generational accounting a meaningful way to evaluate fiscal policy this paper illustrates the technique of generational accounting a new way to evaluate fiscal policy that overcomes the inherent ambiguities of traditional deficit accounting the authors illustrate why there is no correct measure of the deficit and how generational accounting estimating the fiscal burdens current policy places on different generations provides a clearer picture of the intergenerational and macroeconomic effects of fiscal policy than any measure of the deficit their calculations suggest that despite recent changes u s fiscal policy is unsustainable in that it will ultimately require future generations to bear a much higher burden than those currently alive

the 40 neoclassical aggregate theory of production the assumption that production in an economic system may be described by an aggregate neoclassical production function is at the heart of most modern equilibrium neoclassical business cycles and growth models its validity requires stringent assumptions on individual production functions and market structure in this article the likelihood that an aggregate neoclassical production function could emerge from a simple heterogeneous production system is assessed by the use of computer simulations the conclusion is that there exists a world of significant size for which the aggregate neoclassical theory of production does not hold

fundamental analysis future earnings and stock prices in this paper we investigate how detailed financial statement data fundamental signals enter the decisions of market participants by examining whether current changes in the signals are informative about subsequent earnings changes our approach is consistent with the view expressed by penman 1992 and others that predicting accounting earnings as opposed to explaining security returns should be the central task of fundamental analysis studying the links between fundamental signals and future earnings changes allows us to test directly the validity of the economic intuition that underlies the original construction of the signals an alternative and less direct approach followed by lev and thiagarajan 1993 henceforth lt is based on an examination of the relations between the fundamental signals and contemporaneous returns

capital budgets borrowing rules and state capital spending abstract this paper compares the level and composition of government spending in u s states that maintain separate budgets for capital and operating expenditures with that in states that employ unified budgets it also investigates the effects of pay as you go financing rules for capital projects the empirical findings suggest that states with separate capital budgets spend more on public capital projects than comparable states with unified budgets there is no evidence that the presence or absence of a capital budget affects the level of non capital spending pay as you go requirements for financing capital projects are associated with lower levels of both capital and non capital spending

truthfulness in accounting how to discriminate accounting manipulators from non manipulators accountants preparing information are in a position to manipulate the view of economic reality presented in such information to interested parties these manipulations can be regarded as morally reprehensible because they are not fair to users they involve in an unjust exercise of power and they tend to weaken the authority of accounting regulators this paper develops a model for detecting earnings manipulators using financial statements ratios in a sample of spanish listed companies our results provide evidence that accounting data can be extremely useful in detecting manipulators this approach can be used by a large category of users of accounting information among which we can cite stock exchange supervisors or investing professionals

the political economy of fiscal deficits a survey this paper surveys recent literature both theoretical and empirical regarding political explanations for fiscal deficits political economy suggests conflicts of interest may lie behind the emergence of deficits 1 opportunistic politicians generate deficits to win elections even in conflict with general welfare 2 conflicts of interests between politicians partisan preferences create incentives for at least some incumbents to run deficits and 3 conflicts of interest between different social groups or regions generate tensions in the allocation of government resources leading to overspending this paper reviews these different strands of the literature it also covers contributions that highlight the crucial role of budget institutions in determining the extent to which the political motivations to generate deficits are indeed translated into poor fiscal outcomes promising avenues for future research are highlighted

state responses to fiscal crises the effects of budgetary institutions and politics this paper explores the dynamics of state taxes and spending during the late 1980s when regional economic downturns and increased expenditure demands led to substantial state budget deficits more restrictive state fiscal institutions such as no deficit carryover rules and tax and expenditure limitations are correlated with more rapid fiscal adjustment to unexpected deficits political factors are also important when a single party controls the state house and the governorship deficit adjustment is much faster than when party control is divided in gubernatorial election years tax increases and spending cuts are both significantly smaller than at other times

an empirical investigation of paradoxes reswitching and reverse capital deepening in capital theory this paper examines the empirical relevance of the capital controversy the price model of sraffa and the dual models of the price and quantity systems of von neumann become the basis of the investigation in the course of the controversy it proved easy to construct theoretical examples which contradicted the fundamental neoclassical hypothesis of an inverse capital demand function this paper presents empirical examples for the first time thiry two input output tables from the oecd database serve as data as a result one envelope is found which involves reswitching reverse substitution of labour or reverse capital deepening are observed in about 3 65 of tested cases they involve at least two switchpoints copyright 2006 oxford university press

a note on the empirical effectiveness of formal fiscal restraints abstract an important agrument in the current debate over european monetary integration is that a monetary union requires formal fiscal restraints limiting individual member states budgetary powers to reduce the common monetary authority s risk of having to bail out insolvent member governments this note presents empirical evidence on the effectiveness of fiscal restraints on state budgets in the united states nonparametric tests reveal that fiscal restraints significantly affect the probability of fiscal choices and performance without however preventing extreme outcomes fiscal restraints induce substitution of nonrestricted for restricted debt instruments

research in accounting for income taxes abstract this paper comprehensively reviews the accounting for income taxes afit literature we begin by identifying four distinctive aspects of afit and briefly covering the rules surrounding afit we then review the existing studies in detail and offer suggestions for future research we emphasize the research questions that have been addressed most of which relate to whether the tax accounts are used to manage earnings and whether the tax accounts are priced by equity market participants we also highlight areas that have not received much research attention and that warrant future analysis

taking stock a critical assessment of recent research on inventories empirical and theoretical aspects of inventory behavior became hot topics in the 1950s and early 1960s no one seemed to notice the tension that was developing between the emerging macroeconomic and microeconomic views of inventories macroeconomists routinely thought of inventories as a destabilizing factor yet the prevailing micro theory viewed inventories as a stabilizing factor it was a fascinating question that was barely explored instead somewhat inexplicably interest in inventories dried up as if inventories were of minor economic significance and little intrinsic interest by the early 1980s then economists once again knew something they had known in the 1950s that inventory investment is of first order importance in business cycles but they were also beginning to realize that the standard production smoothing buffer stock model of inventories was in deep trouble this paper focuses on developments since that realization

budget institutions and fiscal policy in the u s states this paper summarizes state balanced budget requirements and the available empirical evidence on the effect of these rules on state fiscal policies existing state rules differ from many current proposals at the federal level they are typically restricted to part of the state budget they frequently permit short term borrowing and they lack formal enforcement mechanisms the paper also surveys previous research on how anti deficit provisions affect state fiscal policy the available evidence indicates that stringent anti deficit provisions lead to more rapid adjustment of state taxes and expenditures when fiscal deficits emerge this suggests that changing the federal budget process has the potential to affect federal fiscal policy this abstract was borrowed from another version of this item

the electoral budget cycle on municipal waste collection expenditure abstractthis article analyses the determinants of municipal waste collection expenditure specifically the effects of electoral cycles on municipal waste collection expenditure we use a database with information on spanish municipalities with more than 1000 inhabitants for the period 2002 2011 our results reveal that incumbents adopt an opportunistic behaviour increasing spending on waste in the preelection year and reducing it in the election and post election years therefore we confirm an electoral budget cycle on waste collection expenditures in spain additionally we find that the levels of income unemployment and upper level governments transfers have a positive impact on waste collection spending finally population density level of urbanization average age of the population of the municipality and less fragmented governments negatively influence waste collection spending

the value relevance of taxes international evidence on the proxy for profitability role of tax surprise abstract despite evidence that tax surprise is incrementally value relevant the literature has done little to broaden the investigation beyond the united states or examine circumstances that affect informativeness after extending to the international setting i examine the impact of tax enforcement i report strong results of greater value relevance when tax enforcement is high and that the value relevance of tax surprise is mostly contained within its interaction with tax enforcement these findings highlight the importance of tax enforcement in determining the information content of tax surprise and suggest that extant and future discussions should be broadened to include it

fundamental information analysis fundamental analysis is aimed at determining the value of corporate securities by a careful examination of key value drivers such as earnings risk growth and competitive position in the context of such analysis we identify below a set of financial variables fundamentals claimed by analysts to be useful in security valuation and examine these claims by estimating the incremental value relevance of these variables over earnings our findings support the incremental value relevance of most of the identified fundamentals in fact for the 1980s the fundamentals add approximately 70 on average to the explanatory power of earnings with respect to excess returns we also show that the returns fundamentals relation is considerably strengthened when it is conditioned on macroeconomic variables thereby demonstrating the importance of a contextual capital market analysis for example several fundamentals that appear only weakly value relevant or even irrelevant in the unconditional analysis exhibit strong association with returns under specific economic conditions e g the accounts receivable and the provision for doubtful receivables signals during high inflation from a general examination of the role of fundamentals in security valuation we turn to the related issues of earnings persistence growth and the earnings response coefficient we hypothesize that the funda

should generational accounts replace public budgets and deficits the author assesses the concept of generational accounts and the specific accounts constructed by alan auerbach jagadeesh gokhale and laurence kotlikoff 1991 although these accounts support the assertion of present orientation in fiscal policy they rest on numerous assumptions based on judgments that are open to question these involve the treatment of the public budget constraint the benefits from public exhaustive expenditures economic and population projections the discount rate and fiscal incidence alternative and equally reasonable assumptions could yield radically different conclusions the author concludes that the auerbach gokhale and kotlikoff accounts should not replace the annual public budget as they argue

venture capital investment cycles the impact of public markets abstract it is well documented that the venture capital industry is highly volatile and that much of this volatility is associated with shifting valuations and activity in public equity markets this paper examines how changes in public market signals affected venture capital investing between 1975 and 1998 we find that venture capitalists with the most industry experience increase their investments the most when public market signals become more favorable their reaction to an increase is greater than the reaction of venture capital organizations with relatively little industry experience and those with considerable experience but in other industries the increase in investment rates does not affect the success of these transactions adversely to a significant extent these findings are consistent with the view that venture capitalists rationally respond to attractive investment opportunities signaled by public market shifts

fiscal transparency political parties and debt in oecd countries abstract many believe and argue that fiscal or budgetary transparency has large positive effects on fiscal performance however the evidence linking transparency and fiscal policy outcomes is less compelling to analyze the effects of fiscal transparency on public debt accumulation we present a career concerns model with political parties this allows us to integrate as implications of a single model three hitherto separate results in the literature on deficit and debt accumulation that transparency decreases debt accumulation at least by reducing an electoral cycle in deficits that right wing governments at least for strategic reasons tend to have higher deficits than left wing governments and that increasing political polarization increases debt accumulation to test the predictions of the model we construct a replicable index of fiscal transparency on 19 country oecd data simultaneous estimates of debt and transparency strongly confirm that a higher degree of fiscal transparency is associated with lower public debt and deficits independent of controls for explanatory variables from other approaches

the information content of earnings and prices a simultaneous equations approach abstract the price earnings relation can be characterized as a system of simultaneous equations earnings and prices can behave as if they are both endogenously determined because they are jointly affected by information that is difficult to specify explicitly specification tests provide evidence that both earnings changes and price changes are endogenous the price and earnings coefficients increase from ols to joint estimation and under a restrictive set of assumptions provide increasingly similar estimates of the permanent component of earnings the evidence is consistent with the contention that a portion of the single equation bias can be mitigated via joint estimation

the ricardian approach to budget deficits persistent budget deficits have increased economists interest in theories and evidence about fiscal policy this paper develops the ricardian approach and contrasts it with standard models the discussion considers from major theoretical objections to ricardian equivalence finite lifetimes imperfect capital markets uncertainty about future taxes and incomes and the distorting effects of taxation the paper then considers empirical evidence on interest rates consumption and saving and current account deficits the conclusion is that the ricardian approach is a useful first order approximation and that this approach will probably become the benchmark model for assessing fiscal policy this abstract was borrowed from another version of this item

searching for political business cycles in germany one reslt of the revitalised literature on political business cycles is that there are signs in german data that elections and ideology have an impact however using monthly data for the period 1950 1989 and standard methods of time series analysis we reject both the nordhaus hypothesis of opportunistic cycles and the partisan approaches by hibbs ans alesina we show that some results are sensitive to the assumption of stationarity there are signs of policy cycles in m1 it is hard though to bring this in line with the rogoff hypothesis of rational opportunistic cycles because of the german institutional setting

the aggregate production function is not neoclassical standard postulates concerning the aggregate production function are about marginal productivities and the associated demands for labour and capital these demands are supposed to be negatively related to the factor prices namely the wage rate and the interest rate the theoretical cases in which these neoclassical properties fail to hold are regarded as anomalies we compute the aggregate values for production capital and labour and find that the neoclassical postulates do not hold for the detailed dataset that we consider the obvious implication of this result is that the models and analysis based on the aggregate neoclassical production functions are ill founded as they are based on something that does not exist

earnings volatility and earnings predictability abstract survey evidence indicates widely held managerial beliefs that earnings volatility is negatively related to earnings predictability in addition existing research suggests that earnings volatility is determined by economic and accounting factors and both of these factors reduce earnings predictability we find that the consideration of earnings volatility brings substantial improvements in the prediction of both short and long term earnings conditioning on volatility information also allows one to identify systematic errors in analyst forecasts which implies that analysts do not fully understand the implications of earnings volatility for earnings predictability

fiscal adjustment in eu countries a balance sheet approach abstract several european union countries have recently implemented or are envisaging fiscal operations which improve budgetary figures but have no structural impact on government finances we evaluate some of these measures using a balance sheet approach in particular we examine the degree to which reductions in government debt in eu countries has been accompanied by a decumulation of government assets in the runup to maastricht we find a strong correlation between changes in government liabilities and government assets and larger declines in government assets in countries starting from higher public debt levels

trade in financial services capital flows and the value at risk of countries in light of the recent financial crises in the emerging markets the coming into force of the financial services agreement under the gats has been considered a success while the agreement provides for little new liberalization but rather formalizes the status quo it was feared that governments could even backtrack on previous commitments in the belief that more open markets could increase the degree of susceptibility by undermining financial stability strengthening the financial system s ability to evaluate and manage risk has therefore been identified as a precondition for more ambitious liberalization efforts in the future dobson and jacquet 1998 encouragingly in some countries banks have begun to implement value at risk approaches as a tool to assess their balance sheet vulnerability as this paper argues such an approach could also play a useful role in determining the extent of market risk on the macroeconomic level with potentially important implications regarding trade in financial services capital account convertibility and international crisis management

automated earnings forecasts beat analysts or combine and conquer prior studies attribute analysts forecast superiority over time series forecasting models to their access to a large set of firm industry and macroeconomic information an information advantage which they use to update their forecasts on a daily weekly or monthly basis a timing advantage this study leverages recently developed mixed data sampling midas regression methods to synthesize a broad spectrum of high frequency data to construct forecasts of firm level earnings we compare the accuracy of these forecasts to those of analysts at short horizons of one quarter or less we find that our midas forecasts are more accurate and have forecast errors that are smaller than analysts when forecast dispersion is high and when the firm size is smaller in addition we find that combining our midas forecasts with analysts forecasts systematically outperforms analysts alone which indicates that our midas models provide information orthogonal to analysts our results provide preliminary support for th

good bad or ugly on the effects of fiscal rules with creative accounting abstract do fiscal rules lead to fiscal adjustment or do they encourage the use of creative accounting this question is studied with a model in which fiscal rules are imposed on measured fiscal variables which can differ from true variables because there is a margin for creative accounting the probability of detecting creative accounting depends on its size and the transparency of the budget the model studies the effects on fiscal policy of a budget rule separating structural from cyclical effects and examines how these effects depend on the underlying fiscal distortion and on the degree of transparency of the budget

real investment implications of employee stock option exercises this paper examines a real cost of awarding employee stock options based on the observation that managers are extremely concerned about earnings per share dilution in equity related compensation we predict and find that firms experiencing significant employee stock option eso exercises shift resources away from real investments towards the repurchase of their own stocks we further find weak evidence of a decline in subsequent firm performance as measured by return on assets for several years following the cut in discretionary investments as a result of stock option exercises though this result is sensitive to the metric used to measure performance collectively our findings indicate that eso exercises potentially impose a real cost on the firm in terms of foregone investment opportunities

defining the government s debt and deficit although the budget deficit and the public debt feature prominently in political debate and economic research there is no agreement about how they should be measured they can b e defined for different sets of public institutions including the nested sets corresponding to central government general government and the public sector and for any definition of government there are many measures of the debt and deficit including those generated by four kinds of accounts cash financial full accrual and comprehensive which can be derived from four nested sets of assets and liabilities each debt and deficit measure says something about public finances but none tells the whol e story each is also vulnerable to manipulation and is likely to be manipulated if it is subject to a binding fiscal rule or target narrow definitions of government encourage the shifting of spending to entities outside the defined perimeter of governme nt narrow definitions of debt and deficit encourage operations involving off balance sheets assets and liabilities while broad measures are susceptible to the mismeasurement of on balance sheet assets and liabilities reviewing the literature on these is sues the paper concludes that governments should publish several measures of the debt and deficit in a form that clearly reveals their interrelationships

structural factors associated with primary fiscal balances in developing countries the study explores the conditions under which a government in a developing country is likely to run a balanced or surplus budget we contend that primary fiscal deficits are likely to persist where the economy is too saving constrained to raise private sector investment to conduct the investigation a logit model is applied to a sample of developing countries to see whether the saving constraints are associated with the fiscal stance of governments accordingly income level growth external current account balance and foreign direct investment are used as indicators of the saving constraint with the exception of economic growth positive developments in these variables turned out to be significant to the likelihood of the government adopting a surplus budget

when is fiscal adjustment an illusion fiscal adjustment is an illusion when it lowers the budget deficit or public debt but leaves government net worth unchanged conventional measures of the budget deficit largely show the change in public sector debt ideally the measured deficit would reflect the change in public sector net worth many people consider it impractical to try to measure public sector assets my paper does not discuss what the deficit should measure but instead proposes a positive and testable theory of how governments actually behave when an outside agent forces a reduction in a government s conventional deficit and debt accumulation the government responds by lowering asset accumulation or increasing hidden liabilities since government net worth is unchanged such fiscal adjustment is an illusion using data from countries with world bank and imf fiscal adjustment programmes and case studies of emu countries compliance with the maastricht criteria i confirm my theoretical predictions fiscal adjustment in these countries was at least partly an illusion

seigniorage dollarization and public debt the lebanese civil war and recovery experience 1982 97 abstract the paper develops theoretical frameworks to explain the phenomena of seigniorage dollarization and public debt and then applies them to the lebanese macroeconomic situation over 1982 97 more specifically it analyzes the implications of seigniorage and dollarization to see what extent they were responsible for the inflation and exchange rate depreciations during the civil war period it also studies the sustainability of postwar debt the conclusions that emerge from the analysis are that budget deficits were only one of the reasons behind the war inflation and depreciations dollarization could still impose some problems for macroeconomic stability and tax reforms are essential for fiscal balance

internet downturn finding valuation factors in spring 2000 abstract during spring 2000 the internet stock index declined 45 using a sample of internet firms this paper investigates whether this decline was associated with new disclosures such as earnings analyst forecast revisions and web traffic measures or to a reassessment by investors of pre existing information we find only modest evidence that the decline was associated with new disclosures however returns and post decline stock prices are significantly explained by 1999 annual report data when earnings are decomposed into gross profit and various expenses traditional financial information contributes significantly more in explaining the cross sectional returns and price levels than non financial information

aggregate production functions revisited the mobility of capital and the rigidity of thought past work on aggregation of production functions has focused on aggregation over firms where technology is embodied in fixed capital this paper shows that much of the stringency of the necessary conditions for aggregation resides in the nature of aggregation over firms and not in the immobility of capital roughly when capital is mobile aggregation is permitted for any group of factors under the union of the conditions which otherwise applied to aggregation of fixed or aggregation of movable factors respectively no truly new conditions appear the results are also interpreted in terms of output aggregation

generational accounting around the globe generational accounting is a relatively new method of long term fiscal planning and analysis this paper presents a selection of the latest generational accounting results for 22 countries this abstract was borrowed from another version of this item

do the markets care about the 2 4 trillion u s deficit if the u s federal government properly accounted for its explicit and promised liabilities it would record a national debt of 64 trillion and a national deficit of 2 4 trillion in 2006 although capital markets seem to care about the officially reported budget deficit a metric that is backward looking and quite misleading the markets have done little more than yawn at the federal government s mammoth and growing forward looking budget imbalance are investors uninformed they should remember that the common belief that capital markets cannot fail is precisely the reason why they can

savings and wealth accumulation measurement influences and institutions savings and wealth accumulation type main savings and wealth accumulation are important dimensions of policy and research debates this special issue comprises a collection of survey articles on topical issues ranging from the effects of access to credit the rise of islamic finance and sovereign wealth funds the measurement of wealth inequality and genuine savings the distribution of wealth across generations and retirement savings

public accounting fudges towards emu a first empirical survey and some public choice considerations this paper analyses some one off measures and other accounting tricks that eu member states have been using to qualify for emu membership moving from empirical evidence to strategic goals this investigation brings to the fore three crucial issues the weakness of the methodological rules of the european system of accounts used to assess budgetary convergence in line with the maastricht treaty the open ended definition of the required budgetary discipline the shortcomings of the excessive deficit procedure enforced through the stability pact the conclusion urges a return to a strict annual balance requirement for governments current accounts to impede strategic adjustments of budgetary positions that are in fact creative accounting operations

the neo ricardians focuses on the neoclassical theory of economics in great britain calculation for the standard commodity assumptions of piedro sraffa on the cycle of production functions of the rate of return ebsco

savings and wealth accumulation measurement influences and institutions savings and wealth accumulation are important dimensions of policy and research debates this special issue comprises a collection of survey articles on topical issues ranging from the effects of access to credit the rise of islamic finance and sovereign wealth funds the measurement of wealth inequality and genuine savings the distribution of wealth across generations and retirement savings

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 detection of earnings manipulation presented are a profile of a sample of earnings manipulators their distinguishing characteristics and a suggested model for detecting manipulation the model s variables are designed to capture either the financial statement distortions that can result from manipulation or preconditions that might prompt companies to engage in such activity the results suggest a systematic relationship between the probability of manipulation and some financial statement variables this evidence is consistent with the usefulness of accounting data in detecting manipulation and assessing the reliability of reported earnings the model identifies approximately half of the companies involved in earnings manipulation prior to public discovery because companies that are discovered manipulating earnings see their stocks plummet in value the model can be a useful screening device for investment professionals the screening results however require determination of whether the distortions in the financial statement numbers r

what do deficits tell us about debt empirical evidence on creative accounting with fiscal rules in the eu fiscal rules such as the excessive deficit procedure and the stability and growth pact sgp aim at constraining government behavior milesi ferretti 2003 develops a model in which governments circumvent such rules by reverting to creative accounting the amount of this depends on the reputation cost for the government and the economic cost of sticking to the rule we provide empirical evidence of creative accounting in the european union we find that the sgp rules have induced governments to use stock flow adjustments a form of creative accounting to hide deficits the tendency to substitute stock flow adjustments for budget deficits is especially strong for the cyclical component of the deficit as in times of recession the cost of reducing the deficit is particularly large

defining the government s debt and deficit defining the government s debt and deficit although the budget deficit and the public debt feature prominently in political debate and economic research there is no agreement about how they should be measured they can be defined for different sets of public institutions including the nested sets corresponding to central government general government and the public sector and for any definition of government there are many measures of the debt and deficit including those generated by four kinds of accounts cash financial full accrual and comprehensive which can be derived from four nested sets of assets and liabilities each debt and deficit measure says something about public finances but none tells the whole story each is also vulnerable to manipulation and is likely to be manipulated if it is subject to a binding fiscal rule or target narrow definitions of government encourage the shifting of spending to entities outside the defined perimeter of government narrow definitions of debt and deficit encourage operations involving off balance sheets assets and liabilities while broad measures are susceptible to the mismeasurement of on balance sheet assets and liabilities reviewing the literature on these issues the paper concludes that governments should publish several measures of the debt and deficit in a form that clearly reveals their interrelationships

the ability of earnings to predict future operating cash flows has been increasing not decreasing we investigate the relationship between earnings and one year ahead operating cash flows from 1973 to 2000 although the extant research indicates a weakening relationship between contemporaneous earnings and stock prices over time we find that the relationship between current earnings and future operating cash flows has increased over time this result holds for numerous divisions of our sample out of sample predictions of operating cash flows generally show increasing forecast accuracy over time increasing accounting conservatism appears to play a role in this phenomenon