The Experts below are selected from a list of 291 Experts worldwide ranked by ideXlab platform
Alex Raskolnikov - One of the best experts on this subject based on the ideXlab platform.
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The Cost of Norms: Tax Effects of Tacit Understandings
University of Chicago Law Review, 2007Co-Authors: Alex RaskolnikovAbstract:Most human interactions take place in reliance on tacit understandings, customary practices, and other legally unenforceable agreements. A considerable literature studying these informal arrangements (commonly referred to as social norms) has a decidedly positive flavor, arguing that many, if not most, of these norms are welfare enhancing. This Article looks at the less-appreciated darker side of social norms. It combines an analysis of modern sophisticated Tax planning techniques with existing empirical studies of commercial relationships to reveal a disturbing connection. By relying on tacit understandings rather than express contractual terms, many Taxpayers shift some of their Tax liabilities to those whose opportunity to take advantage of social norms is more limited or nonexistent. The resulting inefficiency and inequity is the social cost of social norms. Reducing this cost, however, turns out to be a challenging task. This Article introduces a Tax-focused classification of social norms and singles out the type of norms that are particularly inefficient. Unfortunately, while reducing the use of these norms (or eliminating them altogether) would be welfare enhancing, it is unlikely to succeed in practice. Indiscriminately attacking all norms is administratively easier, but socially costly. This Article proposes a compromise between these two courses of action that is more administrable than the first approach and less costly than the second. It also offers a guide that will assist the government in identifying particularly inefficient norms.
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The Cost of Norms: Tax Effects of Tacit Understandings
2006Co-Authors: Alex RaskolnikovAbstract:Most human interactions take place in reliance on tacit understandings, customary practices, and other legally unenforceable agreements. A considerable literature studying these informal arrangements (commonly referred to as social norms) has a decidedly positive flavor, arguing that many, if not most, of these norms are welfare-enhancing. This Article looks at the less-appreciated darker side of social norms. It combines the analysis of the modern sophisticated Tax planning techniques with the existing empirical studies of commercial relationships to reveal a disturbing connection. By relying on tacit understandings rather than express contractual terms, many Taxpayers shift some of their Tax liabilities to those whose opportunity to take advantage of social norms is more limited or non-existent. The resulting inefficiency and inequity is the social cost of social norms. Reducing this cost, however, turns out to be a challenging task. The Article introduces a Tax-focused classification of social norms and singles out the type of norms that are particularly inefficient. Unfortunately, while reducing the use of these norms (or eliminating them altogether) would be welfare-enhancing, it is unlikely to succeed in practice. Indiscriminately attacking all norms is easier administratively, but socially costly. The Article proposes a compromise between these two courses of action that is more administrable than the first approach and less costly than the second. It also offers a guide that would assist the government in identifying particularly inefficient norms.
George R. Zodrow - One of the best experts on this subject based on the ideXlab platform.
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Revisiting the Excise Tax Effects of the Property Tax
Public Finance Review, 2012Co-Authors: Athiphat Muthitacharoen, George R. ZodrowAbstract:The authors analyze the excise Tax Effects of a general property Tax from the perspective of a small open economy facing a perfectly elastic supply of capital. The model differs from most that have...
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Revisiting the Excise Tax Effects of the Property Tax: Working Paper 2012-05
2012Co-Authors: Athiphat Muthitacharoen, George R. ZodrowAbstract:This paper analyzes the excise Tax Effects of a general property Tax from the perspective of a small open economy facing a perfectly elastic supply of capital, focusing on the mix of forward Tax-shifting to consumers and backward Tax-shifting to labor and landowners. The model utilized differs from most that have appeared in the property Tax literature as follows: (1) the property Tax is applied in a four-sector model with three Taxed sectors—manufacturing which produces a tradable good, housing and services which produce nontradable goods, and a Tax-exempt agricultural sector that produces
Christopher R. Blake - One of the best experts on this subject based on the ideXlab platform.
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Marginal Stockholder Tax Effects and Ex-Dividend-Day Price Behavior: Evidence From Taxable Versus NonTaxable Closed-End Funds
Review of Economics and Statistics, 2005Co-Authors: Edwin J. Elton, Martin J. Gruber, Christopher R. BlakeAbstract:Almost all research on the movement of stock prices on ex-dividend days has found that prices decline by less than the dividend. Though this is consistent with Tax Effects, several papers have argued that this phenomenon could be caused by market microstructure Effects. In this paper we make use of a natural experiment that provides support for the Tax explanations of ex-dividend behavior. Some closed-end funds have Taxable, and some have nonTaxable, dividend distributions. Both types are subject to Taxes on capital gains. The implication of this for ex-dividendday price behavior is very different between these two types of funds if Taxes matter. This paper demonstrates that the direction of ex-dividendday price behavior is consistent with a Tax explanation and that ex-dividend-day price behavior changes, as theory would suggest, with changes in the Tax law.
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Marginal Stockholder Tax Effects and Ex-Dividend Day Behavior-Thirty-Two Years Later
SSRN Electronic Journal, 2003Co-Authors: Edwin J. Elton, Martin J. Gruber, Christopher R. BlakeAbstract:Since Elton and Gruber's (E&G) original article on Taxes and ex-dividend price behavior was published in 1970, over 100 articles have appeared in the leading journals of financial economics examining whether prices fall by less than the dividends and, if so, whether or not the phenomenon is due to Tax Effects, market microstructure Effects, or some other effect. The microstructure argument is the most serious alternative to the Tax argument. All of the microstructure arguments state that the fall in stock price should be less than the dividend, regardless of whether the dividend is Taxable or Tax-advantaged. By testing ex-dividend Effects on a sample of closed-end funds where dividends are Taxadvantaged, we find that Taxes should and do cause the fund price to fall by more than the amount of the dividend. This is consistent with a Tax argument and inconsistent with a microstructure argument. Examining the sample of Tax-free dividends, we find that the E&G and return measures change across two Tax regimes exactly as theory suggests they should if Taxes mattered. We then examine non-Tax-advantaged closed-end funds. For these funds we should find the traditional ex-dividend Tax Effects: the fall in price on the ex-dividend date should be less than the dividend during periods when capital gains Taxes are less than income Taxes. This is what we find. Furthermore, the ex-dividend behavior of these funds generally moves in the direction we would expect across two changes in Tax regimes. The Taxable sample not only substantiates the Tax effect, it also demonstrates that the fall in price greater than the dividend for closed-end municipal bond funds was not due to some peculiar aspect of either our methodology or the closed-end fund industry. Thirty-two years after E&G's original study, we find new and compelling evidence that Taxes play an important part in affecting share price changes.
Bernt Arne Ødegaard - One of the best experts on this subject based on the ideXlab platform.
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Are There Tax Effects in the Relative Pricing of U.S. Government Bonds
1997Co-Authors: Richard C. Green, Bernt Arne ØdegaardAbstract:We investigate the impact of the Tax Reform Act of 1986 on the relative pricing of U.S. Treasury bonds. We obtain positive, statistically and economically significant estimates for the implicit Tax rates of a "representative" investor in the late 1970's and early 1980's. After the 1986 Tax Reform the point estimates for the Tax rate are close to zero. Tests for a regime shift associated with the 1986 Tax Reform support the hypothesis that this event largely eliminated Tax Effects from the term structure. We discuss both institutional and statutory explanations for this change.
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Are There Tax Effects in the Relative Pricing of U.S. Government Bonds
The Journal of Finance, 1997Co-Authors: Richard C. Green, Bernt Arne ØdegaardAbstract:We investigate the impact of the Tax Reform Act of 1986 on the relative pricing of U.S. Treasury bonds. We obtain positive statistically and economically significant estimates for the implicit Tax rates of a "representative" investor in the late 1970s and early 1980s. After the 1986 Tax Reform, the point estimates for the Tax rate are close to zero. Tests for a regime shift associated with the 1986 Tax Reform support the hypothesis that this event largely eliminated Tax Effects from the term structure. We discuss both institutional and statutory explanations for this change. WHETHER THERE ARE Tax Effects in the relative pricing of government bonds is important for both practical and theoretical reasons. Tax Effects are informative about Tax incidence and the role of different market participants in influencing prices. Practitioners also have a natural interest in the question. If relative prices reflect the Tax status of one group of investors, others can exploit these differences in their portfolio decisions. In the government bond market, individual investors are Taxed very differently than dealers and many institutions. Pricing that reflects the Tax positions of individual investors creates profitable trading opportunities for dealers, and pricing that does not reflect the Tax status of individual investors gives them motives to trade. This article tests for the presence of Tax Effects in prices of U.S. Treasury bonds, and evaluates changes in these Effects around the Tax reform in 1986, which reduced the asymmetries between Taxation of market discount and premium bonds. We begin by using parameterized, flexible functional forms to represent the after-Tax term structure, and estimate, at each date, both the Tax
Eliezer Z. Prisman - One of the best experts on this subject based on the ideXlab platform.
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Non-Segmented Equilibria Under Differential Taxation: Evidence from the Canadian Government Bond Market
SSRN Electronic Journal, 1999Co-Authors: Alexandra E. Mackay, Eliezer Z. Prisman, Yisong S. TianAbstract:Tax-clientele Effects induce segmented equilibria and these affect the estimation of the term structure of interest rates. The identification of these Effects depends on the deviations of bond prices from the value of their discounted cash flows. However, bond prices contain noise that makes it difficult to determine whether the deviations are the result of statistical error or of clientele Effects. Evidence from a deterministic test capable of detecting the feasibility of a non-segmented equilibrium is used to form hypotheses concerning the frequency and timing of Tax Effects in the Canadian bond market during the period 1964 through 1986. Tax reforms introducing capital gains Taxation in Canada in 1972 generate additional hypotheses regarding the timing of Tax Effects. The empirical results from regression tests confirm that non-segmented equilibria occur in those months that the feasibility test indicated they were feasible. Further, the sample period is divided into an early period with virtually no evidence of Tax Effects and a later period characterized by Tax Effects. This division is roughly linked to the introduction of capital gains Tax in 1972 and the increased interest rate volatility in the later period.
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Tax Effects in Canadian Equity Option Markets
Multinational Finance Journal, 1997Co-Authors: Moshe A. Milevsky, Eliezer Z. PrismanAbstract:The Canadian Income Tax Act induces individual investors to close their short equity option positions at the end of the year and, if necessary, reopen them at the beginning of next year. This article analyzes the conditions under which it is optimal to close or leave open a short option position over the Tax year boundary. The analysis shows that the latter decision depends on transaction costs, the investor’s marginal Tax rate, the interest rates, the initial and end-of-the-year option prices, as well as whether the option position is naked or covered. The article also examines the impact of Tax regulations in Canada on the pricing of naked vs. covered call options and American vs. European options.
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Tests for Tax-clientele and Tax-option Effects in U.S. treasury bonds
Journal of Banking & Finance, 1995Co-Authors: Michael C. Ehrhardt, James V. Jordan, Eliezer Z. PrismanAbstract:Abstract In markets with Taxes the deviations of the price of a bond from its present value may be due to Tax clientele and Tax option Effects. Detecting these Effects is complicated by noise in bond prices. Previous empirical research has lacked a theory of how Tax Effects will influence the deviations in the presence of noise. This paper develops such a theory and demonstrates a methodology for detecting Tax Effects. In empirical tests the Tax option effect comes through most clearly, but the existence of Tax clienteles cannot be ruled out.
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Immunization in Markets with Tax-Clientele Effects: Evidence from the Canadian Market
The Journal of Financial and Quantitative Analysis, 1994Co-Authors: Eliezer Z. Prisman, Yisong S. TianAbstract:Empirical immunization studies have considered the efficacy of immunization strategies, in which the durations of assets and of liabilities are equated, against a strategy involving maturity matching. However, all these studies have ignored Tax Effects. In the presence of Tax-clientele Effects, immunization requires that the portfolio consists only of bonds that are correctly priced for a particular clientele. Testing for these Effects, therefore, requires the identification of the correctly priced bonds for the investors in the clientele. However, since bond prices contain noise, determining these bonds is still an unresolved problem. Consequently, an empirical test of the magnitude of the error caused by ignoring Taxes may be an impossible task in some markets, and indeed has never been conducted. The Canadian bond market provides perfect laboratory conditions for such a test. Tax-clientele Effects are present in the Canadian market, and among the clienteles is a representative clientele. This paper examines the Tax Effects on immunization strategies. The results show that the error caused by ignoring Tax Effects is not negligible, and practitioners should use immunization with reference to Tax Effects.
