the corporation tax elasticity of charitable donations abstract with the continued downward pressure on corporation tax rates this paper analyses the corporation tax elasticity of donations there is strong evidence of an inverted u shape relationship between corporation tax rates and donations donations are initially increasing at a decreasing rate as a function of the corporation tax rate and are maximised at a rate of 27 percent between 2014 and 2018 the uk corporation tax rate decreased from 21 percent to 19 percent our results indicate that ceteris paribus this equates to a 34 percent decrease in an average uk firm s donations as corporation tax rates continue to decline the potential revenue implications for charities are increasing in importance the evidence also supports the theory of management utility maximisation as a determinant of corporate giving

debt leases taxes and the endogeneity of corporate tax status we provide evidence that corporate tax status is endogenous to financing decisions which induces a spurious relation between measures of financial policy and many commonly used tax proxies using a forward looking estimate of before financing corporate marginal tax rates we document a negative relation between operating leases and tax rates and a positive relation between debt levels and tax rates this is the first unambiguous evidence supporting the hypothesis that low tax rate firms lease more and have lower debt levels than high tax rate firms many theories of capital structure imply that all else equal the incentive to use debt financing increases with a firm s marginal tax rate due to the tax deductibility of interest expense e g modigliani and miller 1963 deangelo and masulis 1980 conversely leasing models generally predict that firms with low marginal tax rates employ relatively more leases than do firms with high marginal tax rates the logic behind the leasinlg prediction is that leases allow for the transfer of tax shields from firms that cannot fully utilize the associated tax deduction lessees to firms that can lessors e g myers dill and bautista 1976 smith and wakeman 1985 ross westerfield and jaffe 1996 despite these straightforward predictions empirically testing for tax effects is difficult because a spurious relation exists between the financing decision and many commonly used tax proxies specifically both interest expense and lease payments are tax deductible thus a firm that finances its operations with debt or leases reduces its taxable income potentially lowering its expected marginal tax rate if not properly addressed this endogeneity of the tax rate can bias an experiment in favor of finding a negative

price inertia and market structure empirical evidence from austrian manufacturing 1993 price inertia and market structure empirical evidence from austrian manufacturing applied economics vol 25 no 9 pp 1175 1186

europe vs america institutional hysteresis in a simple normative model we show how the differences in us and european institutions can arise in a normative model the paper focuses on the labor market and the government s decision to set unemployment benefits in response to an unemployment shock the government balances insurance considerations with the tax burden of benefits and the possibility that they introduce adverse incentive effects whereby benefits increase unemployment it is found that when an adverse shock occurs benefits should be increased most when the adverse incentive effects of benefits are largest adjustment costs of changing benefits introduce hysteresis and can help explain why post oil shock benefits remained high in europe but not in the us desirable features of the model are that we obtain an asymmetry out of a symmetric environment and that the mechanism yielding hysteresis is both simple requires the third derivative of the utility function to be non negative and self correcting empirical evidence concerning the role of corporatism is discussed

embeddedness cooperation and popular economy firms in the informal sector this paper is motivated by empirical observations on popular economy firms pefs in the informal sector of santiago de chile these are labor managed firms embedded in popular milieu where cooperation between their members plays a central role this paper develops a partial equilibrium microeconomic theory of pefs first it endogeneizes the level of cooperation between the workers second it develops a static and a dynamic model to analyze whether embeddedness influences the behavior of the pef embeddedness is assumed to be captured by three different characteristics suggested by the empirical observations most of them influence the employment and income levels in the pef

changes in the value relevance of earnings and book values over the past forty years this paper investigates systematic changes in the value relevance of earnings and book values over time we report three primary findings first contrary to claims in the professional literature the combined value relevance of earnings and book values has not declined over the past forty years and in fact appears to have increased slightly second while the incremental value relevance of bottom line earnings has declined it has been replaced by increasing value relevance of book values finally much of the shift in value relevance fiom earnings to book values can be explained by the increasing frequency and magnitude of one time items the increasing frequency of negative earnings and changes in average firm size and intangible intensity across time

does agricultural growth in poor countries harm agricultural exporting rich countries abstract the commonly held view that agricultural exporting developed countries would lose from agricultural growth in less developed countries lcds is shown to be based on an incomplete argument it considers only the effects on ldc agricultural supply or at best only that and the first round effects of increased farmer incomes on the demand for tradables what also needs to be considered is the effect on the demand for nontradables and hence the second round effects of increased spending by producers of nontradables when all these effects are considered the positive correlations obtained between agricultural output growth in ldcs and agricultural imports from developed countries is not surprising it is then shown that selling or giving away agricultural research and management skills to developing countries can be beneficial to developed countries including agricultural exporters by setting out to do good they may end up also doing well

why do people care about social status abstract this paper shows that complementary interaction can induce people to care about social status because it serves as a signal of non observable abilities there is a unique separating equilibrium in which everyone cares about social status in this equilibrium a person s social status perfectly reveals his abilities and everyone matches with a person of like ability the analysis shows that people s instrumental concern for social status has important welfare and policy implications indeed peoples efforts to keep up with the joneses may be welfare enhancing

relationship between agricultural growth and farm imports in ldcs a sims causality test based on 35 countries abstract previous empirical studies on the relationship between agricultural growth and farm imports in the ldcs suffer from serious methodological defects which to some extent may invalidate their results and interpretations this study used sims causality test to examine interactions between agricultural output and agricultural imports for 35 ldcs individually it was found that there was no causality from agricultural output to agricultural imports for a majority of countries under study for countries where agricultural growth did have a causal effect on agricultural imports the effect was positive in some countries and negative in others

wage flexibility in the chinese labour market 1989 2009 abstractwage flexibility in the chinese labour market 1989 2009 regional studies china s bureaucratic wage determination system is gradually being replaced by a market based system leading to a novel version of a dual labour market this paper studies wage flexibility in this dual market its principal findings are as follows wages in both sectors have become less responsive to changes in official registered unemployment with an alternative market based measure of unemployment becoming more relevant there is evidence of convergence of flexibility between the two sectors the wages of women exhibit greater flexibility than those of men and there is evidence of differences in wage flexibility between workers who have urban residential rights and rural migrants

oligopoly supergames some empirical evidence on prices and margins this paper is a panel data study on the behavior of prices and margins of oligopolies involved in repeated games the authors examine two supergame models which generate very different predictions about the cyclical behavior of prices and margins evidence on the levels of price cost margins indicates that oligopolies achieve equilibria that more closely resemble a one shot cournot nash outcome than monopoly the authors find however that industries with high price cost margins exhibit cyclical price behavior which is quite different from that of unconcentrated industries little evidence of price wars during either recessions or booms is found copyright 1987 by blackwell publishing ltd

the impact of demand and price expectations on the behavior of prices the effects of demand and price expectations on price behavior are analyzed using data from the manufacturing sector and a model formulated to pinpoint the demand oriented factors affecting prices and to incorporate price expectations as a direct influence on price behavior the expected normal demand is seen to have a strong and systemic influence on price behavior the expected normal level of new orders is found to be an adequate measure with sector data in general although some industries require more specification the effects of inventories and unfilled orders on prices are sporadic and across sectors and industries demand oriented forces are concluded to perform as well statistically as cost push determinants expectations concerning the current normal industry price level have a significant and consistent impact on price behavior this supports the idea that firms setting prices take into account their estimates of competitor s prices future price expectations appear to have little effect on current price information 15 references

evidence for the possible information loss of conforming book income and taxable income abstract recent corporate accounting reporting scandals and aggressive corporate tax shelters have led for calls for regulatory reform one such call is to conform or reduce the gap between the calculation of book and taxable income proponents of conformity focus on perceived benefits while ignoring possible costs we examine one possible cost the loss in information content to investors if one measure is removed from the information set we provide evidence for this possible loss by examining the relative and incremental information content over the past 20 years of book and estimated taxable income for a large sample of firms we find that book income exhibits significantly greater relative explanatory power while both exhibit significant incremental explanatory power conforming the two measures at a minimum results in the loss of incremental explanatory power and if book income is conformed to the tax rules a 50 percent loss in the explanatory power of earnings

farm development in poor countries the disputed consequences for u s farm trade a growing body of evidence suggests that farm development in poor countries is not necessarily menacing to u s farm trade to the contrary by helping to stimulate broadbased income growth in poor countries which is often followed by dietary enrichment and food import expansion farm development in poor countries can actually be beneficial to u s farm trade here we shall review some of the evidence which agricultural economists have recently put forward to support this paradoxical argument and we shall ask why this evidence has not yet been persuasive to the u s farm community in poor countries where incomes are low where diets are not yet rich and where a majority of citizens often depend upon farming for income and employment rapid agricultural development can stimulate the broad based income growth and eventually the industrial development usually necessary to turn loose pent up demands for dietary enrichment the paradoxical result can be that local food consumption may grow even more rapidly than local food production and the net farm imports of agriculturally successful developing countries can then actually increase to the presumed benefit of u s farmers a significant body of evidence has recently been assembled to document this paradoxical claim in 1979 bachman and paulino examined the trade consequences of rapid food production growth in sixteen developing countries and found that while the proportion of domestic food consumption satisfied by imports generally fell in these countries net imports of staple foods nonetheless increased annual net staple food imports in these agriculturally successful poor countries actually rose in volume by 133 between 1961 65 and 1974 76 bachman and paulino p 14 a similar pattern of rapid food import growth has more recently been documented by lee and shane in two developing countries malaysia and brazil often cited as threats to u s farm trade both of these coun

debtholders demand for conservatism evidence from changes in directors fiduciary duties debtholders demand has been widely discussed as a key determinant of conservatism but clear causal evidence is not yet established using a natural experiment setting wherein a delaware court ruled that the fiduciary duties of directors in near insolvent delaware companies extend to creditors we predict and find that firms subject to the ruling significantly increased their accounting conservatism in addition our results suggest that the increase in conservatism is more pronounced in near insolvent delaware firms with stronger boards confirming that the court ruling takes effect through the channel of the board of directors our results are robust to using alternative measures of conservatism and near insolvency status and controlling for potential confounding factors and other stakeholders demand for conservatism overall our study provides empirical evidence to support the causal relation between debtholders demand and accounting conservatism previously suggested in the literature and offers some insights into the role of the board of directors in financial reporting

rent shifting and rent sharing a re examination of the strategic industrial policy problem this paper reexamines the market structure problem in the strategic trade policy literature it is shown that rent sharing between the home union and the home firms raises total home industry rents regardless of whether the international duopoly is cournot or bertrand furthermore home welfare also rises with cooperation if the international industry consists of more than two firms if the industry is faced with entry and if there is domestic consumption this paper shows that rent sharing can be a robust strategic industrial policy and can be interpreted as a solution to the market structure dilemma

nominal wage contracts and the persistent effects of monetary policy we consider an efficiency wage model where wages affect turnover and firms choose optimal labor contracts under uncertainty about demand and productivity we show that there may be an equilibrium with nominal wage contracts where monetary shocks affect output furthermore monetary shocks have persistent effects on output because the previous state of the labor market affects the reemployment probability of quitting workers persistence increases if workers have bargaining power with endogenous policy a credibility problem arises naturally in the model equilibrium inflation increases with persistence but decreases with the natural rate of unemployment for given persistence

debt and the marginal tax rate abstract do taxes affect corporate debt policy this paper tests whether the incremental use of debt is positively related to simulated firm specific marginal tax rates that account for net operating losses investment tax credits and the alternative minimum tax the simulated marginal tax rates exhibit substantial variation due to the dynamics of the tax code tax regime shifts business cycle effects and the progressive nature of the statutory tax schedule using annual data from more than 10 000 firms for the years 1980 1992 i provide evidence which indicates that high tax rate firms issue more debt than their low tax rate counterparts

long term unemployment and macroeconomic policy this paper bears a simple double message when incumbent workers have some power in wage determination then a there may be no natural rate of unemployment and b both supply side and demand side policies may have lasting effects on the unemployment rate however our analysis implies that demand side policies in the produet market may be mueh less reliable and opera te through more complex ehannels than the traditional keynesians envisaged

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

autoregressive modelling and money income causality detection abstract a step wise procedure based on granger s concept of causality and abaike s final prediction error criterion is suggested as a practical means to identify the order of lags of each variable in a multivariate autoregressive process the model seems useful because it can serve as a reduced form formulation to avoid imposing often spurious or false restrictions of the model it also provides a reasonably powerful test of causality the idea is applied to u s postwar money and income data it is found that between m1 and gnp a bivariate feedback model fits the data best between m2 and gnp a one way causal model from money to income performs better diagnostic checks applied to our model seem to indicate the adequacy of our approach

optimal price adjustment under imperfect information abstract variations in cost and demand do not have symmetrical impact on the optimal price of the imperfectly competitive firm this asymmetry is not so important as long as information regarding both cost and demand is sufficient however it becomes crucially important in case of incomplete information usually firms have more complete or harder information on cost than on demand this difference in information status on the cost and on the demand side can explain both cost based pricing and slow price adjustment to demand in an optimizing framework with bayesian learning about changed demand conditions

internal rent seeking works councils and optimal establishment size abstract using a microeconomic model and data from the establishment panel of the german institute for employment research we analyze the optimal establishment size against the background of rent seeking workers and the influence of works councils the theoretical part shows that establishment size has not only a discouragement effect on the level of individual rent seeking but also a quantity effect as the number of rent seekers increases the interplay of both effects together with technological considerations determines whether the employer chooses an inefficiently small or large establishment size introduction of a works council restores efficient establishment size although it is purely used as rent seeking device whether the employer benefits from a works council or not depends on the degree of contract incompleteness and the degree of worker coordination via a works council the empirical part indicates dominance of the discouragement effect over the quantity effect in establishments without works council as theoretically predicted works councils are beneficial by disentangling rent seeking and production issues thus eliminating the influence of the two rent seeking effects

price mark ups market structure and business fluctuation in japanese manufacturing industries howard wach tel and peter adelsheim 1977 and keith cowling 1983 have argued that firms in concentrated industries tend to increase their price mark ups in recession this hypothesis is variously tested for japanese manufacturing industries in 1958 82 most of the results weakly suggest an effect opposite to wachtel and adelsheim and only when industry specific business conditions are taken into account is some albeit weak evidence found in favor of them copyright 1987 by blackwell publishing ltd

keynesian issues and economic theory recent research helped in clarifying the nature of short run price and quantity adjustments in keynesian macroeconomic models and the possible causes of a persistent excess labour supply it is argued however that theories involving imperfect competition and real wage rigidities generate classical unemployment where multipliers act through supply side effects while nominal inertia seems to be at the root of truly keynesian multipliers the appraisal also contains a nontechnical presentation of recent models of endogenous expectations driven business fluctuations cycles sunspots monetary policy can then have persistent real effects under complete information money as a sunspot

job vacancy rates in the firm an empirical analysis this paper presents some evidence on the magnitudes and determinants of job vacancy rates in us firms based on data from a survey in 1980 and 1982 the results show low overall vacancy rates but substantial variation across firms occupations industries and local areas local unemployment unionization and employer size have negative effects on vacancy rates while turnover and sales growth have positive effects the results are generally consistent with the predictions of job matching models

taxes and leverage at multinational corporations abstract empirical research has struggled to show that variation in corporate capital structure arises from variation in estimated corporate income tax rates we argue that in previous studies both the tax rates applied to multinational corporations and the taxable income earned have been mismeasured using the bureau of economic analysis annual survey sample combined with each firm s income and country specific tax rate we find that firms do have higher leverage ratios and lower interest coverage ratios when they operate in countries with higher tax rates as theory would suggest the trade off theory of capital structure continues to have empirical support

cooperation harassment and involuntary unemployment an insider outsider approach the authors present a theory of involuntary unemployment which explains why the unemployed workers outsiders are unable or unwilling to find jobs even though they are prepared to work for less than the prevailing wages of incumbent workers in siders the outsiders do not underbid the insiders since were the y to do so the insiders would withdraw cooperation from them making their work unpleasant with harassment and thereby reducing the prod uctivity and increasing the reservation wages of the underbidders th e resulting labor turnover costs create economic rent which the insid ers tap in wage setting and as a result involuntary unemployment ma y arise copyright 1988 by american economic association

price adjustments by a gasoline retail chain we use daily data to examine price responses in the swedish gasoline market to changes in the rotterdam spot price exchange rates and taxes the distribution of price adjustments by a leading retail chain for the period january 1980 to december 1996 is symmetric with no small adjustments an error correction model shows that in the short run prices gradually move towards the long run equilibrium in response to cost shocks there is some evidence that also in the short run prices are stickier downwards than upwards prices respond more rapidly to exchange rate movements than to the spot market price our analysis emphasizes that to fully understand price adjustments it is necessary to examine data sets where the sample frequency at least matches that of price adjustments

price rigidity inflation and market concentration some canadian evidence from the 1970s in the literature on industrial pricing there is a long standing dispute over the theoretical rationale for and the empirical validity of price rigidity briefly the arguments is that the speed of price adjustment is a function of market structure in competitive markets prices are flexible they adjust rapidly to supply and demand shocks but in oligopoly they can be relatively rigid they adjust only slowly if it all to these same shocks 1 but because the theoretical basis fot the rigidity hypothesis is decidedly ad hoc it is often summarily dismissed 2 empirically however a number of studies for various countries and time period have found relationship between concentration a proxy for oligopolistic market structure and price change and or some other measure of the speed of price adjustment compatible with price rigidity 3 although these result are not totally unambiguous 4 the canadian evidence at least prior to the 1970s strongly supports the rigidity hypothesis sellekaerts and l

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

a survey of some recent econometric methods this survey is written mainly for the applied economist though we hope that the specialist econometrician will find something of interest too our aim has been to try to bring the applied worker as up to date as possible and in the process to improve the quality of applied work by providing access to the latest ideas in econometrics we have tried to describe and explain in a relatively non technical way the main developments that have taken place in the last ten years partly for reasons of space the survey is by no means exhaustive but it does cover a wide range of topics in both time series and cross section analysis among the subjects covered are the followoing the nature of data including integrated and fractionally integrated data four estimation methods maximum likelihood method of moments m estimators and non parametric estimation inference with stationary and integrated regressors a comparison of various model evaluation principles the formulation of models including dynamic specification cointegration and conditional expectations in mean and variance copyright 1989 by royal economic society

managing interacting accounting measures to meet multiple objectives a study of lifo firms abstract using a sample of lifo users we examine the strengths and weaknesses of adopting a simultaneous equations approach to study managers adjustments of interacting accounting measures that meet multiple objectives we focus on the importance of considering differences in the costs and the effectiveness of adjusting accounting measures in addition we examine managers objectives in subsequent years and how adjustments reversals affect those objectives although generally consistent with earlier studies of lifo inventory adjustments our results indicate that modelling interacting accounting measures such as other current accruals and depreciation leads to differing conclusions about the role of taxes

causality between export growth and industrial development empirial evidence from the nics abstract this paper investigates the causal relationship between export growth and industrial development in eight newly industrializing countries nics results of sims causality test show that for most of the nics there is a strong bidirectional causality between the growth of exports and industrial development these findings support the export led growth strategy in that expansion in exports not only promote the growth of national income but also lead to structural transformation of the developing countries

the behaviour of productivity growth rates and price cost margins during contractions and expansions panel data on thirteen two digit us manufacturing industries were analysed using a random coefficients approach to determine the behaviour of total factor productivity growth rates and price marginal cost ratios during recessions and expansions results show 1 productivity growth is procyclical it decreases during recessions and increases during expansions in addition the decrease during recessions is greater than the increase during expansions 2 the price marginal cost ratio is very asymmetric it decreases during recessions but shows no significant movement during an expansion the lower price marginal cost ratio during a recession implies that the elasticity of output with respect to labour decreases thus not only does the level of productivity fall but the productivity of labour relative to capital also falls these characteristics are consistent with labour hoarding

insider forces and wage determination this paper investigates the relative importance of firm specific factors i e insider forces in wage determination using firm level data on 219 u k companies over 1974 82 it finds that a 1 percent rise in a firm s prices or productivity relative to the aggregate economy leads to a rise in relative wages of 0 1 0 2 percent as a corollary to this outside factors like the aggregate wage and the unemployment rate also play an important role there is evidence for insider based hysteresis effects but these are inversely related to the extent to which firms take national agreements into account copyright 1990 by royal economic society

cross jurisdictional income shifting by u s multinationals evidence from international bond offerings we examine whether tax incentives influence where u s multinationals locate their interest deductions worldwide our sample includes international bond offerings by u s multinationals during 1987 1997 denominated in the currencies of australia canada france germany italy japan or the united kingdom our results suggest that u s multinationals debt location decisions take into account the effect of jurisdiction specific tax loss carryforwards and binding foreign tax credit limitations on the value of debt tax shields our results are also consistent with u s multinationals locating interest deductions in different tax jurisdictions as a mechanism to achieve tax motivated income shifting

testing for time variation in an unobserved components model for the u s economy abstract this paper analyzes the amount of time variation in the parameters of a reduced form empirical macroeconomic model for the u s economy we decompose output inflation and unemployment in their stochastic trend and business cycle gap components with the latter linked through the phillips curve and okun s law a novel bayesian model selection procedure is used to test which parameters vary over time and which components exhibit stochastic volatility using data from 1959q2 to 2014q3 we find substantial time variation in okun s law while the phillips curve slope appears to be stable stochastic volatility is found to be important for cyclical shocks to the economy while the volatility of permanent shocks remains stable

executive compensation and the maturity structure of corporate debt executive compensation influences managerial risk preferences through executives portfolio sensitivities to changes in stock prices delta and stock return volatility vega large deltas discourage managerial risk taking while large vegas encourage risk taking theory suggests that short maturity debt mitigates agency costs of debt by constraining managerial risk preferences we posit and find evidence of a negative positive relation between ceo portfolio deltas vegas and short maturity debt we also find that short maturity debt mitigates the influence of vega and delta related incentives on bond yields overall our empirical evidence shows that short term debt mitigates agency costs of debt arising from compensation risk

determinants of price adjustment this paper reports results of an empirical study investigating the adjustment speed of prices to change in costs and demand particular emphasis is laid on the impact of concentration on the adjustment speed in addition the effects of the business cycle and capital intensity are considered it shows that concentrated industries tend to adjust prices faster while capital intensity has a negative impact prices are more flexible during an upswing than in times of a recession

aggregate supply and demand factors in oecd unemployment an update unemployment in the oecd countries has continued to rise to unprecedented levels the eec countries which on average ended the turbulent 1970s with an unemployment rate of close to 7 per cent are now in the mid 1980s approaching an 11 per cent level the united states is virtually the only country for which the changes in unemployment during the 1970s have not been systematically upward and for which the 1984 rate was more or less back to where it had been both ten years and five years earlier see figure 1 the reasons for the sustained increase in unemployment during the 1970s as well as the possible reasons for differences in patterns across industrial countries have been studied but question marks undoubtedly remain our own emphasis in an earlier study has been on the combination of the great supply shocks of the previous decade and the contractionary macro policy response of most oecd countries to these shocks as well as on the more recent policy coordination problem between the united states and europe with a few more years that have elapsed and quite a few percentage points of additional unemployment there is obviously room for both an update and a reappraisal starting from a fairly conventional aggregate supply as and aggregate demand ad macro framework an increase in unemployment may come

firms off balance sheet and hybrid debt financing evidence from their book tax reporting differences we match large u s corporations tax returns during 1989 2001 to their financial statements to construct a firm level proxy of firms use of off balance sheet and hybrid debt financing we find that firms with less favorable prior period standard poor s s p bond ratings or higher leverage ratios in comparison to their industry report greater amounts of interest expense on their tax returns than to investors and creditors on their financial statements these between firm results are consistent with credit constrained firms using more structured financing arrangements our within firm tests also suggest that firms use more structured financing arrangements when they enter into contractual loan agreements that provide incentives to manage debt ratings specifically we find that after controlling for s p bond rating and industry adjusted leverage our sample firms report greater amounts of interest expenses for tax than for financial statement purposes when they enter into performance pricing contracts that use senior debt rating covenants to set interest rates furthermore we find that the greatest book tax reporting changes occur when firms become closer to violating these debt rating covenants these latter findings are consistent with firms contractual debt covenants influencing their use of off balance sheet and hybrid debt financing

the cyclical behavior of marginal cost and price the author examines the cyclical behavior of price marginal cost margins for u s manufac turing after 1956 short run marginal cost is markedly procyclical this is primarily due to procyclical overtime payments incurred beca use employment is not perfectly flexible in most industries output price fails to respond to the cyclical movement in marginal cost so price marginal cost margins are markedly countercyclical the res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing they support theories that explain low production in a recession by the inability of firms to sell their output copyright 1987 by american economic association

the cost of capital and optimal financing policy in a dynamic setting abstract this paper revisits the modigliani miller propositions on the optimal financing policy and cost of capital in a dynamic setting in an environment without taxes and bankruptcy costs the results are generally consistent with the modigliani miller propositions 1 and 2 however the first proposition should be presented and interpreted more carefully as given firm characteristics there is only one optimal capital structure thus a firm s capital structure is relevant a relaxation of assumptions about either taxes or bankruptcy costs leads to conclusions that are generally different from those in modigliani and miller 1958 the model predicts that leverage and sales to capital ratios decrease but firm size and capital stock increase with the subjective discount factor of the firm s manager if there are taxes and bankruptcy costs the empirical analysis supports these predictions

foreign tax credit limitations and capital structure decisions this paper extends prior studies by collins and shackelford 1992 and froot and hines 1995 that investigate the impact of foreign tax credit ftc limitations on firms capital structure decisions binding ftc limitations reduce the marginal tax benefit of domestic interest deductions and provide incentives for firms to substitute equity financing for domestic debt collins and shackelford 1992 document a positive relation between the impact of ftc limitations and changes in firms preferred stock accounts during 1986 89 froot and hines 1995 unable to isolate domestic debt changes document that firms with excess ftcs decreased their worldwide debt growth in 1986 91 but they do not find evidence that ftc limitations influence a shift away from debt and into preferred stock financing thus these two studies find conflicting evidence regarding whether ftc limitations influence firms to use preferred stock as a financing vehicle and neither study provides direct evidence regarding a decline in domestic debt or a potential common

proxies for the corporate marginal tax rate abstract this paper focuses on how best to measure the corporate marginal tax rate which is an important input into financial analysis of the cost of capital financing policy corporate hedging and corporate reorganizations the results indicate that the simulated tax rate used by shevlin 1990 and graham 1996 although difficult to calculate is the best available proxy for the true marginal tax rate if the simulated rate is unavailable an easy to calculate trichotomous variable or the statutory marginal tax rate which captures the progressivity in the tax schedule are reasonable alternatives better than most commonly used tax variables

the cyclical behaviour of manufacturing prices in a small open economy this paper presents a disaggregated regression study of the cyclicality of the mark up over costs in belgian manufacturing industry this is found to be low reflecting a great reluctance on the part of price setters to adjust prices to uncertain market signals this appears to be especially the case for exporters when compared with firms active on the domestic market exporters face greater uncertainty because their competitors are less well known and their market shares tend to be smaller implying a higher variance of industry sales estimates

insider bargaining power starting wages and involuntary unemployment recent analyses of wage bargaining has emphasized the distinction between insiders and outsiders yet one typically assumes that insiders and recently hired outsiders are paid the same wage we con

an evaluation of alternative measures of corporate tax rates abstract this paper examines the ability of financial statement measures of average and marginal tax rates mtr to capture tax attributes utilizing firm level tax and financial data the results suggest commonly used average tax rate measures provide little insight about statutory tax burdens and may introduce substantial bias into analyses of tax incidence financial statement based proxies for mtr particularly those based on simulation methods are found to perform well in estimating current year tax rates both current year and present value mtr are found to be highly correlated with an easily constructed binary proxy of firms tax status

corporate tax incentives and capital structure new evidence from uk firm level tax returns abstract we investigate how companies capital structure is affected by corporate income taxes using confidential company level tax returns for a large sample of uk firms exploiting variation in companies marginal tax rates we find a positive and substantial long run tax effect on leverage leverage responds more to decreases in the marginal tax rate and it responds to changes in the marginal rather than the average tax rate most importantly we find that the marginal tax rate based on tax returns has greater explanatory power for companies leverage than the marginal tax rate based on financial statements our study suggests that errors in the measurement for tax incentives using financial statements could lead to underestimation of the tax effects on capital structure

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

dynamic model for market competition and price rigidity abstractthis article presents a price floor model in which durability unit costs and production period are factors in explaining price rigidity this article elaborates that cost structure plays an essential role in resolving the inconclusive relationship between market concentration and price rigidity when the industry is characterized by decreasing returns of scale the degree of price flexibility decreases as market competition intensifies the reverse is true when the industry exhibits increasing returns of scale the factors that cause price rigidity also foster price adjustment asymmetry and price adjustment lag during times of recession the model exhibits upward price flexibility as costs increase but downward price rigidity as costs decrease even under forward looking expectations the way in which firms adjust prices could look as though they have adaptive expectations if price stickiness is a characteristic of market competition then public policies determined by price level could be too

a dynamic model of union power wages and employment the traditional approach to modelling the effects of trade union power on wages and employment has paid very little attention to how the form of union power affects the outcome in this paper wage and employment determination is considered in a dynamic model where some workers e g non union members continue to work in the event of a dispute to see whether this practice can be justified the predictions of the model are very different from the standard one for example both wages and employment may be a nonmonotonic function of union density the model can also explain situations in which unions are sustainable in the long run

why does unemployment persist the main movements of unemployment correspond to fluctuations in the short run nairu around a stable long term nairu these supply side fluctuations have two main origins i variations in the number of insiders involved in wage setting ii variations in the effectiveness of the unemployed outsiders as potential job seekers the evidence of micro studies suggests that ii is more important than i and this also helps to explain the widespread shift outwards in the u v curve to derive these arguments rigorously the paper presents a simple model of efficiency wages another of collective bargaining and finally a fully dynamic model with labour market flows

as certain as debt and taxes estimating the tax sensitivity of leverage from state tax changes abstract using staggered corporate income tax changes across u s states we show that taxes have a first order effect on capital structure firms increase leverage by around 40 basis points for every percentage point tax increase consistent with dynamic tradeoff theory the effect is asymmetric leverage does not respond to tax cuts this is true even within firm tax increases that are later reversed nonetheless lead to permanent leverage increases the treatment effects are heterogeneous and confirm the tax channel tax sensitivity is greater among profitable and investment grade firms which respectively have a greater marginal tax benefit and lower marginal cost of issuing debt

resolution of financial distress under chapter 11 abstract we develop a contingent claims model for a firm in financial distress with a formal account for renegotiations under the u s bankruptcy procedure known as chapter 11 shareholders and two classes of creditors senior and junior alternatively propose a reorganization plan subject to a vote the bankruptcy judge can intervene in any renegotiation round to impose a plan the multiple stage bargaining process is solved in a non cooperative game theory setting the calibrated model yields the liquidation rate the duration of chapter 11 and the frequency of deviations from the absolute priority rule which are consistent with empirical evidence

target buffer stocks the behaviour of a buffer stock holding firm facing stationary demand shocks is considered from the viewpoint of recent evidence on inventories and price setting attention is focussed on the responses of price and supply to changes in autonomous demand and compared with those of a nondurable producer the results conflict with recent theoretical work in providing support for a keynesian interpretation of inventory series

repeated games some applications to under cutting and harassment in the labour market this paper consists of some simple applications of the complete information repeated game rg framework to the labour market in many economic and social problems agents participate in an environment for many periods in such contexts one often observes some degree of collusion obeying behavioural norms which are not in the agents immediate interests among agents one explanation of such collusive activities is agents do not deviate from the norm because of the fear of punishment by other players that the deviation might invoke the literature on rgs has tried to model the above explanation of collusive activities within a game theoretic framework the result of the research has been that with the introduction of time many types of activities which may at first seem irrational in terms of selfish utility maximisation such as co operation altruism threats revenge etc can be explained as solutions to some rgs it can be argued that the rg framework has been too successful it can explain too many behavioural rules in fact the folk theorem of repeated games see sabourian 1988b for a survey states that any individually rational payoff of the one shot game can be supported as a nash equilibrium ne in fact as a subgame perfect equilibrium spe of the rg if players do not discount the future the reason for the existence of so many equilibria in rgs is that in such games a strategy is a plan of what to do at every contingency history many norms of behaviour which are not in players immediate interest can be supported as equilibria if players can choose history dependent strategies which punish any player who does not adhere to the norm but why should players in equilibrium choose a history dependent strategy this is even more surpris

using tax return data to simulate corporate marginal tax rates abstract we document that simulated corporate marginal tax rates based on financial statement data shevlin t 1990 estimating corporate marginal tax rates with asymmetric tax treatment of gains and losses the journal of the american taxation association 11 51 67 graham j 1996a debt and the marginal tax rate journal of financial economics 41 41 73 are highly correlated with simulated rates based on corporate tax return data we provide algorithms that can be used to estimate the book or tax simulated rates when they are not available we find that the simulated book marginal tax rate does a better job of explaining financial statement debt ratios than does the analogous tax return variable and discuss how the book simulated rate is likely to be an appropriate measure in settings with global long term considerations

disequilibrium dynamics an empirical study despite the amount of attention devoted in economics to the study of equilibria the process by which an equilibrium can be attained is not well understood stephen smale 1977 called this the fundamental problem of economic theory this paper explores the microeconomics of the adjustment process by examining empirically the disequilibrium behavior of firms implications for the microeconomic foundations of macroeconomics are stressed the data from german industry describe the month by month price and output changes of individual firms as well as the firms own assessments of the levels of their inventories and unfilled orders because the data are qualitative use is made of the multivariate conditional logit model developed by marc nerlove and s james press 1973 1976 and extended by kawasaki and zimmermann section i discusses the underlying model of firm behavior and the significance of the inquiry for macroeconomics in section ii the econometric techniques are briefly described in section iii the empirical results are summarized and interpretations of the results are offered in section iv

cyclical price flexibility a test of administered pricing the study of cyclical price behavior has been a debate over the extent to which prices behave in a classical manner falling in recessions and rising in expansions at one extreme in this debate the proponents of administered prices state that in recessions administered prices tend to fall less than market dominated prices similarly since administered price does not fall as much in recession it rises less in recovery 8 p 292 some proponents 4 i 7 p ii have suggested a response lag in administered price industries resulting in countercyclical price behavior in these industries at the other extreme in this debate stigler and kindahl sk and annual data do not exactly test cyclical hypothesis rice i i used three concentration intervals and found little relation to the standard deviation of the percentage change in average annual prices he used both bls list price data and nber transactions price data his test is also biased against any cyclical hypotheses since business cycles are not annual phenomena if the relation between price changes and concentration is u shaped the concentration intervals selected will be crucial to any u shape test also a chi square test of this sort is weaker than the parametric tests which could have been used on the same data weiss investigated the relations between concentration percentage price changes and deviation from trend for the nber transactions price series over different stages of the business cycle using three concentration groups he found that in recessions prices in the least concentrated industries were more likely to fall both absolutely and relative to trend then other price series but there was no distinction between price behavior in the two most concentrated

unemployment in regional labor markets using structural theories to understand local jobless rates in west virginia the author uses a range of structural labor market models to understand differing regional jobless rates in a state affected by pockets of structural unemployment four theories of regional structural unemployment are presented and their hypotheses are statistically evaluated using west virginia county panel data the author then presents case study evidence to compare these statistical results with the realities of the county labor markets both types of empirical evidence suggest that a segmented non market clearing model in which structural unemployment stems from queuing for above market clearing wages in both a high wage primary sector and a lower wage secondary sector can shed the most light on regional unemployment rates in west virginia

does tax policy affect executive compensation evidence from postwar tax reforms abstract the trends in executive pay and labor income tax rates since the 1940s suggest a high elasticity of taxable income with respect to tax policy by contrast the level and structure of executive compensation have been largely unresponsive to tax incentives since the 1980s however the relative tax advantage of different forms of pay was small during this period using a sample of top executives in large firms from 1946 to 2005 we also find a small short run response of salaries qualified stock options and bonuses paid after retirement to changes in tax rates on labor income even though tax rates were significantly higher and more heterogeneous across individuals in the first several decades following wwii we explore several potential explanations for the conflicting impressions given by the long run and short run correlations between taxes and pay including changes in social norms and concerns about pay equality

exports and japanese economic development abstract the granger causality test used in this paper indicates that japanese growth in the prewar period was caused by the growth of the labor force and improvements in agricultural productivity in the postwar period growth in exports labor force and agricultural productivity caused output growth

the inheritance of inequality how level is the intergenerational playing field what are the causal mechanisms that underlie the intergenerational transmission of economic status are these mechanisms amenable to public policies in a way that would make the attainment of economic success more fair these are the questions we will try to answer

household commodity production and social harassment costs in a seminal article becker 2 suggested that consumer behavior be viewed as a process in which households produce commodities meals plays and so on by combining goods or services food theatre tickets and so on and time households are perceived in that model as utility maximizing producers in effect becker s model demonstrates that money prices of goods or services do not provide sufficient information to explain or predict household choice more specifically money prices of goods or services do not reflect the full costs of household produced commodities because money prices exclude the costs of the household s time spent in the production of such commodities mincer 7 showed that unless the costs of time are considered the income elasticities of demand for different commodities are biased abbott and ashenfelter 1 have established the theoretical conditions for household utility maximizing expenditures of income and time wales and woodland 9 assumed that households maximize utility functions which include leisure and a hicksian composite good the budget constraint is written in terms of wage rates the price of the composite good nonlabor income the total number of hours available and the full income of the household consistent with the becker model kohlhase 5 constructed simultaneous constraints in which the income and time constraints are reduced to a full income constraint under the assumption that households buy back the leisure time and commuting time of market workers at the market wage rates and deacon and sonstelie 4 analyzed a natural situation in which for a short time motorists were faced with a choice between a waiting in line for low priced gasoline or b not waiting and purchasing gasoline of a similar quality at a higher price by surveying customers at one low priced station and at two nearby high priced stations they were able to estimate the costs of time for people in both groups they found that in general estimates of the costs of time were similar to the after tax wages of respondents thereby providing additional evidence that the money price does not always convey sufficient information to predict household choice

wage rivalry and insider outsider relations evidence for skilled and unskilled men in denmark a model with trade union rivalry is used to derive wage reaction functions which are then estimated for skilled and unskilled men in denmark the results show substantial differences in wage determination between the two groups of workers in the short term but once the wage wage spiral starts to operate some of the differences disappear wage setting for unskilled men is subject to insider outsider effects whereas it is uncertain whether wage determination for skilled workers suffers from such imperfections copyright 1992 by the editors of the scandinavian journal of economics