Effects of Public Policies on the Disposition of Pre-retirement Lump-Sum Distributions: Rational and Behavioral Influences

A variety of public policies aim to influence workers’ disposition of preretirement lump-sum distributions (LSDs) from pensions. We use the implementation of several policy changes as natural experiments to test for rational and behavioral motives for saving behavior. Using data from the HRS and the CPS in the 1980s and 1990s, we find that higher tax rates on cash-outs increase rollovers. Controlling for the overall effective tax rate, structuring the tax as a “penalty” or adding withholding taxes on cashouts significantly increases rollovers. Allowing employers to unilaterally cash out balances for departing employees who do not make their own choice significantly reduces the effects of higher tax rates but boosts the impact of withholding taxes. These results suggest that both behavioral and rational factors influence workers’ choices, that policies relating to pre-retirement cash outs can interact in important ways, and that the government has several levers at its disposal to influence behavior beyond tax penalties.retirement;savings;behavioral;penalties;taxes

Business Ownership by Workers: Are Worker Cooperatives a Viable Option?

One possible strategy for both succession and new business development is employee ownership.� New business formation as an employee-owned firm or cooperative may have some advantages over formation as a sole proprietorship or partnership: pooling financial resources, spreading risk and combining the various knowledge and skills of the members involved. In the case of business succession, selling to employees provides a tax benefit to the owners and increases the probability that the business will continue to exist in its current location, benefitting both the employees themselves and the local community. While worker cooperatives (or employee-owned cooperatives) are currently rare in the United States, successful examples exist, suggesting potential for future development of this type of organization. This paper reviews the literature on worker cooperatives and presents data on the extent and nature of worker cooperatives in the United States. It concludes with a discussion of the implications for employee-owned cooperative development in Iowa and provides suggestions for future research and outreach programming on this topic.

Tax and the Family: The Gendered Impact of Rules that Take Spousal Status into Account for Tax Purposes

This chapter deals with the gendered impact of tax rules that take spousal status into account. The analysis is in three parts: (1) a review of some recent developments leading to the inclusion of same-sex couples as common law partners for tax purposes in Canada; (2) a consideration of the government’s political interest in taking familial or spousal relationships into account for tax purposes; and (3) a review of particular tax rules taking spousal status into account. After asking whether these tax rules can continue to be justified, the author concludes that we should consider eliminating all reference to spousal and common law relationships from Canada’s Income Tax Act (ITA). For example, some rules have a gendered impact, one that frequently discriminates without good reason against women and in favour of men. Others are inherently flawed and poorly targeted so that they do not achieve their policy goals. Some rules can be critiqued on the basis that they are simply part of the neo-liberal privatization agenda that encourages individuals to rely on the private family for their economic security and they exclude those not in spousal or common law relationships from a variety of important benefits delivered by the tax system

State-government bailouts in Brazil

As a result of the consolidation of the democracy after the end of the military regime in the mid-1980s, Brazil has gone through a period of remarkable decentralization both in fiscal and political terms. The move towards decentralized management and control of public finances has been followed by a series of bailouts of state governments by the federal government. The lack of effective control on borrowing, coupled with reputational effects originating from these repeated bailout operations, reduced fiscal discipline and created an explosive accumulation of debts in Brazilian states during the last decade. The main purpose of this paper is to assess the determinants of state debt bailouts in Brazil and their relationship with states’ fiscal discipline during the 1990s. After providing a brief overview of intergovernmental fiscal relationships in the Brazilian economy, the paper describes state debt developments from the mid-1980s on, with special emphasis on the 1989, 1993 and 1997 state debt bailouts. Then it discusses the determinants of state debt bailouts in Brazil along the lines of a conceptual framework which recognizes that the essence of the bailout question is the issue of moral hazard and also presents empirical evidence that the occurrence of bailouts is associated with lower fiscal discipline in Brazilian states during the 1990s.

What’s Sex Got to Do with it? Tax and the ‘Family’

In this paper the author analyses the taxation rules that recognise spousal and family relationships. She notes that even though we file income tax returns as individuals, the federal Income Tax Act recognises spousal and familial relationships for many different purposes, thereby undermining the integrity of the principle of the individual as the tax unit. She observes that Parliament has responded over the years to the ever-changing demographics of “family” life in Canada by amending references in the Act to spousal and other family relationships. For example, the meaning of “spouse” has been expanded to become more inclusive. Most recently, with Bill C-23 the Act would be amended to treat lesbian and gay couples in the same manner as heterosexual common-law couples. In spite of the many changes made, however, a fundamental policy question remains to be considered: is it appropriate for income tax laws to be concerned with spousal and other family relationships? The author tackles this question by examining whether any of the rules that are based on spousal or familial relationships could be removed from the Act and whether those that should remain ought to be reconfigured to make them more fair in their application. Her enquiry takes into account the underlying purposes of the tax system and the basic tenets of tax policy enquiry, as well as examining the impact of the respective tax provisions on different taxpayers from an “equality” perspective. The paper tracks the legislative history of some of the key tax rules involving spousal and family relationships. It classifies and critiques each rule by reference to the tax policy rationales behind the rule. Among the rules considered are the attribution rules, which are intended to stop income splitting between spouses and between adults and minor children. The author concludes that more empirical research is needed on the potential consequences of eliminating these rules before a recommendation to retain or repeal them can be made. The author does recommend the repeal of rules based on dependency, including the spousal tax credit and the ability to transfer unused tax credits to a spouse. Provisions based on economic mutuality are also assessed, both those that result in less or more tax payable by the taxpayer. The author finds that some of these rules should be retained because they do serve valid objectives, however others such as the inclusion/deduction system for spousal support payments are indefensible. This paper provides the first comprehensive review of the federal tax rules that take spousal and family relationships into account. Other scholarly analyses of tax rules related to spousal and family relationships have framed the issue in terms of whether spouses should be taxed as individuals or as a joint unit. However, this paper explores the more fundamental question – whether it is appropriate to recognise spousal and family relationships for any purpose in the Act – and the author finds that in many instances, but not all, rules taking these relationships into account cannot be justified and should be removed from the Act

International Capital Inflows, Domestic Financial Intermediation and Financial Crises under Imperfect Information

A model of financial crises in emerging markets based on problems of agency in financial intermediation is developed. This model generates dynamic relationships between foreign capital inflows, domestic investment and domestic bank debt in an endogenous growth model. As a consequence of loan renegotiation between limited liability banks and firms, financial crises inevitably occur. Banking and currency crises are concurrent events under an exchange rate peg combined with deposit insurance and implicit government guarantees of foreign currency loans. The model links high pre-crisis growth rates, the accumulation of bank debt and increasing concentration of domestic lending and investment to the anticipation of contingent government insurance of private financial transactions. The dynamics of capital inflows and growth before and after a financial crisis are compared to the experience of the Asian crisis countries. We find evidence consistent with this agency model of domestic bank intermediation of foreign capital inflows under exchange rate pegs.