factor mobility and income redistribution in a federation abstract jurisdictions in a federation redistribute income by taxing capital and providing transfers to labor capital and labor move to earn higher returns net of taxes or gross of transfer benefits between jurisdictions in determining its redistributive policy the government for each jurisdiction thus takes into account the effects of its policy on the movement of factors from and to the jurisdiction hence the extent of redistribution depends on the mobility of factors the mobility of capital or labor leads to less redistribution than under autarky however mobility of both capital and labor may lead to more redistribution than if only capital moves as a consequence increased mobility of factors is not necessarily harmful to redistribution

income redistribution in a common labor market when households are mobile among jurisdictions income redistribution by individual jurisdictions creates fiscal externalities a model of interjurisdictional migration is used to study the nature of this redistributive externality analysis of optimal redistribution and optimal corrective subsidies from higher level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions a system of jurisdictions with a common labor market can achieve welfare improvements through coordination of domestic redistributive policy or through the intervention of a higher level government copyright 1991 by american economic association

immigrant participation in the welfare system this paper presents a systematic analysis of immigrant participation in the us welfare system using the 1970 and 1980 us censuses in contrast to the previous studies the researchers focused on changes in welfare use across immigrant cohorts over time for a single immigrant cohort as it assimilates to the us furthermore it develops a theoretical model of the migration decision that explicitly incorporates the income insurance aspect of the us welfare system the analysis revealed that recent immigrant cohorts use the welfare system more intensively than earlier immigrant waves also the immigrant welfare participation was greater the longer an immigrant household had resided in the us and those characteristics of the immigrants country of origin were important determinants of welfare participation in addition the theoretical model of the migration decision which explicitly incorporated the presence of a welfare system in the destination country and this model could account for some of the ways in which source country characteristics were found to affect immigrant welfare participation

nature of transfers income tax function and empirical estimation of elasticity of taxable income for brazil abstractthis article aims to estimate the elasticity of taxable income eti taking into account the nature of transfers and their use as a redistribution package involving cash and in kind transfers to households in brazil our contributions are twofold first we provide a simple model with balanced budget government that reveals the role played by cash and in kind transfers on the labour supply and income tax revenues thereof next in order to estimate eti in the presence of cash and in kind transfers brazilian population surveys pesquisa nacional por amostra de domicilios pnad are used to explore a limited tax reform that was implemented between 1997 and 1998 this reform only affected the higher income tax bracket our findings suggest that in kind cash transfers are positively negatively associated with reported taxable income and precise estimation of eti requires estimates of both types of transfers last we estimate the eti for brazil in the range from 0 4 to 1 3 not different fro

following the leader a study of individual analysts earnings forecasts abstract this paper develops and tests procedures for ranking the performance of security analysts based on the timeliness of their earnings forecasts the abnormal trading volume associated with these forecasts and forecast accuracy our framework provides an objective assessment of analyst quality that differs from the standard approach which uses survey evidence to rate analysts we find that lead analysts identified by our measure of forecast timeliness have a greater impact on stock prices than follower analysts further we find that performance rankings based on forecast timeliness are more informative than rankings based on abnormal trading volume and forecast accuracy we also present evidence that analyst s forecast revisions are correlated with recent stock price performance suggesting that security analysts use publicly available information to revise their earnings forecasts

the effect of bond rating changes on common stock prices abstract the evidence in this paper suggests that downgrades by both moody s and standard and poor s are associated with negative abnormal stock returns in the two day window beginning the day of the press release by the rating agency significant negative abnormal performance can still be detected after eliminating observations containing obvious concurrent potentially contaminating news releases there is little evidence of abnormal performance on announcement of an upgrade significant abnormal returns are associated with announcements of additions to the standard and poor s credit watch list if either a potential downgrade or a potential upgrade is indicated

redistribution and administrative federalism in this paper redistribution is studied in the presence of migration externalities administrative federalism is defined as a constitution where statutory tax and transfer levels are set nationally while local administrations may refuse to pay the transfer or rebate the tax in single cases thereby introducing horizontal inequity with risk aversion this is less attractive than reducing the level of redistribution in a horizontally equal way it is shown that administrative federalism leads to higher transfers and higher utilitarian welfare than decentralized decisions that it may implement the first best solution and that horizontal inequality never occurs in equilibrium

earnings quality in uk private firms comparative loss recognition timeliness abstract uk private and public companies face substantially equivalent regulation on auditing accounting standards and taxes we hypothesize that private company financial reporting nevertheless is of lower quality due to different market demand regulation notwithstanding a large uk sample supports this hypothesis quality is operationalized using basu s 1997 time series measure of timely loss recognition and a new accruals based method the result is not affected by controls for size leverage industry membership and auditor size or by allowing endogenous listing choice the result enhances understanding of private companies which are predominant in the economy it also provides insight into the economics of accounting standards

public goods self selection and optimal income taxation using the self selection approach to tax analysis this paper derives a modified samuelson rule for the provision of public goods when the government deploys an optimal nonlinear income tax this approach gives a straightforward interpretation of the central result in this area generalises it and provides a simple characterisation of optimal policy in a wide range of circumstances the analysis also emphasises and clarifies the significance of the choice of numeraire for the optimality of decentralising public spending decisions it is well known that the famous samuelson rule for the provision of public goods may not be applicable when the tax revenues used to finance the public goods come from distorting taxes the principle was recognized as long ago as pigou 1947 long before the samuelson rule was devised pigou saw that in addition to the resource cost involved in transferring funds from the private to the public sector there was a deadweight loss involved from this insight he suggested that the criterion for providing public goods should be more stringent than the samuelson rule would later suggest in particular one might expect that the inclusion of the deadweight loss of taxes as part of the cost of providing a public good would lead to a reduction in its optimal provision relative to a situation in which lump sum taxes were available the problem was investigated more systematically by atkinson and stern 1974 who considered the case in which a public good is financed by a set of optimal commodity taxes all individuals were assumed to be identical so efficiency alone dictated the objective they found that no prima facie case could be made for the pigou position that the use of distortionary taxes called for a reduction in the supply of the public good their analysis clearly showed that there were two influences at work when the financing of a public good was by distorting taxes on the one hand

tax competition and income redistribution an empirical analysis for switzerland tax competition is supposed to lead to thecollapse of the welfare state because first it willbecome difficult for a single jurisdiction to levy aredistribution tax upon the rich and mobile andsecond such a policy if undertaken in onejurisdiction will attract poor individuals from otherjurisdictions and erode internal redistributionpolicies in this paper the impact of personal incometaxes and transfers on residence decisions oftaxpayers is analyzed with swiss subfederal data therelationship of tax competition and the erosion of theswiss welfare state is tested with aggregate data onincome redistribution

unsystematic security price movements management earnings forecasts and revisions in consensus analyst earnings forecasts empirical evidence suggests that information about a firm s future earnings prospects is important to investors griffin 1976 givoly and lakonishok 1979 1980 and imhoff and lobo 1984 reported statistically significant abnormal stock returns before at and after announcements of analyst earnings forecast revisions in addition imhoff and lobo documented positive correlation between the magnitudes of the forecast revisions and the abnormal returns these findings are consistent with the hypothesis that investors find analyst forecast revisions informative another source of information about future earnings is projections from corporate officials several studies have found unsystematic stock price changes prior to and or immediately surrounding the public release of management earnings forecasts e g foster 1973 nichols and tsay 1979 patell 1976 jaggi 1978 penman 1980 and waymire 1984 the conclusion from this research is that management forecasts also convey information to investors

information content of equity analyst reports abstract we catalog the complete contents of institutional investor all american analyst reports and examine the market reaction to their release including the justifications supporting an analyst s opinion reduces and in some models eliminates the significance of earnings forecasts and recommendation revisions analysts both provide new information and interpret previously released information the information in a report is most important for downgrades target prices and the analyst s justifications are the only significant elements for reiterations no correlation exists between valuation methodology and either analyst accuracy or the market s reaction to a report our adjusted r 2 s are much larger than those of studies using only summary measures

a sectoral approach balancing global efficiency and equity this paper explores the idea that a properly designed sectoral approach could be the answer to two sets of constraints that hinder international agreements on climate change namely a genuine concern from developing countries for economic growth and competitiveness issues from industrialized countries our sectoral approach builds on three premises i cap and trade systems are established in industrialized countries and intensity targets in developing countries ii sectors subject to international trade abide by the rules of the countries in which they trade and iii a fraction of the revenues from permits in industrialized countries go towards carbon mitigation in developing countries we design an economic model that features interactions in three carbon intensive sectors two of which are internationally traded and two countries an industrialized country and a developing country two scenarios are constructed an enhanced sectoral approach which refers to our proposal and a global cap which implements a uniform co2 price we compare the two scenarios in terms of total welfare and equity it is shown that for a minor global welfare loss the enhanced sectoral approach ranks high in terms of equity for emerging countries this approach also eliminates competitiveness and leakage issues

the effect of bond rating changes on bond price performance the price reaction of publicly traded industrial bonds to moody s investors service and standard poor s bond rating changes is investigated using a database of month end trader quotes from lehman brothers for march 1985 through march 1995 all standard poor s and moody s rating changes are studied in a period from up to 12 months before the rating change to 12 months after a unique feature of this study is the use of a data set containing recent firm specific information that also provides a long event window downgraded firms reveal a significant announcement effect in both the announcement month and preannouncement period the magnitude of downgrading effects increases dramatically as the sample moves from investment grade to non investment grade firms samples that are restricted to rating changes that are not preceded by any rerating within six months reveal that the market reacts reliably as much as six months before an event upgrade effects are much weaker in magnitude and significance

property taxation congestion and local public goods abstract the residential property tax has been viewed as a congestion fee even if it distorts housing decisions this paper shows that the rule for a competitive jurisdiction s optimal public good supply may be written in a form in which no such role appears congestion costs enter the cost side of this rule in the same way that they enter when only a land tax is available the new rule is reconciled with an alternative rule in the literature which contains no congestion costs

do analysts generate trade for their firms evidence from the toronto stock exchange abstract it has generally been assumed that the potential commission revenue is an important determinant of a sell side analyst s decision of what firms to cover and what information to publicly release however because stock volume has not been disaggregated on a brokerage firm level uncertainty remains regarding the economic importance of the relation between analyst coverage and brokerage firm volume using a unique data set that identifies the broker s involved in each trade i find that brokerage volume is significantly higher in covered stocks than in uncovered stocks on average brokers increase their market share in covered stocks by 3 8 relative to uncovered stocks

a marginal cost of funds approach to multi period public project evaluation implications for the social discount rate abstract although the use of marginal cost of funds mcf has been widely appreciated in public finance literature discussions of mcf have been confined to a static setting this paper develops a multi period project evaluation rule that is based on mcf unlike previous approaches the parameters required for implementing the mcf rule are independent of projects under consideration a lesson from this paper is that the government discount rate policies that are largely based on the concepts of social discount rate and shadow price of capital should be rewritten with the use of parameters representing mcf

bridging trade theory and labour econometrics the effects of international migration this paper surveys current theoretical and empirical research on international migration with a particular emphasis on the links between trade theory and labour empirics

international migration income taxes and transfers a welfare analysis abstract an important issue in public policy debates is the effect of international migration on welfare in source and host countries we address this issue by constructing a general equilibrium model of a two class source or host country each country produces many traded and non traded goods uses income taxes and distributes the tax receipts equally to all individuals the analysis examines the effects of permanent migration on class and national welfare we show among other things that marginal immigration hurts people already in the country regardless of whether or not non traded goods exist the presence of international capital mobility however may reverse the above result

optimal public good provision with limited lump sum taxation it is often argued that the use of distortionary taxation lowers the optimal provision of public goods below its optimal level in a first best economy which contains no restrictions on lump sum taxation however this issue is usually investigated using commodity tax models that contain no lump sum taxes this paper examines a many consumer economy in which the only tax instruments are commodity taxes and a poll tax subsidies are negative taxes the optimal level of public good provision in this economy typically exceeds the first best level at least for distributionally neutral public goods copyright 1991 by american economic association

immigration control and the welfare state abstract we examine a model of a rich country with a redistributive public sector and facing costly immigration control when illegal immigrants have access to the public sector we show that as border control becomes more expensive inequality in the rich country increases redistributive transfers decrease and then may increase some immigration is permitted and foreign aid may be used to reduce the migration pressure because of nonconvexities we also show that a small increase in the poor country s population can lead to the collapse of the redistributive public sector we then consider excluding illegal immigrants from the public sector e g california proposition 187 we find that collapse is no longer possible and that the rich country takes the toughest official stance on immigration but does not enforce it with border controls

assistance to the poor in a federal system abstract this paper explores the roles of different levels of government in assisting the poor using a model incorporating utility interdependence the paper first presents some theoretical results indicating how levels of poor relief vary with the extent of mobility of the poor under both centralized and decentralized systems of support it then provides a survey of the empirical work on migration of the poor along with a brief historical discussion of the experience under the english poor laws the concluding section turns to normative issues and contends that mobility of the poor is a basic source of inefficiency in wholly decentralized systems of support this inefficiency along with certain other equity considerations establishes a role for the central government in assistance to the poor

economic integration and fiscal devolution abstract in this paper we investigate how economic integration influences the political decision of integration and separation of jurisdictions in a model with imperfect capital mobility we consider that not only the redistributive policy itself but also the level of policy centralization is decided by a majority vote we find that the net benefit from integration is not monotonic with the level of world capital market integration and present a case where integration of two regions occurs only for intermediate levels of mobility this conclusion relies on the comparison of the regional majorities utility under the various regimes the benefits from integration arise from the elimination of tax competition across jurisdictions which allows for more income redistribution whereas the costs are linked to the diversity of preferences across regions namely that of the decisive voters we also show that a federal regime is better than complete centralization in keeping a nation united

the association between trading recommendations and broker analysts earnings forecasts this study examines analyst forecast errors within the context of stock recommendations we predict positive forecast error i e optimism for buy recommendations and negative forecast error i e pessimism for sell recommendations we offer two explanations for this prediction 1 the unconscious tendency to process information in a manner that supports one s goal which we refer to as the objectivity illusion hypothesis and 2 the economic incentive to boost trade which we refer to as the trade boosting hypothesis the pattern of analyst forecast bias we predict i e optimism for buys and pessimism for sells is opposite in direction to that predicted by the management relations hypothesis a commonly cited hypothesis for analyst forecast bias we find broker analyst earnings forecast errors are significantly optimistic for buy recommendations and significantly pessimistic for sell

financial analyst characteristics and herding behavior in forecasting this study classifies analysts earnings forecasts as herding or bold and finds that 1 boldness likelihood increases with the analyst s prior accuracy brokerage size and experience and declines with the number of industries the analyst follows consistent with theory linking boldness with career concerns and ability 2 bold forecasts are more accurate than herding forecasts and 3 herding forecast revisions are more strongly associated with analysts earnings forecast errors actual earnings forecast than are bold forecast revisions thus bold forecasts incorporate analysts private information more completely and provide more relevant information to investors than herding forecasts

decentralized income redistribution and immigration abstract we analyze the welfare and other effects of immigration on a system of jurisdictions with a common labor market mobile capital and redistributive tax transfer policies comparative statics analysis of a model of nash non cooperative equilibria in tax transfer policies shows that the welfare effect of immigration depends on whether immigrants are net fiscal contributors or burdens any one jurisdiction s redistribution and immigration policies generate fiscal externalities for others in the system which a central government can internalize by appropriate taxes and subsidies

why do rich countries prefer free trade over free migration the role of the modern welfare state abstract according to traditional trade theory heckscher ohlin free trade and free migration are equivalent measures of economic integration leading both to an equalization of factor prices this prediction is in sharp opposition to the observed preference of rich countries for free trade over free migration we provide an explanation for this inconsistency the redistribution policies in the countries social welfare in countries with a relatively small number of low skilled native workers is higher with free trade than with free migration due to redistribution of income towards immigrating workers

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

markets transparency and the corporate bond market for decades corporate bonds primarily traded in an opaque environment quotations which indicate prices at which dealers are willing to transact were available only to market professionals most often by telephone prices at which bond transactions were completed were not made public the u s corporate bond market became much more transparent with the introduction of the transaction reporting and compliance engine trace in july 2002 beginning that date bond dealers were required to report all trades in publicly issued corporate bonds to the national association of security dealers which in turn made transaction data available to the public in this paper we describe trading protocols in the corporate bond market and assess the impact of the increase in transparency on the market we review how trace has affected the costs that corporate bond investors paid to bond dealers for their transactions we canvass the opinions of a variety of finance professionals and consider articles in the trade press to obtain a broader view of the impact of transparency on the corporate bond market

sell side debt analysts and debt market efficiency we explore sell side debt analysts contributions to the efficiency of securities markets we document that debt returns lag equity returns less when debt research coverage exists which is consistent with debt analysts facilitating the process by which available information is impounded in debt prices the effect of debt research on the debt market s lag is incremental to but comparable in magnitude to hedge fund ownership s effect no such effect exists for credit rating agencies we also find that the dissemination of debt reports has an immediate effect on return volatility in both markets which is consistent with debt analysts providing new information to securities markets increased return covariation suggests that this information impacts the pricing of debt and equity in the same direction a large percentage of debt reports do not induce any immediate debt market return reaction but do induce an equity return reaction which is consistent with new information being provided despite the absence of a debt market reaction finally there is a systematic variation in the debt market s trading and return reactions to debt research timely reports and those by high reputation brokers induce a quicker trading response thus enhancing liquidity whereas only timely reports induce a greater return response this study illuminates the institutional underpinnings of debt market efficiency and it has important implications for information content tests in the debt market where trading is limited

corporate bond price data sources and return risk measurement to date a number of studies involving the use of bond prices and or returns have utilized the published prices of trades on the new york and other exchanges these exchange quotes reflect the odd lot activities of individual investors and account for only a negligible portion of the trading in listed issues in contrast the vast majority of listed corporate trading occurs over the counter and involves round lot trades between institutions given differences in market characteristics odd lot exchange prices may differ substantially from those in the round lot institutional market this study compares exchange quotations from moody s bond record with prices assigned by merrill lynch s institutional pricing service and uses each set of prices to calculate return and risk measures institutional merrill lynch bond prices are shown to be systematically greater than exchange moody s prices in addition bond returns based on merrill lynch prices are shown to yield significantly higher beta and r 2 estimates as well as significantly lower standard deviation and residual risk estimates

the timing and value of forecast and recommendation revisions abstract this paper evaluates the information content of analysts one quarter ahead earnings forecast revisions and recommendation revisions at various points in event time relative to earnings announcement dates across three sets of tests we find that the revisions are least informative in the week after earnings announcements and that the information content of revisions generally increases over event time we find a sharp increase in the information content of upward forecast revisions and recommendation upgrades in the week before earnings announcements but we do not find a similar increase for downward revisions or for recommendation downgrades

the timing of and incentives for annual earnings forecasts near interim earnings announcements abstract security analysts anticipate and respond to interim earnings announcements when they revise their annual earnings forecasts analysts avoid revising for two weeks before an interim announcement and more frequently revise immediately after an announcement as expected revision activity after an interim announcement is greater if absolute unexpected interim earnings are larger if there are more competing analysts and if unexpected interim earnings are negative unexpectedly analysts are reluctant to revise their forecasts early in the fiscal year these findings carry implications for research designs that use analyst forecasts

differential interpretation of public signals and trade in speculative markets most models of trade in speculative markets assume that agents interpret public information identically we provide empirical evidence on the relation between the volume of trade and stock returns around public announcements and we argue that the evidence is inconsistent with this assumption we then develop a model of trade around public announcements that incorporates differential interpretations and is consistent with the observed volume return relation then we test the standard model of belief revision underlying most models of trade using stock brokerage research analysts earnings forecasts the hypthesis of identical interpretations seems inconsistent with the forecast revisions in these data

imperfect competition the marginal cost of public funds and public goods supply abstract this paper analyses the impact of changes in product market competition on the marginal cost of public funds mcpf and public goods supply when distortionary commodity taxes are used to raise revenue first less competition measured by a switch from bertrand to cournot conduct or a decrease in the elasticity of demand does not necessarily raise the mpcf second even if it does optimal public good supply does not necessarily fall the paper also presents a method for modelling bertrand and cournot competition in general equilibrium that may be of independent interest

the informational role of bond analysts this study uses a large sample of sell side bond analysts reports to examine the properties of recommendations provided by bond analysts and the impact of these recommendations on bond securities first we document that the distribution of bond analysts buy hold and sell recommendations is skewed positively but less so than the distribution of equity analysts recommendations the positive skewness in bond analysts recommendations is greater for

national origin and immigrant welfare recipiency this paper explores national origin differences in the welfare recipiency of immigrants to the united states we develop an economic model of immigration which generates implications about how welfare utilization should vary according to characteristics of the country of origin the empirical analysis reveals that a few source country characteristics explain over two thirds of the variance of welfare recipiency rates across national origin groups and changes in the average source country characteristics of the foreign born population between 1970 and 1980 can account for most of the rise in immigrant welfare use that occurred over the decade

secondary trading costs in the municipal bond market using new econometric methods we separately estimate average transaction costs for over 167 000 bonds from a 1 year sample of all u s municipal bond trades municipal bond transaction costs decrease with trade size and do not depend significantly on trade frequency also municipal bond trades are substantially more expensive than similar sized equity trades we attribute these results to the lack of bond market price transparency additional cross sectional analyses show that bond trading costs increase with credit risk instrument complexity time to maturity and time since issuance investors and perhaps ultimately issuers might benefit if issuers issued simpler bonds

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

determinants of the informativeness of analyst research abstract we examine cross sectional determinants of the informativeness of analyst research i e their effect on security prices controlling for endogeneity among the factors affecting informativeness analyst reports are more informative when the potential brokerage profits are higher e g high trading volume high volatility and high institutional ownership and lower when information processing costs e g more business segments are high we also find that the informativeness of analyst research and informativeness of financial statements are complements

a pigovian rule for the optimum provision of public goods abstract the integrated treatment of optimal taxation and public expenditure presented here is based on the dual relationship between the prices of private goods and the quantities of public goods the conditions for optimum public good provision can be expressed as a modification of the samuelson conditions with extra terms representing a the distortionary effect of taxes on the willingness to pay for the public good and b distributional effects the former captures pigou s notion of the indirect damage caused by the need to finance public expenditure out of distortionary taxes and we call this the pigou term in certain cases a very simple benefit cost ratio for public projects emerges that is equivalent to measuring benefits as if they were taxed

a generalized approach to multigeneration project evaluation 1 introductionit is well known that the choice of discount rate plays a significant role in the ranking of projects with varying time paths of costs and benefits for public projects the choice of the appropriate social discount rate sdr is not clear cut even in the context of short lived projects in which costs and benefits occur within a single generation in particular when capital taxes produce a wedge between gross and net rates of return should one discount at the economy s rate of return the before tax rate or the individual s rate of return the after tax rate in the single generation context the literature falls in two camps 1 one camp argues that the appropriate sdr is a weighted average of the gross and net rates of return with weights typically determined by the fractions of resources drawn from consumption and private investment respectively 2 a second camp argues that future benefits should be discounted at the net rate of return but that the initial investment should be multiplied by a scale factor so that the direct costs of the project can be expressed in terms of consumption units 3both approaches suffer from severe implementation problems for the first approach there is no general formula for the weights needed to calculate the sdr as a weighted average of two market rates of return dreze 1974 indeed the appropriate sdr to use is project specific stiglitz 1982 without a systematic methodology to derive project specific sdrs the weighted average approach is hard to implement for the second approach which equalizes the sdr to the net rate of return the scale factor the opportunity cost of public investment must be quantified the opportunity cost of public investment depends on whether resources come from private investment or consumption and on the calculation of the present value of the future consumption yielded by a unit of capital discounted at the net rate of return that is the shadow price of capital as lind 1997 points out however there is no general agreement on a specific procedure for calculating the shadow price of capital indeed the concept of the opportunity cost of public investment suffers the same project dependence problem as the first view of the sdr diamond 1968 multigeneration projects such as nuclear waste disposal natural resource conservation or even social security reform further complicate discount rate choice specifically intergenerational equity in addition to intertemporal efficiency plays a role in determining the appropriate social discount rate for multigeneration public project evaluation 4 as in the single generation context there are two competing views on the appropriate discount rate when evaluating multigeneration projects the descriptive and the prescriptive approaches 5the descriptive approach to discounting is a market based approach it does not rely on an explicit social welfare function swf or the pure time preference rate embedded in the swf however the descriptive approach works under the assumption that intergenerational compensation through changes in the tax debt policy is available 6 it is argued that under appropriate intergenerational compensation the market rates of return are still relevant for calculating the sdr for multigeneration project evaluation and in general the sdr should be a weighted average of the gross and net rates of return this descriptive view of setting the sdr equal to the market return appears to underlie the office of management and budget s omb adoption of 7 as the appropriate discount rate for federal programs 7the intent of the prescriptive approach is to use the social discount rate as an expression of ethical judgment on how consumption of future generations should be compared to consumption of current generations

conflict of interest and the credibility of underwriter analyst recommendations brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public we show that stocks that underwriter analysts recommend perform more poorly than buy recommendations by unaffiliated brokers prior to at the time of and subsequent to the recommendation date we conclude that the recommendations by underwriter analysts show significant evidence of bias we show also that the market does not recognize the full extent of this bias the results suggest a potential conflict of interest inherent in the different functions that investment bankers perform

the provision of local public goods and factors in the presence of firm and household mobility abstract this paper studies the efficiency properties of allocations when firms and households are mobile and when local governments provide local public goods and local public factors the analysis differentiates between immobile land owners and perfectly mobile workers and concludes that an efficient allocation is obtained if there is no outflow of land rents to absentee owners if rents flow out only local public goods are supplied in accordance with the samuelson rule the provision of local public factors is inefficiently low however and jurisdictions tax mobile firms and mobile households inefficiently high in order to restrict the outflow of rents an optimal intervention scheme is derived in this case we also analyze the distortions that result when the non availability of local head taxes makes it impossible to internalize crowding costs

rationality and analysts forecast bias this paper proposes and tests a quadratic loos utility function for modeling corporate earnings forecasting where financial analysts trade off bias to improve management access and forecast accuracy optimal forecasts with minimum expected error are optimistically biased and exhibit predictable cross sectional variation related to analyst and company characteristics empirical evidence from individual analyst forecasts is consistent with the model s predictions these results suggest that positive and predictable bias may be a rational property of optimal earnings forecasts prior studies using classical notions of unbiasedness may have prematurely dismissed analysts forecasts as being irrational or inaccurate

bond rating agencies and stock analysts who knows what when both bond rating agencies and stock analysts evaluate publicly traded companies and com municate their opinions to investors comparing the timeliness of each we find that granger causality flows both ways while most bond downgrades are preceded by declines in actual and forecast earnings both actual earnings and forecasts of future earnings tend to fall following downgrades although part of this post downgrade forecast revision can be attributed to negative news regarding actual earnings most appears to be reaction to the downgrade itself we find little change in actual earnings following upgrades analysts however tend to increase their forecasts of future earnings

when does the bond price reaction to earnings announcements predict future stock returns abstract in this paper i show that the bond price reaction to earnings announcements has predictive power for post announcement stock returns and that this predictive ability is driven by the bonds of non investment grade firms i find that bonds predictive ability is more pronounced in firms that have a lower level of institutional shareholder ownership and whose bonds are more liquid this paper enhances our understanding of the relation between the stock and bond markets and complements the literature which documents whether and under what circumstances various accounting based measures and financial statement components predict post announcement stock returns

the effect of immigrants on natives incomes through the use of capital abstract this paper deals with questions about the effects of immigrants on three types of capital the private capital immigrants work with the public government capital that immigrant workers use and the public capital used for services by immigrants private capital dilution is unimportant the overall effect is an addition to the incomes of natives of a sum equal to perhaps 1 or 2 of the incomes of the immigrants for some number of years small enough to ignore in this context in the government sector workers can be assumed to obtain all the returns to capital and about 8 of immigrants work in this sector therefore for productive capital taken altogether we estimate that immigrants capture the returns from only 8 of the capital they work with the government capital the result is a loss of perhaps 2 of an immigrant family s income for one year which is considerably smaller being for only one year than the above mentioned gain to natives through the private capital that immigrants work with the cost to natives of equipping an immigrant family with demographic capital schools hospitals and local roads turns out to be much more important this quantity depends upon the cost of such equipment the proportion financed by bonds the average length of life of the capital and the average life of the bonds we develop an estimating equation and calculate that the cost to natives in 1975 dollars is 4172 about a fifth of a year s income for an average family this is not insignificant in magnitude but this amount together with the effect through productive capital dilution discussed in the first part of the paper is considerably smaller than the benefits of immigrants to natives through their relatively low use of welfare services and their relatively high contribution of taxes

earnings announcements and competing information abstract we investigate whether competing information primarily analyst reports reduces the usefulness of earnings announcements inconsistent with the view that information in analyst reports substitutes for earnings announcements we find a positive relation between absolute abnormal returns to the two types of disclosures this positive relation also characterizes subsequent period analyst reports relative to current period earnings announcements we also find that aggregate absolute reactions to both types of disclosures increased over 1986 1995 as a whole these results provide little support for the view that the informativeness of earnings announcements is eroded by competing information in the form of analyst reports

welfare effects of migration in societies with indirect taxes income transfers and public good provision abstract we construct a general equilibrium trade model of a two class small open host or source country when consumption tax revenue finances the provision of a public good marginal migration reduces social welfare in the source country and raises it in the host when consumption tax revenue is equally distributed among domestic households in each country then migration has an ambiguous impact on social welfare in either country when tariff revenue in either country is either equally distributed among domestic households or it is used to finance the provision of a public good then migration has an ambiguous effect on social welfare in the host country and is expected to reduce social welfare in the source

additional evidence on the information content of management earnings forecasts prior studies have documented that management earnings forecasts which exceed expected earnings good news forecasts are associated with significant positive abnormal stock returns on average when publicly released however no significant negative abnormal returns are observed immediately surrounding the release of management forecasts which are defined as bad news these findings conflict with the results to date on price reactions associated with earnings announcements for example ball and brown 1968 found that good news bad news annual earnings announcements are associated with positive negative abnormal returns in the months preceding and including the annual earnings announcement foster 1977 reported similar findings for quarterly earnings announcements beaver clarke and wright 1979 found a positive ordinal association between the magnitude of unexpected earnings the difference between actual earnings and expected earnings

initial evidence on the role of accounting earnings in the bond market we document that 1 the incidence of bond trade increases during the days surrounding earnings announcements 2 there is a bond price reaction to the announcement of earnings and 3 there is a positive association between annual bond returns and both annual changes in earnings and annual analysts forecast errors all of these effects are larger when earnings convey bad news or when the underlying bond is more risky taken together our results suggest that the nonlinear payoff structure of bond securities affects the role of accounting earnings in the bond market

the effect of issuing biased earnings forecasts on analysts access to management and survival this study offers evidence on the earnings forecast bias analysts use to please firm management and the associated benefits they obtain from issuing such biased forecasts in the years prior to regulation fair disclosure analysts who issue initial optimistic earnings forecasts followed by pessimistic earnings forecasts before the earnings announcement produce more accurate earnings forecasts and are less likely to be fired by their employers the effect of such biased earnings forecasts on forecast accuracy and firing is stronger for analysts who follow firms with heavy insider selling and hard to predict earnings the above results hold regardless of whether a brokerage firm has investment banking business or not these results are consistent with the hypothesis that analysts use biased earnings forecasts to curry favor with firm management in order to obtain better access to management s private information

corporate bond market transaction costs and transparency using a complete record of u s over the counter otc secondary trades in corporate bonds we estimate average transaction costs as a function of trade size for each bond that traded more than nine times between january 2003 and january 2005 we find that transaction costs decrease significantly with trade size highly rated bonds recently issued bonds and bonds close to maturity have lower transaction costs than do other bonds costs are lower for bonds with transparent trade prices and they drop when the trace system starts to publicly disseminate their prices the results suggest that public traders benefit significantly from price transparency

on the political economy of immigration and income redistribution in this article we analyze an economy in which agents vote over immigration policy and redistributive tax policy we show that natives preferences over immigration are influenced by the prospect that immigrants will be voting over future tax policy we also show that changes in the degree of international capital mobility the distribution of initial capital among natives the wealth or poverty of the immigrant pool and the future voting rights and entitlements of immigrants can have dramatic effects on equilibrium immigration and tax policies finally we provide some empirical support for the model s predictions

ageing migration and endogenous public pensions abstract this paper analyses migration behaviour of mobile workers in reaction to population ageing we show that the conventional wisdom that a decrease in fertility will lead to a rise in wages and thus to an inflow of immigrants that mitigates the adverse effects of ageing on public pensions may not hold if labour is heterogeneous moreover we demonstrate that if public pensions are endogenous i e if ageing leads the elderly to successfully lobby for higher taxes it may take several generations before a steady state is reached and the initial migration flow may be opposite to the steady state migration