidays i estimate that both policies generated substantial deadweight loss jel h21 h30 d91

government consumption and investment does the composition of purchases affect the multiplier abstract a large and conventional class of macroeconomic models predicts that short lived government investment shocks have a smaller fiscal multiplier than government consumption shocks i test this prediction in a panel of oecd countries using real time forecasts of government consumption and investment to purify changes in purchases of their predicted components consistent with theory the estimated government investment multiplier is near zero and the government consumption multiplier approximately 0 8 these findings suggest that fiscal stimulus packages which contain large government investment components may not be as effective at stimulating aggregate demand as commonly thought

on measuring the effects of fiscal policy in recessions we do not have a good measure of the effects of fiscal policy in a recession because the methods that we use to estimate the effects of fiscal policy both those using the observed outcomes following different policies in aggregate data and those studying counterfactuals in fitted model economies almost entirely ignore the state of the economy and estimate the government multiplier which is presumably a weighted average of the one we care about the multiplier in a recession and one we care less about the multiplier in an expansion notable exceptions to this general claim sug gest this difference is potentially large our lack of knowledge stems significantly from the focus on linear dynamics vector autoregressions and linearized or close to linear dynamic stochastic general equilibrium dsge models our lack of knowledge also reflects a lack of data deep recessions are few and nonlinearities hard to measure the lack of statistical power in the estimation of nonlinear models using aggregate data can be addressed by exploiting estimates of partial equilibrium responses in disaggregated data microeconomic estimates of the partial equilibrium causal effects of a policy can discipline the causal channels inherent in any dsge model of the general equilibrium effects of policy microeconomic studies can also provide measures of the dependence of the effects of a policy on the states of different agents which is a key component of the dependence of the general equilibrium effects of fiscal policy on the state of the

discretionary fiscal responses to the covid 19 pandemic we analyse discretionary fiscal responses to the covid 19 pandemic we distinguish policies for three phases of the pandemic 1 acute overall disruption 2 initial recovery phase and 3 the longer term we analyse measures already taken in 1 and consider measures relevant for 2 we distinguish between lump sum subsidies such as deferral of tax payments which may ease financial constraints and measures which intentionally affect incentives we also identify factors that are important given the short term nature of the measures

the state dependent effects of tax shocks abstract this paper studies the state dependent effects of shocks to tax rates we begin with a stylized model in which clean analytical expressions are available the model predicts that a tax rate cut is most stimulative for output in periods in which output is relatively high the model is also used to discuss some conceptual issues related to the construction of tax multipliers we then consider a medium scale dsge model with tax rates on labor and capital income and on consumption the model is solved via a third order perturbation consonant with the intuition from the analytical model tax multipliers for all three types of tax rates vary significantly across states and are most stimulative for output in states in which output is high to evaluate the normative desirability of tax cuts as a tool to combat recessions we also study the properties of the tax cut welfare multiplier which measures the change in aggregate welfare conditional on a tax rate change in contrast to output multipliers welfare multipliers are found to be countercyclical a number of extensions and modifications are considered and our conclusions are generally robust

private information and inventive activity abstract this paper examines incentives for investment in inventive activity in an environment subject to informational constraints on the one hand the inability of the public to monitor such investments suggests that inventors should bear a high share of the risk associated with their efforts on the other hand the very novelty of an invention could make it difficult to sell to a skeptical public this difficulty could induce an inventor to engage in costly signalling activity this papers considers this friction and the nature of contracts which balance the incentive to invent against the incentive to signal optimal contracts are interpreted in terms of financial arrangements between entrepreneurs and investors

activist fiscal policy during and after the great recession that began in december 2007 the u s federal government enacted several rounds of activist fiscal policy in this paper we review the recent evolution of thinking and evidence regarding the effectiveness of activist fiscal policy although fiscal interventions aimed at stimulating and stabilizing the economy have returned to common use their efficacy remains controversial we review the debate about the traditional types of fiscal policy interventions such as broad based tax cuts and spending increases as well as more targeted policies while there have been improvements in estimates of the effects of broad based policies much of what has been learned recently concerns how such multipliers might vary with respect to economic conditions such as the credit market disruptions and very low interest rates that were central features of the great recession the eclectic and innovative interventions by the federal reserve and other central banks during this period highlight the imprecise divisions between monetary and fiscal policy and the many channels through which fiscal policies can be implemented

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

durable goods investment shocks and the comovement problem sticky price models suggest that capital investment shocks are an important driver of business cycle fluctuations despite quantitative importance in explaining business cycles a comovement problem emerges because the shocks generate intertemporal substitution effects away from consumption toward investment this paper resolves the problem by extending the standard sticky price model to a two sector model with consumer durable services when durable goods are used as investment in capital and consumer durables positive capital investment shocks also generate intratemporal substitution effects away from consumer durable services toward nondurable consumption that dominates intertemporal effects consequently consumption increases and the comovement problem is resolved

inflation tax rules and investment some econometric evidence this paper presents econometric evidence on the effect of tax incentives on business investment in the united states in the period from 1953 through1978 the analysis emphasizes that the interaction of inflation and existing tax rules has contributed substantially to the decline of business investment since the late 1960 s because the investment process is far too complex for any simple econometric model to be convincing i have estimated three quite different models of investment behavior the strength of the empirical evidence rests on the fact that all three specifications support the same conclusion more generally the analysis and evidence show that theoretical models of macroeconomic equilibrium should specify explicitly the role of distortionary taxes especially taxes on capital income the failure to include such tax rules can have dramatic and misleading effects on the qualitative as well as the quantitative properties of macroeconomic theories this paper was presented as the fisher shultz lecture at the fourth world congress of the econometric society 29 august 1980 in aix en province this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this abstract was borrowed from another version of this item

stimulating housing markets we study temporary fiscal stimulus designed to support distressed housing markets by inducing demand from buyers in the private market using difference in differences and regression kink research designs we find that the first time homebuyer credit increased home sales by 490 000 9 8 median home prices by 2 400 1 1 per standard deviation increase in program exposure and the transition rate into homeownership by 53 the policy response did not reverse immediately instead demand comes from several years in the future induced buyers were three years younger in 2009 than typical first time buyers the program s market stabilizing benefits likely exceeded its direct stimulus effects

hardball and the soft touch the economics of optimal insurance contracts with costly state verification and endogenous monitoring costs abstract we examine an environment of costly state verification in which insureds possess private information about the magnitude of an insurable loss insurers can verify the actual loss suffered only by incurring a positive resource cost and insureds may verification and may lead to more generous settlements optimal insurance contracts are shown to mitigate the incentives to evade by a combination of incentives which include the overpayment of easily monitored losses and undercompensation for claims exhibiting higher verification costs

are financing constraints binding for investment evidence from a natural experiment abstract this paper shows that the availability of cash flows dominates the effects of cost of capital for investment at the firm level using an exogenous tax reform in canada as a quasi natural experiment i find that a temporary and unexpected increase in the cost of capital for firms with low availability of retained earnings has no effect on investment of those firms a subsequent direct increase in the availability of cash flows has large effects on investment this suggests that internal financing constraints are binding for firms as they prefer to use low cost retained earnings to finance their investment

dynamic effects of permanent and temporary tax policies in a q model of investment abstract this paper incorporates the tax policy analysis of hall and jorgenson into a dynamic optimizing model with adjustment costs to develop a q model of investment this framework is particularly useful for analyzing the dynamic effects on investment of permanent and temporary changes in tax policy it is shown that contrary to the conventional intertemporal substitution argument a temporary investment tax credit need not be nore expansionary than a permanent investment tax credit the role of depreciation allowances in determining the dynamic response of investment to temporary changes in the tax rate is also investigated

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

measuring factor adjustment costs i estimate adjustment costs for labor and capital from the euler equations for factor demand for both factors i find relatively strong evidence against substantial adjustment costs my estimates use annual data from two digit industries my results support the view that rents arising from adjustment costs are relatively small and are not an important part of the explanation of the large movements of the values of corporations in relation to the reproduction costs of their capital i investigate the potential effects of three types of specification error 1 aggregation over time 2 aggregation over firms with heterogeneous demand shocks and 3 estimation of a convex adjustment cost technology in the presence of nonconvex discrete adjustment costs i find that the likely biases from these specification errors are relatively small

costly monitoring loan contracts and equilibrium credit rationing this paper develops a model with asymmetrically informed agents and costly monitoring of loan contracts where an equilibrium can exhibit credit rationing borrowers are identical ex ante but some receive loans and others do not in contrast to existing credit rationing theories rationing does not occur here due to inflexible prices adverse selection or moral hazard optimizing behaviour produces a standard debt contract in equilibrium the aggregate quantity of loans and equilibrium interest rates respond differently depending on whether there is rationing in equilibrium

natural disasters and macroeconomic performance recent empirical research has shown that output and gdp per capita in the aftermath of natural disasters are not necessarily lower than before the event in many cases both are not significantly affected and surprisingly sometimes they are found to respond positively to natural disasters here we propose a novel economic theory that explains these observations specifically we show that gdp is driven above its pre shock level when natural disasters destroy predominantly durable consumption goods cars furniture etc disasters destroying mainly productive capital in contrast are predicted to reduce gdp insignificant responses of gdp can be expected when disasters destroy both durable goods and productive capital we extend the model by a residential housing sector and show that disasters may also have an insignificant impact on gdp when they destroy residential houses and durable goods we show that disasters irrespective of whether their impact on gdp is positive negative or insignificant entail considerable losses of aggregate welfare

laffer strikes again dynamic scoring of capital taxes abstract we set up a neoclassical growth model extended by a corporate sector an investment and finance decision of firms and a set of taxes on capital income we provide analytical dynamic scoring of taxes on corporate income dividends capital gains other private capital income and depreciation allowances and identify the intricate ways through which capital taxation affects tax revenue in general equilibrium we then calibrate the model for the us and explore quantitatively the revenue effects from capital taxation we take adjustment dynamics after a tax change explicitly into account and compare with steady state effects we find among other results a self financing degree of corporate tax cuts of about 70 90 and a very flat laffer curve for all capital taxes as well as for tax depreciation allowances results are strongest for the tax on capital gains the model predicts for the us that total tax revenue increases by about 0 3 1 2 after abolishment of the tax

uncertainty and fiscal cliffs motivated by the us fiscal cliin 2012 this paper considers the short and longer term impact of uncertainty generated by scal policy empirical evidence shows in creases in economic policy uncertainty lower investment and employment investment that is longer lived and subject to a longer planning horizon responds to policy uncer tainty with a lag while capital that depreciates more quickly and can be installed with few costs falls immediately a dsge model incorporating uncertainty over future tax regimes produces responses to scal uncertainty that match key features of the data the model features uncertainty over the average tax rate and rational expectations about the resolution of uncertainty with speci c outcomes and timing uncertainty injects noise into the economy and lowers the level of economic activity

optimal contracts under costly state falsification we examine an exchange economy with two agents one risk neutral with a certain endowment and a second risk averse with a random endowment the realization of the endowment is public but can be falsified by the second agent at a cost for a broad class of falsification cost functions the optimal no falsification contract is noncontingent on a left hand interval and strictly increasing with a slope strictly less than one on a right hand interval under a mild further restriction optimal no falsification contracts are in addition piece wise linear optimal contracts may in general require falsifying the state but for a set of the highest endowment realizations there is no falsification we find simple conditions under which the optimal contract is a no falsification contract the model has applications that include financial insurance and employment contracts and tax policy

are you a good employee or simply a good guy influence costs and contract design we develop a principal agent model with a moral hazard problem in which the principal has access to a hard signal the level of output and a soft behavioral signal the supervision signal about the agent s level of effort in our model the agent can initiate influence activities and manipulate the behavioral signal these activities are costly for the principal as they detract the agent from the productive task we show that the agent s ability to manipulate the behavioral signal leads to low powered incentives and increases the cost of implementing the efficient equilibrium as a result interestingly the fact that manipulation activities entail productivity losses may lead to the design of influence free contracts that deter manipulation and lead to high powered incentives this result implies that the optimal contract and whether manipulation is tolerated in equilibrium or not depends on the magnitude of the productivity based influence costs we show that it may be optimal for the principal not to supervise the agent even if the cost of supervision is arbitrarily low

assessing relative spending needs of devolved government the case of healthcare spending in the uk ball r eiser d and king d assessing relative spending needs of devolved government the case of healthcare spending in the uk regional studies the block grants allocated to the uk s devolved administrations are not determined by any estimate of their spending needs there are increasing calls to replace the current grant allocation mechanism with one that explicitly considers the devolved administrations spending needs this paper compares two existing formulae for estimating healthcare spending needs used by the national health service nhs to allocate resources within england and scotland by applying both formulae to the devolved administrations it is found that these formulae provide very similar estimates of the devolved administrations healthcare spending needs and both formulae imply that the current distribution of resources across the devolved administrations may be inequitable

optimal leverage and aggregate investment we analyze the optimal financing of investment projects when managers must exert unobservable effort and can also switch to less profitable riskier ventures optimal financial contracts can be implemented by a combination of debt and equity when the risk shifting problem is the most severe while stock options are also needed when the effort problem is the most severe worsening of the moral hazard problems leads to decreases in investment and output at the macroeconomic level moreover aggregate leverage decreases with the risk shifting problem and increases with the effort problem

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

the effects of fiscal stimulus evidence from the 2009 cash for clunkers program we evaluate the impact of the 2009 cash for clunkers program on short and medium run auto purchases our empirical strategy exploits variation across u s cities in ex ante exposure to the program as measured by the number of clunkers in the city as of summer 2008 we find that the program induced the purchase of an additional 370 000 cars in july and august 2009 however we find strong evidence of reversal high clunker counties bought fewer autos in the 10 months after the program expired which offset most of the initial purchases we find no evidence of an effect on employment house prices or household default rates in cities with higher exposure to the program jel codes h20 e62 copyright 2012 oxford university press

interest rates and the market for new light vehicles we study the impact of interest rates changes on both the demand for and supply of new light vehicles in an environment where consumers and manufacturers face their own interest rates an increase in the consumers interest rate raises their cost of financing and thus lowers the demand for new vehicles an increase in the manufacturers interest rate raises their cost of holding inventories both channels have equilibrium effects that are amplified and propagated over time through inventories which serve as a way to both smooth production and facilitate greater sales at a given price through the estimation of a dynamic stochastic market equilibrium model we find evidence of both channels at work and of the important role played by inventories a temporary 100 basis point increase in both interest rates causes vehicle production to fall 12 percent and sales to fall 3 25 percent at an annual rate in the short run

on the marginal source of investment funds abstract under the new view of dividend taxation developed by auerbach quarterly journal of economics 1979 93 433 446 bradford journal of public economics 1981 15 1 22 and king public policy and the corporation chapman hall london 1977 the marginal source of finance for new investment projects is retained earnings in this case the tax advantage of retaining earnings precisely offsets the double taxation of subsequent dividends taxes on dividends have no impact on the investment incentives of firms using retentions as a marginal source of funds and paying dividends with residual cash flows we show that the same invariance with respect to dividend taxes may hold under weaker conditions with respect to the source of funds if the use of funds follows the same pattern we find evidence that there is significant heterogeneity in our sample of us firms with some firms exhibiting dividend behavior consistent with this expanded version of the new view and others exhibiting behavior consistent with the traditional view that retained earnings are not an important marginal source of funds

investor protection optimal incentives and economic growth does investor protection foster economic growth to assess the widely held affirmative view we introduce investor protection into a standard overlapping generations model of capital accumulation better investor protection implies better risk sharing because of entrepreneurs risk aversion this results in a larger demand for capital this is the demand effect a second effect the supply effect follows from general equilibrium restrictions better protection i e higher demand increases the interest rate and lowers the income of entrepreneurs decreasing current savings and next period s supply of capital the supply effect is stronger the tighter are the restrictions on capital flows our model thus predicts that the positive effect of investor protection on growth is stronger for countries with lower restrictions cross country data provide support for this prediction as does the detailed examination of the growth experiences of south korea and india

corporate tax evasion with agency costs this paper examines corporate tax evasion in the context of the contractual relationship between the shareholders of a firm and a tax manager who possesses private information regarding the extent of legally permissible reductions in taxable income and who may also undertake illegal tax evasion using a costly state falsification framework we characterize formally the optimal incentive compensation contract for the tax manager and in particular how the form of that contract changes in response to alternative enforcement policies imposed by the taxing authority the optimal contract may adjust to offset at least partially the effect of sanctions against illegal evasion and we find a new and policy relevant non equivalence result penalties imposed on the tax manager are more effective in reducing evasion than are those imposed on shareholders

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

the impact of depreciation savings on investment evidence from the corporate alternative minimum tax over the past decade the united states has offered investment incentives in the form of larger depreciation savings namely bonus depreciation the neoclassical investment model implies that investment responds to changes in depreciation savings but there have been few direct attempts to investigate this implication this paper examines investment patterns surrounding the 1999 shortening of the alternative minimum tax amt depreciation recovery periods finding strong evidence that firms subject to the amt increase investment in response to the amt reform the empirical results show that firms subject to the amt increase their investment measured as the ratio of capital expenditures to capital stock by around 0 0418 to 0 0622 compared to firms subject to the regular tax given their average annual investment rate of approximately 0 27 during this period the results imply a relative increase in investment of 15 23 by contrast i find that the 2002 introduction of bonus depreciation available both for firms subject to the regular tax and for firms subject to the amt affects both groups of firms similarly the estimation uses an empirical specification developed from the summers 1981 tax adjusted q model and the results imply that the responsiveness of investment to the tax term is somewhat larger than previously estimated

the effect of risk on the ceo market this article presents a market equilibrium model of ceo assignment pay and incentives under risk aversion and moral hazard each of the three outcomes can be summarized by a single closed form equation in the presence of moral hazard assignment is distorted from positive assortative matching on firm size as firms with higher risk or disutility choose less talented ceos such firms also pay higher salaries in the cross section but economywide increases in risk or the disutility of being a ceo do not affect pay the strength of incentives depends only on the disutility of effort and is independent of risk and risk aversion if the ceo can affect firm risk incentives rise and are increasing in risk and risk aversion we calibrate the losses from various forms of poor corporate governance such as failures in monitoring and inefficiencies in ceo assignment jel g34 j33 this article presents a market equilibrium model of ceo assignment pay and incentives risk averse managers of different talents are hired in a competitive market by heterogeneous firms which vary in their size risk and level of effort required the level of pay drives the assignment of talent to firms the strength of incentives induces the efficient effort level and is determined by an optimal contracting approach our main contribution is to incorporate risk into a ceo market equilibrium in a tractable manner a large empirical literature has shown that risk is a firstorder determinant of compensation contracts demsetz and lehn 1985 garen 1994 core and guay 1999 oyer and schaefer 2004 peters 2009 peters and wagner 2009 but most theories assume risk neutrality this assumption is

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