the optimal threshold for a value added tax abstract one of the key features of a value added tax and often one of the most contentious is the threshold level of turnover at which firms are obliged to register for the tax despite its importance however the question of the appropriate level at which to set this threshold has received little analytical attention this paper first develops a simple rule characterizing the optimal threshold when firms sizes are fixed in terms of a trade off between tax revenues and collection costs it then considers in principle and by simulation the implications for the optimal threshold of the production inefficiencies implied by the differential treatment of those above and below the threshold

tax adjusted discount rates this paper develops models for discount rates that are adjusted for the interest tax shields of an infra marginal firm in a general tax equilibrium where there is cross sectional variation in corporate tax rates under the assumption that the firm optimally maintains a predetermined debt ratio a tax adjusted riskless discount rate model is given for valuing certainty equivalents and a tax and risk adjusted discount rate model is given for valuing expected cash flows for the latter case the asset equity debt and tax shield betas are derived and a weighted average cost of capital interpretation is given the tax adjusted capm apt security market lines for expected returns in stock and bond markets both have the same slope but different intercepts a formula is also provided for the present value of the interest tax shield when the firm optimally maintains a predetermined debt level the analysis here also differs from the existing literature in the following respects it allows for cross sectional variation in corporate tax rates and personal tax rates it shows that the market values of risky and riskless interest tax shields differ only to the extent that tax laws provide for nonlinear taxation of gains and losses it also shows that interest tax shields should be discounted at a tax adjusted discount rate that reflects the fact that they accrue to equity investors rather than debt investors continuous time simplifications of the formulas in this paper and the previous literature are also given

taxes on tax exempt bonds implicit tax rates priced in the cross section of municipal bonds are approximately two to three times as high as statutory income tax rates with implicit tax rates close to 100 using retail trades and above 70 for interdealer trades these implied tax rates can be identified because a portion of secondary market municipal bond trades involves income taxes after valuing the tax payments market discount bonds which carry income tax liabilities trade at yields around 25 basis points higher than com parable municipal bonds not subject to any taxes the high sensitivities of municipal bond prices to tax rates can be traced to individual retail traders dominating dealers and other institutions the issue of how taxes affect asset prices is an important issue in finance accounting and economics in theoretical models examining the effect of taxes

taxes and transaction costs in asset market equilibrium abstract this paper examines the effects of capital taxation in an imperfect capital market in which acquiring risky assets incurs costs individual portfolio choice has two distinct aspects the extensive choice of which assets to hold in the portfolio and the intensive choice of what fraction of wealth to invest in each asset held the traditional assumption of zero transaction costs obscures the extensive choice this paper shows that if trading in assets is costly capital taxes have extensive effects as well as the intensive effects previously studied

the impact of inflation on the aggregate debt asset ratio this paper demonstrates that contrary to the results of previous studies the impact of inflation on the aggregate debt asset ratio cannot be determined theoretically however it is shown that inflation is likely to increase this ratio when personal income tax schedules are indexed to the price level and or when leverage related costs are relatively high and the personal tax rate on income from holding common stocks is relatively low studies concerning the effect of inflation on firms capital structure conclude that inflation enhances debt financing jaffe 9 modigliani and cohn 16 and modigliani 15 argue that nominal interest payments consist in part of true interest payments and in part of a compensation for the reduction in the real value of the principal the fact that firms are allowed to deduct their entire interest expense including the portion that is a return of principal reduces their cost of debt capital gordon 6 concludes that the equilibrium debt capital ratio rises when the inflation rate rises he argues that an increase in the nominal interest rate induced by inflation increases the tax advantage of debt financing thus debt financing becomes more attractive and a rise in leverage related costs is necessary to restore equilibrium gordon asserts that the increase in leveragerelated costs is brought about by an increase in the debt equity ratio all these studies however focus primarily on the tax benefits of debt financing to the corporation and implicitly assume that each firm has a unique optimal structure which may change with inflation in contrast miller 14 in a world without inflation concludes that firms are indifferent to their capital structure and that the aggregate debt equity ratio is determined by the ratio of the wealth of investors who for tax reasons choose to hold bonds to the wealth of those who choose to hold stocks this paper explicitly incorporates tax considerations of both investors and firms into the analysis of the effect of inflation on the aggregate corporate debtasset ratio it is demonstrated that the effect of inflation on the aggregate debtasset ratio cannot be determined theoretically however inflation is likely to increase this ratio when personal income tax schedules are indexed to the price level and or when leverage related costs are relatively high and the tax on income from holding common stocks is relatively low we consider an economy in which investors are subject to a progressive tax system income from corporate bonds

wealth and portfolio composition theory and evidence we examine a survey of 6010 u s households and estimate a model for household portfolio allocation we extend the conventional portfolio choice model in order to capture the observed incompleteness of household portfolios we show that the empirical specification of the joint discrete and continuous choice that characterizes household portfolio behavior is a switching regressions model with endogenous switching we go on to examine the impact of taxes on portfolio composition using detailed survey data to calculate precisely the marginal tax rate facing each household finally we estimate wealth elasticities of demand for a range of assets and liabilities

do we now collect any revenue from taxing capital income the wide variation in effective tax rates on income from different types of capital received by different investors creates numerous tax arbitrage opportunities that result in a loss in both government revenue and economic efficiency the objective of this chapter is to estimate the revenue and distributional effects of tax arbitrage using tax data from 1983 by examining the effects of two tax changes that would each substantially reduce the opportunities for tax arbitrage our principal conclusions are as follows 1 taxing real rather than nominal interest income would have raised government revenue in 1983 by 25 5 billion 2 this increase in revenue would occur mainly at the expense of those in the highest tax brackets 3 taxing the cash flow from real capital and exempting from tax any income from financial assets would have raised government revenue by 17 4 billion since this tax change eliminates all distortions to savings and investment decisions our revenue forecast suggests that the tax l

tax advice to developing countries an historical survey abstract the tax policy advice given to developing countries by foreign experts has been influenced by changing public finance doctrines development theory and policy and practices and debates in industrial countries current tendencies include less emphasis than formerly on taxation to mobilize savings in accordance with a national plan to reduce inequality and to influence resource allocation by special incentives governments are advised to avoid interfering with market directed allocations of resources high and progressive income tax rates high import duties and export taxes a value added tax is recommended for middle income countries

the ban on indexed bonds 1933 77 in a recent article in this review nissan liviatan and david levhari attempt to explain the phenomenon that in spite of recent marked inflationary trends the important capital markets have not developed a significant free private enterprise market for cost of living linked bonds p 366 they note that the familiar theoretical complete dominance of indexed bonds over nonindexed bonds holds unambiguously only in an economy in which there are no nominal assets they demonstrate that borrowers may in theory insist on hedging the inflation risk on their nonindexed cash balances by issuing some nonindexed bonds at a discount that makes them attractive in spite of the risk they impose on lenders their model leads them to conclude that indexed bonds might not completely dominate nonindexed bonds however they do not claim that their model explains the phenomenon they set out to explain why is it that the free market to use their expression has come up with virtually no indexed bonds at all fortunately a simple explanation for the nonexistence of indexed bonds in the united states was provided two years

differential income taxation and household asset allocation this article empirically investigates the effects of differential income taxation on households portfolio choice and asset allocation applying a two stage budgeting model of asset demand to german survey data the model is structured into the discrete and the continuous asset choice cross sectional variation in marginal tax rates appropriately instrumented as well as over time variation from a major tax reform are used to identify the tax effects households with higher tax rates are found to have relatively greater demand for tax privileged assets such as nonowner occupied housing mortgage repayments building society deposits stocks insurances and consumer credits than households with lower tax rates demand at higher tax rates is lower for owner occupied housing bank deposits and bonds

withdrawal location with progressive tax rates optimal withdrawal strategies are developed for retirees with multiple types of tax advantaged savings accounts in an environment of progressive tax rates the ability to convert pretax funds in traditional iras at low tax rates substantially increases investors residual accumulations and withdrawal sustainability specifically informed withdrawal location strategies in which traditional ira distributions can be applied against exemptions deductions and lightly taxed tax brackets can increase residual accumulations by more than 1 million in these strategies the optimal tax bracket through which an investor should take distributions is directly related to the investor s wealth level

towards green growth how does green innovation affect employment abstract we examine the relationship between green innovation and employment from data taken from the spanish technological innovation panel pitec for period 2007 2011 the increasing relevance of environmental issues for the spanish economy its unemployment problem and the uniqueness in its innovation structure make it a proper and interesting context to investigate green innovation dynamics we find a positive relationship between green innovation and employment and the relationship is stronger for firms in the so called dirty industries in addition we show that the relationship is positive for firms that introduce green innovation voluntarily as compared to firms that introduce green innovation merely to comply with regulations a positive and significant relationship is also found between employment and firms that report an increase in the degree of importance paid to green innovation

risk returns and values in the presence of differential taxation abstract we show that there exist separate security market lines smls for debt and equity securities in an equilibrium with differential taxation of debt and equity we characterize the conditions under which these smls have the same price of risk with different intercepts and the conditions under which the tax effect of leverage is linear in debt value as in the adjusted present value method we explore the implications of our results for cost of capital calculations how to calculate the cost of capital for debt and equity and how to unlever betas correctly accounting for differential taxation

mainstreaming green product innovation why and how companies integrate environmental sustainability green product innovation has been recognized as one of the key factors to achieve growth environmental sustainability and a better quality of life understanding green product innovation as a result of interaction between innovation and sustainability has become a strategic priority for theory and practice this article investigates green product innovation by means of a multiple case study analysis of 12 small to medium size manufacturing companies based in italy and canada first we propose a conceptual framework that presents three key environmental dimensions of green product innovation such as energy minimization materials reduction and pollution prevention as identified in the life cycle phases of products based on insights gained from in depth interviews we discuss firms motivations to develop green products environmental policies and targets for products different dimensions of green product innovation and challenges faced during developing and marketing of green products results from the study are then synthesized and integrated in a toolbox that sheds light on various aspects of green product innovation and provides solutions to challenges and risks that are faced by firms finally implications for managers academia and public policy makers are discussed

adoption of green chemistry an analysis based on us patents abstract green chemistry patents are an indicator of environmental innovation and r d over 3200 green chemistry patents were granted in the us patent system between 1983 and 2001 with most assigned to the chemical sector the university and government sectors place greater emphasis on green chemistry than most industrial sectors worldwide the emphasis on green chemistry technology relative to chemical plastic rubber and polymer technologies has increased since 1988 the united states appears to have a competitive advantage in green chemistry the most rapid growth in the emphasis on us green chemistry patents coincides with revisions to major us environmental laws in the late 1980s and early 1990s however the ratio of green chemistry patents to patents in other areas of chemical sciences in heavily regulated industries are low suggesting that these industries did not necessarily embrace green chemistry as a means to reduce their regulatory burden

dual income taxation a promising path to tax reform for developing countries summary the dual income tax combines a progressive tax on labor income and a lower flat tax on income from capital unlike flat tax systems a dual income tax provides developing countries greater flexibility in addressing tax competition while retaining progressivity countries could use the move to a dual income tax system not just as an opportunity to rationalize the taxation of income from business operations and investment but also as a vehicle for broader reform of their tax systems

the role of finance in environmental innovation diffusion an evolutionary modeling approach abstract the implementation of climate adaptation and mitigation policies depend on the development of green technologies whose diffusion is constrained by a number of barriers which prevent them to spread broadly and at a fast pace by means of an agent based computational model the paper investigates the macro and micro economic dynamics considering the role of a traditional commercial bank and a state investment bank that explicitly supports green investments simulation results emphasize that green finance matter and that the market diffusion of environmental innovation is more pronounced when the presence of the public investment bank is combined with strong consumers preferences oriented towards environmental quality the relevance of the paper is twofold besides contributing to the literature on the finance innovation nexus by considering the role of climate finance within a complex systems framework it provides a model that can be used as a tool to explore policies to foster environmental innovation diffusion

myth and reality of flat tax reform micro estimates of tax evasion response and welfare effects in russia we examine the effects of russia s 2001 flat rate income tax reform on consumption income and tax evasion we use the gap between household expenditures and reported earnings as a proxy for tax e

taxation in papua new guinea backwards to the future abstract this paper explores the evolution current problems and possible future developments of the tax system of papua new guinea leaving aside the important question of natural resource taxation the paper concludes that there is at present a serious mismatch between the nature of papua new guinea s economy and its taxes in particular taxation must be extended to reach the bulk of economic activity in the country no matter what is done in this respect however papua new guinea is most unlikely to be able to finance its current level of government expenditure in the absence of additional aid or natural resource revenue the major public sector problem confronting the country is therefore not tax reform but expenditure reform

globalization and taxation challenges to the swedish welfare state many have argued that the increased international mobility of both capital and labor witnessed in recent years will force advanced capitalist democracies to cut taxes and thus ultimately roll bac

the harm of symbolic actions and green washing corporate actions and communications on environmental performance and their financial implications we examine over 100 top performing canadian firms in visibly polluting industries as we seek to answer four research questions what specific environmental issues are firms addressing how do these issues differ between industries are both symbolic and substantive actions financially beneficial does green washing measured as the difference between symbolic and substantive action and or green highlighting measured as the combined effect of symbolic and substantive actions pay we find that substantive actions of environmental issues green walk neither harm nor benefit firms financially but symbolic actions green talk are negatively related to financial performance we also find that green washing discrepancy between green talk and green walk has a negative effect on financial performance and green highlighting concentrated efforts of the talk and walk has no effect on financial performance in this article we provide explanations of our findings and put forth future research directions

miller s irrelevance mechanism a note this note attempts to clarify miller s 12 capital structure irrelevance mechanism using a geometric edgeworth box diagrams presentation such an exercise is useful because miller s proposition is founded on analytically complex equilibrium arguments that tend to mask the intuition and logic behind his result since miller s original discussion unnecessarily assumed a zero tax on equity income and since miller did not prove his clientele effects rigorously we also focus our attention on the deangelo and masulis 8 9 henceforth d m generalization of the miller model the d m framework is also important because it assumes a proportional tax code as we shall see whether the tax code is proportional or progressive is an important factor in understanding miller s proposition

personal taxation pension wealth and portfolio composition this paper emphasizes the roles played by personal taxation and pension wealth in portfolio choice and composition a theoretical discussion of the impacts of taxation and participation in social security and private pension systems on individual wealth allocation is followed by empirical evidence based on u s cross section data both effects prove to be significant anticipated social security and private pension benefits exert a measurable influence on household portfolio allocation their omission from an asset demand model may lead to a misinterpretation of the impact of taxation on portfolio composition

dividend taxes and international portfolio choice this paper investigates how dividend taxes influence portfolio choices using the response to the distinctive treatment of a subset of foreign dividends in the jobs and growth tax relief reconciliation act jgtrra of 2003 an open economy after tax capital asset pricing model is used to derive the hypothesis that jgtrra should lead to a portfolio reallocation by us investors towards equities in tax favored countries a difference in difference analysis that compares us equity holdings in affected and unaffected countries finds a substantial portfolio reallocation towards the former this effect cannot be explained by several potential alternative hypotheses including differential changes to the preferences of american investors differential changes in investment opportunities differential time trends in investment changed tax evasion behavior or changes in stock prices associated or contemporaneous with jgtrra

government debt and private leverage an extension of the miller theorem abstract this paper shows how government financing decisions can influence the corporate decision to use debt or equity finance in particular it is shown that an increase in the stock of taxable government debt reduces the equilibrium quantity of corporate debt and that an increase in the stock of tax free government debt reduces the equilibrium quantity of corporate equity the effects of inflation rate and tax rate changes are also considered

corporate financial policy with personal and institutional investors abstract in this paper we present a simple general equilibrium model of the portfolio behavior of households and institutions paying particular attention to the influence of differences in tax rates and attitudes toward risk under the plausible assumptions that households are more risk averse than institutions and possess a greater relative tax preference for equity versus debt we are able to characterize the equilibria which may result when debt is subject to bankruptcy risk

was the tax exempt bond market inefficient or were future expected tax rates negative this paper shows that the sharp narrowing with maturity of the spread between taxable and tax exempt yields leaves room for tax arbitrage at times tax exempt forward rates have exceeded taxable forward rates at such times only expectations of higher taxes on treasury than on municipal bonds would eliminate profit opportunities the authors develop the idea of forward tax rates and compute forward tax rates for 1955 through 1984 they also outline tax arbitrage mechanisms involving private forward sale of long municipal bonds or the use of the municipal bond futures contract and show the potential profits the municipal yield curve has been upward sloping for the entire postwar period even at times when taxable yield curves were humped or downward sloping thus the spread in yields between taxable and tax free bonds narrows dramatically with increasing maturity this paper focuses on the term structure of the spread in yields between taxable and tax exempt bonds we show that the sharp narrowing of the spread with maturity leaves room for some apparently unexploited tax arbitrage at times the narrowing has been so dramatic that taxexempt forward rates have exceeded taxable forward rates in other words only expectations of negative future tax rates on treasury interest or the expectations of a reversal in the relative taxability of treasury and municipal bonds would eliminate profit opportunities this situation makes little sense if the markets are well arbitraged three theories of the relationship between the yields on taxable and taxexempt bonds have attracted attention 2 miller 8 asserts that the corporate tax rate determines the yield spread between taxable and tax exempt debt in the

taxes firm financial policy and the cost of capital an empirical analysis abstract this paper develops a theoretical model of firm behavior consistent with the maximization of shareholder utility and derives empirically testable implications of different theories of equity finance using data on firm earnings and previous investment and financial behavior we assess whether firms treat new share issues as a more expensive source of finance than retentions and whether such behavior varies across firms according to the composition of their shareholders our results support the hypothesis that firms perceive a higher cost of capital when issuing new shares and that the cost of capital varies significantly across firms having different estimated tax clienteles as theory would predict

has government any role in money abstract recent interest in monetary reform has been sparked by the emergence of a world irredeemable paper money system in light of this interest we review the current validity of four good reasons friedman advanced in 1960 to rationalize government intervention we conclude that the forces that produced government involvement in the past will persist deregulation of financial intermediaries is desirable on grounds of market efficiency though it is an open question whether government should continue as lender of last resort we expect that the present world fiat money standard will neither degenerate into hyperinflation nor revert to a commodity standard

corporate tax elasticities a reader s guide to empirical findings corporate taxes exert a variety of effects on business behaviour a wealth of empirical evidence assesses the magnitude of these behavioural margins of taxation this article offers an up to date review and aims to provide common ground by computing for each distortion the semi elasticity of the corporate tax base we pay particular attention to international investment where it is not a priory clear whether marginal investment decisions or discrete locations are most important using anextension of the meta analysis of de mooij and ederveen 2003 we explore the extent to which existing studies reveal differences in effect size between the intensive and extensive margins of international investment

the seesaw principle in international tax policy abstract the standard analysis of the optimal international tax policy of a small country typically assumes that the country either imports or exports capital but does not do both this paper considers the situation in which a small country both exports and imports capital and can alter its tax on one or the other but not both in each case a seesaw relationship is identified in which the optimal tax on the income from capital exports imports is inversely related to the given tax rate on income from capital imports exports the standard results for optimal taxation of capital exports and imports are shown to be special cases of the more general seesaw principle

taxes investment and q this paper attempts to provide a unified analysis of the effects of taxation on the equilibrium value of marginal q under alternative financial policies it is shown that the q approach does not avoid all the specification problems associated with analyses based on the cost of capital the theoretically and empirically crucial relationship between average and marginal q is also examined and it is shown that under uk and us tax rules the possibility of winding up precludes persistent undervaluation in equilibrium there have now been a considerable number of empirical studies of investment behaviour based on some variant of tobin s q defined as the ratio of the firm s market value to the value of its capital stock see for instance jenkinson 1981 oulton 1981 poterba and summers 1981 summers 1981 and von furstenberg 1977 the q approach is seen as having the empirical advantage compared in particular with the more traditional approach based on the cost of capital of allowing expectations to be brought directly into the study of investment behaviour by relying on asset prices to digest all relevant expectations and reflect them in observable data an immediate difficulty however is that whilst the incentive to invest is related to the effect on shareholder wealth at the margin and hence to marginal q only the value of average q is directly observable the consequent difficulty of implementation is not however considered here see bailey and scarth 1980 and hayashi 1982 for discussion of conditions under which marginal q can be inferred from average q rather this paper is concerned with the prior question of how personal and corporate taxation affects the equilibrium value of marginal q for there has as yet been no systematic analysis of the effects of taxation on the equilibrium value of marginal q comparable with the analysis of the relationship between taxation and the cost of capital in king 1974 thus auerbach 1979a b bradford 1981 and edwards and keen 1984 have all considered how taxes affect q when the marginal source of funds is either retained profit or the sale of new equity and the distinction between these two cases has also been recognized in the empirical work of poterba and summers 1983 but the important case in which debt is the marginal source has been ignored the effects on marginal q of the constraints that typically need to be imposed in modelling financial policy have also been neglected this paper attempts to fill these gaps in the literature by providing a general analysis of the relationships between taxation financial policy investment and q the paper also examines the implications of the special tax provisions that may apply in the event in the firm s ceasing operations winding up this bears upon one of the unresolved issues associated with the new view of equity finance auerbach 1983 namely the suggestion that if dividends are taxed more heavily than capital gains

can capital income taxes survive in open economies optimal tax theory forecasts that small open economies should not tax capital income yet countries do tax capital income why the inconsistency this paper shows that use of the double taxation convention whereby governments credit taxes paid abroad against domestic taxes helps explain this inconsistency in particular capital income will be taxed if a dominant capital exporter acts as a stackelberg leader when setting its tax policy due to the convention other countries will then tax capital imports making it attractive for the dominant capital exporter to tax capital income without a dominant capital exporter however the model still forecasts no capital income taxes can taxation of capital income survive the increasing integration of world capital markets a number of recent papers suggest not diamond and mirrlees 1971 for example showed that a small open economy would not choose to tax the income generated by the physical capital located within the country this is because production would occur efficiently under an optimal tax system which requires that domestic investments earn the rate of return available on the world capital market in principle a country might still attempt to tax income earned on the savings of its residents however in practice income from savings invested outside the country is virtually impossible for a government to monitor individuals therefore can evade tax on such savings with very little risk as razin and sadka 1989 show such capital flight in theory eliminates any possibility of a tax on savings investors will simply transfer their funds abroad to avoid taxation yet virtually all countries do in fact tax the capital income earned by corporations and individuals located within their borders how can the theoretical forecast of no capital income taxation be reconciled with this simple observation it is difficult to use existing models with any confidence to analyze the implications of changes in capital income tax rates if these same models forecast that countries should never tax capital income

effects of innovation on employment a dynamic panel analysis abstract this paper estimates the effect of innovation on employment at the firm level our uniquely long innovation panel data set of german manufacturing firms covers more than 20 years and allows us to use various innovation measures we can distinguish between product and process innovations as well as between innovation input and innovation output measures using dynamic panel gmm system estimation we find positive effects of innovation on employment this is true for innovation input as well as for innovation output variables innovations show their positive effect on employment with a time lag and process innovations have higher effects than product innovations

do countries compete over corporate tax rates this paper tests whether oecd countries compete with each other over corporate taxes in order to attract investment we develop two models with firm mobility countries compete only over the statutory tax rate or the effective average tax rate while with capital mobility countries compete only over the effective marginal tax rate we estimate the parameters of reaction functions using data from 21 countries between 1983 99 we find evidence that countries compete over all three measures but particularly over the statutory tax rate and the effective average tax rate this is consistent with a belief amongst governments that location choices by multinational firms are discrete we also find evidence of concave reaction functions consistent with the model outlined in the paper

are stocks desirable in tax deferred accounts abstract existing literature suggests that in order to maximize the tax benefit of retirement accounts investors should follow a pecking order location rule of placing highly taxed assets e g bonds in a tax deferred account and lightly taxed assets e g stocks in a taxable account empirical evidence however documents that a large number of investors violate this rule in this paper we show that such violations can be optimal for risk averse investors who face portfolio constraints in particular while the strategy of placing bonds in the tax deferred account maximizes the expected level of tax benefit it may lead to volatile benefits under different realizations of stock returns by holding a similar portfolio in both accounts investors can achieve a more balanced growth in the two accounts minimize the likelihood of violating the constraints in the future and hence smooth the volatility of the tax benefit for some risk averse investors this smoothing motive can lead to the observed violation of the pecking order location rule our model predicts that such violations are more likely when future tax benefits are more volatile which can occur for example when i the tax rate differential across assets increases over time due either to tax law changes or to tax bracket changes for investors ii asset returns are more volatile and iii investors anticipate large future liquidity needs

a tax induced clientele for index linked corporate bonds this paper analyzes the circumstances under which tax considerations favor or disfavor the use of index linked corporate bonds using a model similar to miller s investors choices of assets depend on their tax preferences for interest income versus capital gains and their preferences for the timing of returns it is concluded that the absence of indexlinked bonds in the u s cannot be attributed solely to tax reasons however following the 1986 tax reform act the tax code is expected to disfavor the use of index linked bonds the absence of index linked i l bonds in the u s is puzzling index linked bonds are common in countries that have experienced persistently high and or volatile rates of inflation both the periodic interest payments and the principal of an i l bond are linked to a price index this design provides protection against inflation induced changes in the nominal interest rate and prevents erosion of the bond s real value during inflationary periods anticipated or unanticipated the theoretical literature on i l bonds has focused primarily on the risk reduction aspect see for example sarnat 9 fischer 3 and siegel and warner 11 the recurrent theme of these studies is that the introduction of i l bonds reduces inflationary risks to both debtors and creditors these studies argue that in a portfolio context i l bonds provide investors protection against a risk that cannot be fully hedged otherwise fischer 4 conjectured that a possible reason for the absence of i l bonds in the u s may be the tax treatment of the returns on these bonds 2 from a tax point of view i l bonds differ from nominal bonds bonds hereafter in two respects first the returns on i l bonds consist of a combination of interest income and capital gains whereas the returns on nominal bonds consist in a steady state of interest income only second while the compensation for the inflation induced erosion in the real value of the principal of a nominal bond is part of the periodic interest payments and hence is taxed every period the corresponding compensation on an i l bond is realized and taxed only when the bond is sold thus holding i l bonds allows a tax deferment that is not possible when nominal bonds are held

redefining innovation eco innovation research and the contribution from ecological economics while innovation processes toward sustainable development eco innovations have received increasing attention during the past years theoretical and methodological approaches to analyze these processes are poorly developed against this background the term eco innovation is introduced in this paper addressing explicitly three kinds of changes towards sustainable development technological social and institutional innovation secondly the potential contribution of neoclassical and co evolutionary approaches from environmental and innovation economics to eco innovation research is discussed three peculiarities of eco innovation are identified the double externality problem the regulatory push pull effect and the increasing importance of social and institutional innovation while the first two are widely ignored in innovation economics the third is at the least not elaborated appropriately the consideration of these peculiarities may help to overcome market failure by establishing a specific eco innovation policy and to avoid a technology bias through a broader understanding of innovation finally perspectives for a specific contribution of ecological economics to eco innovation research are drawn it is argued that methodological pluralism as established in ecological economics would be very beneficial for eco innovation research a theoretical framework integrating elements from both neoclassical and evolutionary approaches should be pursued in order to consider the complexity of factors influencing innovation decisions as well as the specific role of regulatory instruments and the experience gathered in ecological economics integrating ecological social and economic aspects of sustainable development is highly useful for opening up innovation research to social and institutional changes 2000 elsevier science b v all rights reserved

matching with contracts we develop a model of matching with contracts which incorporates as special cases the college admissions problem the kelso crawford labor market matching model and ascending package auctions we introduce a new law of aggregate demand for the case of discrete heterogeneous workers and show that when workers are substitutes this law is satisfied by profit maximizing firms when workers are substitutes and the law is satisfied truthful reporting is a dominant strategy for workers in a worker offering auction matching algorithm we also parameterize a large class of preferences satisfying the two conditions

taxation portfolio choice and debt equity ratios a general equilibrium model this paper explores the portfolio behavior of investors differing with respect to both tax rates and risk aversion emphasizing the role of constraints on individual and firm behavior in ensuring the existence of and characterizing portfolio equilibrium under certain conditions on the securities available in the market which also are necessary for shareholders to be unanimous in supporting firm value maximization investors will be segmented by tax rate into two groups one specialized in equity and the other in debt though the relative wealths of the two groups determine the aggregate debt equity ratio each firm will be indifferent to its financial policy

interest rates and expected inflation 1831 1914 a rational expectations approach irving fisher argued that interest rates contain a premium for expected inflation and assembled a mass of data both historical and statistical in nature to support his argument 5 6 7 as a research paradigm his argument has proven useful in explaining the behavior of interest rates during the post war period however his original empirical analysis was never persuasive and contemporary studies using modern statistical techniques fail to find the fisher effect in the data fisher used this article examines yet one more time the behavior of interest rates and inflation during basically the 19th century this study is different from other contemporary studies in four important ways first a consumer price index as is required by fisher s theory and not a wholesale price index is used to measure inflation second expected inflation is modeled using a rational expectations approach expected inflation is not simply proxied by a weighted average of past inflation third the fisher effect is included in a reduced form model with other determinants of interest rates the fisher effect is therefore tested

a new look at indirect taxation in developing countries abstract this paper reconsiders some of the traditional arguments made against indirect taxes on consumption such taxes despite the extensive criticism to which they have been subjected in the academic literature remain the mainstay of public finance in most developing countries and are likely to continue to do so brief discussions of the design of excise taxes and the incidence of indirect taxes on the poor illustrate the sorts of issues where more detailed tax specific and country specific research is needed to replace conventional generalizations about the effects of indirect taxes

in search of complementarity in innovation strategy internal r d and external knowledge acquisition empirical research on complementarity between organizational design decisions has traditionally focused on the question of existence of complementarity in this paper we take a broader approach to the issue combining a productivity and an adoption approach while including a search for contextual variables in the firms strategy that affects complementarity analysis of contextual variables is not only interesting per se but also improves the productivity test for the existence of complementarity we use our empirical methodology to analyze complementarity between innovation activities internal research and development r d and external knowledge acquisition our results suggest that internal r d and external knowledge acquisition are complementary innovation activities but that the degree of complementarity is sensitive to other elements of the firms strategic environment we identify reliance on basic r dthe importance of universities and research centers as an information source for the innovation processas an important contextual variable affecting complementarity between internal and external innovation activities

corporation tax finance and the cost of capital this paper examines the influence of corporate tax exhaustion on the firm s financial and investment decisions a dynamic programming model is used to establish effective marginal tax rates in the presence of a tax system that permits the carry forward of losses to future periods the paper demonstrates that internal optimal financial structures may result which do not require the imposition of external constraints the cost of capital is highly sensitive to the current taxable earnings of the firm and the implications of this for such tax transfer activities as leasing are discussed

the critical implicit tax rate and capital structure in a miller world firms are indifferent between debt and equity when the tax rate that isimplicitly used to price a bond is equal to the statutory corporate tax rate in this paper we derive the implicit tax rate that makes a firm marginally indifferent between debt and equity when debt related tax savings are uncertain we analyze the functional relationship between this critical tax rate and the amount of debt issued by a firm and discuss the implications for a firm s optimal capital structure

employment and technological innovation evidence from u k manufacturing firms this article uses british firm level panel data on actual innovative activity drawn from different statistical sources to identify the effect of technical change on jobs previous work tends to find positive associations of proxies for technical change and employment but such studies suffer from various statistical drawbacks in this study even when one controls for fixed effects dynamics and endogeneity innovations have a positive and significant effect on employment which persists over several years there seems to be little direct role for spillover effects from industry innovations or any role for industry wages or union power

mm past present future one of the most productive days in my life was the day in 1956 when it was agreed that merton miller then a shy and retiring young man would you believe it would sit in my graduate course in money and macroeconomics at carnegie institute of technology it was an exciting course with excellent students it took a broad view of the subject one issue that was covered was the cost of capital as a determinant of the rate of investment i had been intrigued by the subject ever since attending a national bureau conference on business finance at which i gave a fairly conventional paper modigliani and ziman 1952 but mostly i listened to a paper by david durand 1952 in which the possibility that financial structure would not affect the market valuation or the cost of capital was suggested only to be rejected as not relevant to the actual capital markets in preparing my lecture dealing with the cost of capital i was able to provide for a world of no taxes a sort of proof of proposition i based on arbitrage i reported the result to my class the next day adding that i didn t really believe my result and there probably was something wrong but miller was instantly captured by the result because he said he knew of a recent paper allen 1954 which provided empirical support for the result even though it lacked a convincing rationale we thus formed

investment choice and asset allocation of italian households the discrete continuous approach financial and monetary policies are considered to be effective depending on the reaction of financial markets which are increasingly populated by households in this article from intertemporal settings i derive a financial almost ideal fai demand system and i estimate it by highlighting the determinants of both limited participation to financial markets and asset substitutability complementarity in the allocating stage finally the wealth elasticities provide some further insights on the low diffusion of the newer and more complex financial instruments across italian households

on the consequences of legal constraints and taxation for corporate choice in this article the author analyzes the effect taxation and legal constraints have on the definition of the firm s cost of capital and optimal financial policy under uncertainty the assumes firms are competitive and considers only input choices spanned by the return vectors of existing securities under very specific tax conditions these assumptions still guarantee a unique definition of the tax adjusted cost of capital but it is shown that under more general tax structures there is a split among potential shareholders accounted for by the ownership of the corporation

environmental innovation and employment dynamics in different technology fields an analysis based on the german community innovation survey 2009 the employment effects of environmental technologies are in the focus of politicians but studies analyzing these effects for different environmental innovation fields are rare we use the 2009 wave of the community innovation survey cis allowing for such an analysis at the firm level our econometric analysis shows that innovative firms in general are characterized by a significantly more dynamic employment development especially the introduction of cleaner technologies as process innovations leads to a higher employment within the firm the theoretical background of this finding is that cost savings induced by this type of process innovation improve the competitiveness of firms this has positive effects on demand and thus also increases employment especially material and energy savings are positively correlated to employment because they help to increase the profitability and competitiveness of the firm on the other side air and water process innovations that are still dominated by end of pipe technologies have a negative impact on employment

stockholder tax rates and firm attributes abstract this paper develops a rigorous theoretical model to assess when investor clienteles may be empirically identified using ex dividend day data and what firm attributes these clienteles should respond to it then presents empirical results for the period 1963 1977 suggesting that 1 tax based investor clienteles do exist and are reasonably stable over time and 2 these clienteles are strongly influenced by the dividend price ratio but insignificantly by direct measures of risk and other firm characteristics

globalization taxation and burden shifting in latin america most researchers interested in the relationship between global markets and public policy focus on advanced industrial democracies in contrast we examine competing hypotheses as to globalization s effect on governments by expanding the scope of the discussion to include developing nations more specifically we investigate the relationship between international market integration and the evolving burden of taxation on capital as well as the subsequent response of markets to shifts in tax policy in latin america since the late 1970s consistent with our theoretical expectations we find that global market forces are more constraining vis a vis tax policy in latin america than in the world s wealthiest nations despite these market based pressures however national politics continue to influence tax policy in latin america in a manner consistent with findings on advanced industrial democracies as such developing nations continue to have some room to manipulate policy though within the context of a more strictly neoliberal context than their counterparts in advanced industrial democracies

pricing home mortgages and bank collateral a rational expectations approach the efficiency of the housing finance system is of interest to homeowners financial intermediaries and policy makers we study the design of optimal mortgage contracts for risk averse economic agents with access to symmetric information on the payoffs of a risky home our non linear framework helps demonstrate the pareto efficiency of a risk free loan over its risky counterpart it also allows us to evaluate the unique equilibrium interest rate loan amount and home price in contrast to the capital structure theorems finally we conduct numerical simulations in lieu of comparative statics to shed some light on the complex causal relationship between mortgage pricing parameters and the underlying collateral i e home value

dividend taxation and household dividend portfolio decisions evidence from the u s jobs and growth tax relief reconciliation act of 2003 abstractthis study examines the dividend clientele hypothesis by focusing on the preferential tax treatment of qualified dividends provided by the 2003 jobs and growth tax relief reconciliation act jgtrra in the united states using the public use tax file data the author finds that the ratios of dividends to long term capital gains before the 2003 tax act significantly declined with household tax rate differentials between dividends and long term capital gains but such a negative tax effect on the ratios disappears afterwards this seemingly tax inefficient composition of dividends and long term capital gains after the tax act arises from households ability to reduce their tax burdens on stocks by exploiting the new preferential tax treatments on qualified dividends under jgtrra that is households in the upper tax bracket hold significantly greater shares of qualified dividends relative to ordinary dividends after the tax act

taxation and household portfolio composition us evidence from the 1980s and 1990s abstract this paper explores the relationship between household marginal income tax rates the set of financial assets that households own and the portfolio shares accounted for by each of these assets it analyzes data from the 1983 1989 1992 1995 and 1998 surveys of consumer finances and develops a new algorithm for imputing federal marginal tax rates to households in these surveys the empirical findings suggest that marginal tax rates have important effects on asset allocation decisions the probability that a household owns tax advantaged assets such as tax exempt bonds or assets held in tax deferred accounts is positively related to its tax rate on ordinary income in addition the portfolio share invested in corporate stock which is taxed less heavily than interest bearing assets is increasing in the household s ordinary income tax rate holdings of heavily taxed assets such as interest bearing accounts decline as a share of wealth as a household s marginal tax rate increases

tax exempt investors and the asset allocation puzzle abstract investors frequently hold equity in pensions and other tax exempt savings plans despite the prediction of the standard model that they hold only bonds we provide a new explanation for this empirical puzzle based on differences between tax exempt and taxable assets in the tax treatment of capital losses we show how limits on refundability of losses on taxable equities leads to diversity of investors preferences for corporate leverage on the basis of tax rates in the simplest equilibrium of the model tax exempt savers hold risky highly levered equities while low bracket taxable savers hold bonds and high bracket taxpayers hold relatively safe unlevered equities we discuss the implications of tax exempts for risk taking and agency costs within the firm

demand pull and technology push public support for eco innovation the case of the biofuels sector the purpose of this paper is to explore the differentiated impact of demand pull and technology push policies in shaping technological patterns in the biofuels sector the empirical analysis is based on a novel and original database biopat containing patents in the field of biofuels selected using appropriate keywords and classified according to the technological content of the invention our results generally show that technological capabilities and environmental regulation spur innovative activities in the biofuels sector both demand pull and technology push factors are found to be important drivers of innovation in the biofuels sector however technology exploitation activities in first generation technologies are found to be mainly driven by quantity and price based demand pull policies on the contrary the pace of technology exploration efforts in advanced generation biofuels is shown to react positively to price based demand pull incentives but also to technology push policy the clear diversity in the impact of different public support instruments provides new insights which fuel discussion on the optimal policy mix debate and offers new elements for the design of future policy strategies