Number of found documents: 1073
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Income tax evasion: tax elasticity, welfare, and revenue
Gillman, Max
2020 - English
This paper provides a general equilibrium model of income tax evasion. As functions of the share of income reported, the paper contributes an analytic derivation of the tax elasticity of taxable income, the welfare cost of the tax, and government revenue as a percent of output. It shows how an increase in the tax rate causes the tax elasticity and welfare cost to increase in magnitude by more than with zero evasion. Keeping constant the ratio of income tax revenue to output, as shown to be consistent with certain US evidence, a rising productivity of the goods sector induces less evasion and thereby allows tax rate reduction. The paper derives conditions for a stable share of income tax revenue in output with dependence upon the tax elasticity of reporting income. Examples are provided with less and more productive economies in terms of the tax elasticity of reported income, the welfare cost of taxation and the tax revenue as a percent of output, with sensitivity analysis with respect to leisure preference and goods productivity. Discussion focuses on how the tax evasion analysis may help explain such Öscal tax policy as the postwar US income tax rate reductions with discussion of tax acts and government Öscal multipliers. Fiscal policy with tax evasion included shows how tax rate reduction induces less tax evasion, a lower welfare cost of taxation, and makes for a stable income tax share of output. Keywords: optimal evasion; tax law; welfare Fulltext is available at external website.
Income tax evasion: tax elasticity, welfare, and revenue

This paper provides a general equilibrium model of income tax evasion. As functions of the share of income reported, the paper contributes an analytic derivation of the tax elasticity of taxable ...

Gillman, Max
Národohospodářský ústav, 2020

Firm leverage and wealth inequality
Bakota, Ivo
2020 - English
This paper studies the effects of a change in firm leverage on wealth inequality and macroeconomic aggregates. The question is studied in a general equilibrium model with a continuum of heterogeneous agents, life-cycle, incomplete markets, and idiosyncratic\nand aggregate risk. The analysis focuses on the particular change in firm leverage that occurred in the U.S. during the 1980s, when firm leverage increased significantly, and subsequently has been dropping since the early 1990s. In the benchmark model, an increase\nin firm leverage of the size that occurred during the 1980s increases capital accumulation by 5.38%, decreases wealth inequality by 1.07 Gini points and decreases government revenues by 0.11% of output. An increase in firm leverage increases average after-tax\nreturns on savings, as firm debt has beneficial tax treatment. This increases the saving rates of all households, and disproportionately increases the saving rates of relatively poorer households. Consequently, the model implies that the increase in firm leverage did\nnot contribute to rising inequality in the U.S. in the 1980s, but rather the opposite; that the reduction in leverage from the early 1990s to 2008 has contributed to rising wealth inequality. Furthermore, I show that if the model abstracts from beneficial tax treatment\nof corporate debt, the change in leverage has only minor effects on macro aggregates and inequality, despite having significant implications for asset prices. This is consistent with the previous result in the literature showing that the Modigliani-Miller theorem approximately holds in the heterogeneous agents model with imperfect markets. Keywords: portfolio choice; heterogeneous agents; life-cycle Fulltext is available at external website.
Firm leverage and wealth inequality

This paper studies the effects of a change in firm leverage on wealth inequality and macroeconomic aggregates. The question is studied in a general equilibrium model with a continuum of heterogeneous ...

Bakota, Ivo
Národohospodářský ústav, 2020

Redistributive capital taxation revisited
Kina, Ö.; Slavík, Ctirad; Yazici, H.
2020 - English
This paper shows that capital-skill complementarity provides a quantitatively significant rationale to tax capital for redistributive governments. The optimal capital income tax rate is 60%, which is significantly higher than the optimal rate of 48% in an identically calibrated model without capital-skill complementarity. The skill premium falls from 1.9 to 1.67 along the transition following the optimal reform in the capital-skill complementarity model, implying substantial indirect redistribution from skilled to unskilled workers. These results show that a government that cares about redistribution should take into account capital-skill complementarity in production when setting the tax rate on capital income. Keywords: capital taxation; capital-skill complementarity; inequality Fulltext is available at external website.
Redistributive capital taxation revisited

This paper shows that capital-skill complementarity provides a quantitatively significant rationale to tax capital for redistributive governments. The optimal capital income tax rate is 60%, which is ...

Kina, Ö.; Slavík, Ctirad; Yazici, H.
Národohospodářský ústav, 2020

Firm life cycle and cost of debt
Amin, A.; Bowler, B.; Hasan, M. M.; Lobo, G. L.; Trešl, Jiří
2020 - English
This paper examines the relation between the corporate life cycle and lending spreads. Using a sample of 20,307 firm-loan observations spanning 5,076 publicly traded U.S. firms, we find that lending spreads follow a U-shape pattern across the life cycle phases. This pattern is in addition to the variation explained by typical controls. In a multivariate analysis, we find that firms in the introduction and decline phases pay lending spreads that are greater than firms in the mature phase (differences of 6 percent and 12 percent, respectively). We explore omitted variables bias and instrumental variable estimation in robustness testing and find that the shape pattern persists. Our findings are consistent with theoretical predictions regarding the relationship between the corporate life cycle and various lending risks. Keywords: firm life cycle; cost of debt; bank loans Fulltext is available at external website.
Firm life cycle and cost of debt

This paper examines the relation between the corporate life cycle and lending spreads. Using a sample of 20,307 firm-loan observations spanning 5,076 publicly traded U.S. firms, we find that lending ...

Amin, A.; Bowler, B.; Hasan, M. M.; Lobo, G. L.; Trešl, Jiří
Národohospodářský ústav, 2020

Private and public IPR protection in a vertically differentiated software duopoly
Žigić, Krešimir; Střelický, J.; Kúnin, Michael
2020 - English
We study the interaction between public and private intellectual property rights (IPR) protection in a duopoly in which software developers offer a product variety of differing quality and compete for heterogeneous users, who have an option to buy a legal version, possibly use an illegal copy, or not buy a product at all. Illegal usage implies violation of IPR and is punishable. A developer may use private IPR protection for his software if the level of piracy is high. An important intermediate step in our analysis addresses firms’ pricing strategies and the analysis of the impact of both private and public IPR protection on these strategies (with monopoly serving as a benchmark case). Last but not least, we make some comparisons with an analogous model based on horizontal product differentiation. Keywords: vertically differentiated duopoly; software piracy; Bertrand competition Fulltext is available at external website.
Private and public IPR protection in a vertically differentiated software duopoly

We study the interaction between public and private intellectual property rights (IPR) protection in a duopoly in which software developers offer a product variety of differing quality and compete for ...

Žigić, Krešimir; Střelický, J.; Kúnin, Michael
Národohospodářský ústav, 2020

Talent rewards, talent uncertainty, and career tracks
Jeong, Byeongju
2020 - English
I present a model in which (1) a more talent-demanding task increases both rewards for high talent and the penalty for low talent due to a greater fixed cost of production, and (2) individual talent is task-specific and talent updates occur only for tasks near the attempted task, which implies a task-sequence problem in which the initial task constrains subsequent task choices. Rising talent rewards and penalty stemming from a rising scale economy\nmotivate young workers to choose a more talent-demanding task, raise the failure rate (i.e., the probability of the updated talent being lower than the exit threshold), and concentrate income gains in a diminishing fraction of high-talent workers. Rising talent rewards and penalty also increase the share of young workers subject to binding minimum currentincome constraints, thus increasing the dispersion of tasks among young workers. The model sheds light on the rising stratification of careers among young workers and the rising polarization of the residual labor income distribution (i.e., the labor income distribution controlling for observable worker characteristics such as education and age). Keywords: career track; talent reward; talent uncertainty Fulltext is available at external website.
Talent rewards, talent uncertainty, and career tracks

I present a model in which (1) a more talent-demanding task increases both rewards for high talent and the penalty for low talent due to a greater fixed cost of production, and (2) individual talent ...

Jeong, Byeongju
Národohospodářský ústav, 2020

Do women face a glass ceiling at home? The division of household labor among dual-earner couples
Lichard, Tomáš; Pertold, Filip; Škoda, S.
2020 - English
In this paper we ask how the division of household labor varies across heterosexual dual-earner couples with different relative wages with a focus on differences between Southern and Western Europe. Using the EU Statistics on Income and Living Conditions we first show that high income married or cohabiting women do twice as much housework as single women in Southern Europe. Further, their time spent in household production relative to their spouses’ time in Southern Europe is the same regardless of their relative wages, while in Western Europe we find positive elasticity of substitution in household production with respect to relative wages. We thus present positive evidence for the presence of a “second-shift” that women face in Southern Europe, which may stem from regional gender norms. Our findings hold after instrumenting for relative wages using the relative wages of similar socio-economic groups in other countries. Keywords: household production; division of labor; gender gap Fulltext is available at external website.
Do women face a glass ceiling at home? The division of household labor among dual-earner couples

In this paper we ask how the division of household labor varies across heterosexual dual-earner couples with different relative wages with a focus on differences between Southern and Western Europe. ...

Lichard, Tomáš; Pertold, Filip; Škoda, S.
Národohospodářský ústav, 2020

Intra-industry transfer of information inferred from trading volume
Brushko, Iuliia; Ferris, S. P.; Hanousek, Jan; Trešl, Jiří
2020 - English
This study examines the responsiveness of trading volume to a firm’s earnings announcements. We find that the volume and earnings surprise information generated at the first earnings announcement within an industry help to explain the stock returns of the non-announcing firm. Specifically, it explains their equity performance at the time of the first industry announcement and then again after their own earnings announcement. These results provide novel insights into how earnings announcements contain both firm specific as well as industry information that is value relevant for investors. Keywords: intra-industry; earnings announcement; earnings surprise Fulltext is available at external website.
Intra-industry transfer of information inferred from trading volume

This study examines the responsiveness of trading volume to a firm’s earnings announcements. We find that the volume and earnings surprise information generated at the first earnings announcement ...

Brushko, Iuliia; Ferris, S. P.; Hanousek, Jan; Trešl, Jiří
Národohospodářský ústav, 2020

Optimal menu when agents make mistakes
Mikhalishchev, Sergei
2020 - English
This paper studies a welfare maximization problem with heterogeneous agents. A social planner designs a menu of choices for agents who misperceive either the properties of options or their own preferences. When agents misperceive the true properties of alternatives, it is optimal to limit a menu when the probability of a mistaken choice is moderately high. Additionally, it could be optimal to construct the menu with more distinct alternatives. However, when agents misperceive their own tastes, it is optimal to limit choice only when agents choose randomly, and to propose alternatives that are more similar when there is a greater probability of agents making a mistake. Keywords: discrete choice; optimal menu; bounded rationality Fulltext is available at external website.
Optimal menu when agents make mistakes

This paper studies a welfare maximization problem with heterogeneous agents. A social planner designs a menu of choices for agents who misperceive either the properties of options or their own ...

Mikhalishchev, Sergei
Národohospodářský ústav, 2020

Avoiding root-finding in the Krusell-Smith algorithm simulation
Bakota, Ivo
2020 - English
This paper proposes a novel method to compute the simulation part of the Krusell-Smith (1997, 1998) algorithm when the agents can trade in more than one asset (for example, capital and bonds). The Krusell-Smith algorithm is used to solve general equilibrium\nmodels with both aggregate and uninsurable idiosyncratic risk and can be used to solve bounded rationality equilibria and to approximate rational expectations equilibria. When applied to solve a model with more than one financial asset, in the simulation, the standard algorithm has to impose equilibria for each additional asset (find the market-clearing price), for each period simulated. This procedure entails root-finding for each period, which is computationally very expensive. I show that it is possible to avoid this rootfinding by not imposing the equilibria each period, but instead by simulating the model without market clearing. The method updates the law of motion for asset prices by using Newton-like methods (Broyden’s method) on the simulated excess demand, instead\nof imposing equilibrium for each period and running regressions on the clearing prices. Since the method avoids the root-finding for each time period simulated, it leads to a significant reduction in computation time. In the example model, the proposed version\nof the algorithm leads to a 32% decrease in computational time, even when measured conservatively. This method could be especially useful in computing asset pricing models (for example, models with risky and safe assets) with both aggregate and uninsurable\nidiosyncratic risk since methods which use linearization in the neighborhood of the aggregate steady state are considered to be less accurate than global solution methods for these particular types of models. Keywords: portfolio choice; heterogeneous agents; Krusell-Smith Fulltext is available at external website.
Avoiding root-finding in the Krusell-Smith algorithm simulation

This paper proposes a novel method to compute the simulation part of the Krusell-Smith (1997, 1998) algorithm when the agents can trade in more than one asset (for example, capital and bonds). The ...

Bakota, Ivo
Národohospodářský ústav, 2020

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