Share Valuation and Corporate Equity Policy

In recent years many contributions have appeared which examine the effects of corporate and personal taxation on firm financial policy. However, there has yet to appear an adequate explanation of why corporations continue to distribute dividends despite their disadvantageous tax treatment. We study this problem anew, in the context of an overlapping generations growth model with corporations financed by equity. Among our findings are: (1) capital owned by corporations may well be undervalued, even in the long run; (2) as a result of such undervaluation, firms may find it in the best interest of their stockholders to distribute dividends; and (3) an increase in the tax on distributions, while depressing the return to personal saving, may lead to an increase in the capital intensity of the economy. We also consider the criterion firms will use in evaluating new investment projects.

When prices hardly matter: Incomplete insurance contracts and markets for repair goods

This paper looks at markets characterized by the fact that the demand side is insured. In these markets a consumer purchases a good to compensate consequen¬ces of unfavorable events, such as an accident or an illness. Insurance policies in most lines of insurance base indemnity on the insured’s actual expenses, i.e., the insured would be partially or completely reimbursed when purchasing certain goods. In this setting we discuss the interaction between insurance and repair markets by focusing, on the one hand, upon the development of prices and the structure of markets with insured consumers, and, on the other hand, the resulting backlash on optimal insurance contracting. We show that even in the absence of ex post moral hazard the extension of insurance coverage will lead to an increase in prices as well as to a socially undesirable increase in the number of repair service suppliers, if repair markets are imperfect

Why Funding Is not a Solution to the "Social Security Crisis"

Es ist heute unbestritten, dass die umlagefinanzierten staatlichen Rentensysteme in den meisten OECD.Ländern in den kommenden Jahrzehnten wegen der dramatisch steigenden Alterslastquote schwerwiegende finanzielle Probleme bekommen werden. Dennoch gibt es eine intensive Debatte über die angemessene Therapie. Gerade in den letzten Jahren haben Vorschläge zugenommen, die auf einen (teilweisen) Übergang zur Kapitaldeckung hinauslaufen. Da ein solcher Übergang bekanntlich keine Pareto-Verbesserung bewirkt, muss man fragen, durch welche Zielsetzungen er gerechtfertigt werden könnte. Die vorliegende Arbeit geht dieser Frage nach und identifiziert sieben Trugschlüsse, die von Anhängern eines solchen Übergangs häufig begangen werden. It is now a commonplace that the unfunded public pension systems of many OECD countries will run into severe financing problems in the coming decades due to a dramatically increasing pensioner/worker ratio. While this diagnosis is completely undisputed, there is still a vigorous debate on the appropriate therapy. In this debate, a number of proposals have been brought forward in particular in the last five years, which mainly consist in a (partial) transition to a funded pension system. Because such a transition is not a Pareto improvement, it is necessary to ask what can be the policy target that justifies such a redistributive move? The present paper tries to examine this question by identifying seven fallacies that are commonly made by advocates of such a transition.

When prices hardly matter: Incomplete insurance contracts and markets for repair goods

This paper looks at markets characterized by the fact that the demand side is insured. In these markets a consumer purchases a good to compensate consequences of unfavorable events, such as an accident or an illness. Insurance policies in most lines of insurance base indemnity on the insured’s actual expenses, i.e., the insured would be partially or completely reimbursed when purchasing certain goods. In this setting we discuss the interaction between insurance and repair markets by focusing, on the one hand, upon the development of prices and the market structure in markets with insured customers, and, on the other hand, the resulting backlash on optimal insurance contracting.Incomplete Contracts, Insurance, Repair Markets

A Comparison of Methodologies in Empirical General Equilibrium Models of Taxation

Computational general equilibrium models have proven useful in the area of long run analysis of alternative tax policies. A sizable number of studies have been completed which examine policies such as a value-added tax, corporate and personal income tax integration, a consumption or expenditure tax, housing subsidies, and inflation indexation.. This paper reviews the methodologies used in these models. We focus on eight specific models and review in turn: levels of disaggregation, specification of the foreign sector, financial modeling, the measurement of effective tax rates, heterogeneity and imperfect mobility, factor supply, treatment of the government budget, and technical issues associated with implementation. The paper includes some new experiments in connection with simulations of integration of the personal and corporate income tax systems in the United States. We compare the resulting welfare gains in models with different levels of disaggregation, and we discuss alternative justifications for specific disaggregations. We also examine the sensitivity of results to alternative specifications of households' endowments of labor and leisure. Our survey underscores the importance of the assumed elasticities of labor supply with respect to the net of tax wage, and of saving with respect to the net of tax rate of return. Unfortunately, these are also parameters for which there is not a consensus in the economics profession. The survey finds that there are several aspects of modeling that are especially ripe for further progress: the roles of government and business financial decisions, the dynamics of a life-cycle approach, and the measurement of incentive tax and transfer rates.

When prices hardly matter: Incomplete insurance contracts and markets for repair goods

This paper locks at markets charaterized by the fact that the demand side is insured. In these markets a consumer purchases a good to compensate consequences of unfavorable events, such as an accident or an illness. Insurance policies in most lines of insurance base indemnity on the insured's actual expenses, i. e., the insured would be partially or completely reimbursed when purchased certain goods. In this setting we discuss the interaction between insurance and repair markets by focusing, on the one hand, upon on development of prices and the market structure in markets with insured customers, and, on the other hand, the resulting backlash on optimal insurance contracting. --insurance,incomplete contracts,repair markets

When prices hardly matter: Incomplete insurance contracts and markets for repair goods

This paper looks at markets characterized by the fact that the demand side is insured. In these markets a consumer purchases a good to compensate consequen¬ces of unfavorable events, such as an accident or an illness. Insurance policies in most lines of insurance base indemnity on the insured’s actual expenses, i.e., the insured would be partially or completely reimbursed when purchasing certain goods. In this setting we discuss the interaction between insurance and repair markets by focusing, on the one hand, upon the development of prices and the structure of markets with insured consumers, and, on the other hand, the resulting backlash on optimal insurance contracting. We show that even in the absence of ex post moral hazard the extension of insurance coverage will lead to an increase in prices as well as to a socially undesirable increase in the number of repair service suppliers, if repair markets are imperfect.insurance; incomplete contracts; repair markets

Exits from unemployment : recall or new job

This paper studies transitions out of unemployment in Spain distinguishing between recall to the same employer and reemployment in a new job. We use a large sample of newly unemployed workers obtained from Social Security records for Spain. These data contain information about each individual's employer identy before and after the unemployment spell. A discrete-time duration model with competing risks of exits serves us to investigate the factors that influence the probabilities of leaving unemployment to return to the same employer or to find a new job with a different employer. We find that the route to exit unemployment is determinant to understand the influence of individual an job characteristics on the hazard rate, as well as the latter dependence on unemployment duration. The recall hazard rate exhibits positive duration dependence during the first months and negative duration dependence thereafter (it is larger for females), while the new-job hazard presents positive duration dependence (it is larger for males

Exits from unemployment: recall or new job

This paper studies transitions out of unemployment in Spain distinguishing between recall to the same employer and reemployment in a new job. We use a large sample of newly unemployed workers obtained from Social Security records for Spain. These data contain information about each individual's employer identy before and after the unemployment spell. A discrete-time duration model with competing risks of exits serves us to investigate the factors that influence the probabilities of leaving unemployment to return to the same employer or to find a new job with a different employer. We find that the route to exit unemployment is determinant to understand the influence of individual an job characteristics on the hazard rate, as well as the latter dependence on unemployment duration. The recall hazard rate exhibits positive duration dependence during the first months and negative duration dependence thereafter (it is larger for females), while the new-job hazard presents positive duration dependence (it is larger for males).