nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2008‒12‒07
five papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Return to basics: are you properly calculating tax shields? By Ignacio Velez-Pareja
  2. The effect of capital gains taxation on home sales: evidence from the Taxpayer Relief Act of 1997 By Hui Shan
  3. Fiscal Implications of Pension Reforms in Italy By Agar Brugiavini; Franco Peracchi
  4. Reflections on the International Dimensions and Policy Lessons of the U.S. Subprime Crisis By Reinhart, Carmen
  5. From Capital Flow Bonanza to Financial Crash By Reinhart, Carmen; Reinhart, Vincent

  1. By: Ignacio Velez-Pareja
    Abstract: Everybody uses tax shields when calculating the Weighted Average Cost of Capital (WACC). The textbook formula includes the tax shield with the (1-T) factor affecting the contribution of debt to the WACC. Tax shields are a strange mix of accounting and accrual related to WACC that relies on market values. In this short work we show some limitations and care that have to be taken when using tax shields. We illustrate these ideas with simple examples.
    Date: 2008–11–23
  2. By: Hui Shan
    Abstract: The Taxpayer Relief Act of 1997 (TRA97) significantly changed the tax treatment of housing capital gains in the United States. Before 1997, homeowners were subject to capital gains taxation when they sold their houses unless they purchased replacement homes of equal or greater value. Since 1997, homeowners can exclude $500,000 of capital gains when they sell their houses. Such drastic changes provide a good opportunity to study the lock-in effect of capital gains taxation on home sales. Using ZIP-code level housing price indexes and sales on single-family houses data from 1982 to 2006 in 16 affluent towns within the Boston metropolitan area, this paper finds that TRA97 reversed the lock-in effect of capital gains taxes on houses with low and moderate capital gains. However, TRA97 may have generated an unintended lock-in effect on houses with capital gains over the maximum exclusion amount. In addition, this paper exploits legislative changes in capital gains tax rate to estimate the tax elasticity of home sales during the post-TRA97 period.
    Date: 2008
  3. By: Agar Brugiavini (Department of Economics, University Of Venice Ca’ Foscari); Franco Peracchi (Faculty of Economics, Tor Vergata University, Roma)
    Abstract: In this paper, we contribute to the current debate on the Italian pension system by analyzing the impact of social security reforms, in terms of both budgetary implications and distributional effects. This is done by simulating the effects of three hypothetical reforms, plus the effects of the 1995- reform of the Italian pension system (the so-called Dini reform). Our approach relies on the use of a semi-structural econometric model to predict retirement probabilities under different policy scenarios, so as to properly take into account the behavioral effects of the reforms. On the basis of the estimated retirement model, we develop a complete accounting exercise which includes not only changes in gross future benefits due to policy changes, but also changes in social security contributions, income taxes and value added taxes. Thus, our results provide not only estimates of the workers’ gains or losses, but also an exhaustive evaluation of the gains and losses for the government budget. We find that the reforms, particularly the Dini reform (once fully phased in), have a substantial impact on individuals’ retirement decisions and their net social security wealth, as well as substantial gains for the government finances.
    Keywords: Social security budget, early retirement, fiscal effects of pension reforms
    JEL: H55 J21 J26
    Date: 2008
  4. By: Reinhart, Carmen
    Abstract: The financial press has often characterized the 2007-2008 United States subprime mess as a new breed of crisis. Indeed, this view often points to the international repercussions of the U.S.-based crisis as evidence that the globalization of financial portfolios has introduced new channels for spillovers that were never present before. At present, there is also considerable confusion in academic and policy circles as to whether the shaky predicament of the global economy owes to contagion or to shared (common) economic fundamentals. I address these issues, in turn, and discuss some of the questions, as regards regulation of financial institutions, that the current crisis has raised.
    Keywords: financial crisis;subprime;international
    JEL: N1 N2
    Date: 2008–03
  5. By: Reinhart, Carmen; Reinhart, Vincent
    Abstract: The standard pattern: capital flows into the new “hot” nation, but then stop or reverses forcing painful adjustment. This column presents research based on such episodes from 181 nations during 1980-2007 and for a subset of 66 nations for the 1960-2007 period. If the pattern of the past few decades holds true, emerging market economies may be facing a darkening future.
    Keywords: international capital flows; crses procyclical polices
    JEL: N1
    Date: 2008–08

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