Results for “corporate tax” 239 found
My Conversation with Raj Chetty
Yes, the Raj Chetty. Here is the transcript and podcast. As far as I can tell, this is the only coverage of Chetty that covers his entire life and career, including his upbringing, his early life, and the evolution of his career, not to mention his taste in music. Here is one bit:
COWEN: Now your father, he’s a well-known economist, and he studied econometrics with Arnold Zellner at University of Wisconsin. At what age did he start talking to you about Bayesian econometrics?
CHETTY: [laughs]
COWEN: Which is one of his fields, right?
CHETTY: That’s right, my dad did a lot of early work in Bayesian econometrics with Arnold Zellner, and the academic environment was something I grew up with since I was a kid. I’m the last person in my family to publish a paper. My sisters are also in academia on the medical and bio side. Whether it’s statistics or thinking about scientific questions or thinking about how to change things in the world, that’s the environment in which I grew up from the youngest of ages.
We also discuss his famous papers on kindergarten teachers, social mobility, and the other topics he is best known for working on, including tax salience and corporate dividends. My favorite part is where Chetty explains what I call “the Raj Chetty production function,” namely why he has been part of so many very successful papers, but that is hard to excerpt. There is also this:
COWEN: In music, the group the Piano Guys, speaking of Mormons. Overrated or underrated?
CHETTY: Underrated. I love the Piano Guys.
COWEN: Why?
CHETTY: I think the Piano Guys are great in terms of doing renditions of popular songs.
COWEN: Not too triumphalist? Do you mean the major chords?
CHETTY: Maybe in some cases, but I like them.
COWEN: Bhindi or okra. Overrated or underrated?…
Self-recommending, if there ever was such a thing.
The election of Trump and the stock market: further and more specific results
There is a new NBER paper on this topic by Alexander Wagner, Richard J. Zeckhauser, and Alexandre Ziegler, here is the abstract:
The election of Donald J. Trump as the 45th President of the United States of America on 11/8/2016 came as a surprise. Markets responded swiftly and decisively. This note investigates both the initial stock market reaction to the election, and the longer-term reaction through the end of 2016. We find that the individual stock price reactions to the election – that is, the market’s vote – reflect investor expectations on economic growth, taxes, and trade policy. Heavy industry and banking were relative winners, whereas healthcare, medical equipment, pharmaceuticals, textiles, and apparel were among the relative losers. High-beta stocks and companies with a hitherto high tax burden benefited from the election. Although internationally-oriented companies may profit under some plans of the new administration, several other arguments suggest a more favorable climate for domestically-oriented companies. Investors have found the domestic-favoring arguments to be stronger. While investors incorporated the expected consequences of the election for US growth and tax policy into prices relatively quickly, it took them more time to digest the consequences of shifts in trade policy on firms’ prospects.
Having read through the paper, this does not to me look mainly like a shift from consumers (domestically-oriented and retail stocks are doing well enough). It is closer to “companies overall benefit from greater wealth creation, though some will benefit considerably more than others, with some trade worries built in.” The tax component is significant.
Again, the market is often wrong, but this is at the very least a…um…”public relations problem” for the Democrats. The worse you think Trump is, the worse this problem becomes!
And please, don’t tell me on Twitter about the stock market not predicting your favorite catastrophe from history. That point would not pass through an Intro to Stats course intact.
Monday assorted links
2. Italy accounts for almost a quarter of missing EU VAT revenue.
3. Why whales leap in the air.
4. How Waterstones made its bookstore comeback.
5. Modeled Behavior on school regulation. That all said, I do think those costs need to be weighed against the forgone innovation from overly strong, legally sanctioned accreditation standards.
6. 60-0 at Go.
7. Transcript of Posen and Furman on the border adjustment tax. Others too, lots at that link.
Thursday assorted links
1. English has 3,000 words for being drunk.
2. “Johnny Depp spent $3 million to blast Hunter Thompson’s ashes out of a cannon. He spent $18 million on an 150-foot yacht. He spent $4 million on a failed record label. He spent $30,000 a month on wine, $200,000 a month on private planes, $150,000 a month on round-the-clock security, and $300,000 a month to maintain a staff of 40 people.” Does Johnny Depp love markets or hate markets? Link here.
3. Inspired Media.
4. Manure pile builders understand the Coase theorem. And a better place to urinate, French style.
5. University of Toronto willing to help business scholars and students affected by U.S. restrictions.
6. It seems NFL teams play “too Nash” a set of strategies.
7. And more John Cochrane on the new tax plan. Just maybe these chimps are Girardians.
What is the essence of Trumponomics?
Regionalism, and redistribution through the medium of job creation, says I, in my latest Bloomberg column. Now, I don’t think that will work, given the current configuration of ideas and personnel and the weakness of the procedural in recent times. Still, I think people are underestimating how much the underlying policies pose a potential danger to the redistributive program of the Left. On the border adjustment tax:
As a libertarian-leaning economist, I don’t favor either of those changes, or their combination, but still there is a logic here worth considering. Think of this policy as taxing the consumption of elites and throwing that money, and more, at job creation, in this case through corporate subsidies. It’s a bigger and bolder gamble than just making some marginal adjustments in current transfer payments. In essence Trump has outflanked the left by packaging plans for redistribution of wealth with a revamped mercantilism, combined with a macho mood, media-baiting and incendiary rhetoric about who deserves what. It is an underlying fear of the left that a right-wing-flavored redistribution might prove more popular with voters than the left’s preferred egalitarianism and identity politics.
There are further points, including a discussion of why the Obamacare replacements are not nearly as stupid as they sound. But here is my summary:
I still think Trumponomics won’t work. It is too divisive; it will be applied politically, targeting favorites and enemies, rather than in accord with the dictates of efficiency; it may destroy rather than create jobs on net; and most of all it badly damages the U.S.’s global reach by cooperating less on issues of trade and migration. I think of the program as a whole as cashing in on the capital asset of America’s foreign reputation and redistributing some of those rents to Trump-supporting regions. That is a form of shortsightedness, and a sign of the decay of our republic.
Here is a recent comment to the FT by Peter Navarro:
Mr Navarro said one of the administration’s trade priorities was unwinding and repatriating the international supply chains on which many US multinational companies rely, taking aim at one of the pillars of the modern global economy.
Stay tuned…
As a thinker, Donald Trump is in some ways underrated
President-elect Donald Trump criticized a cornerstone of House Republicans’ corporate-tax plan, which they had pitched as an alternative to his proposed import tariffs, creating another point of contention between the incoming president and congressional allies.
The measure, known as border adjustment, would tax imports and exempt exports as part of a broader plan to encourage companies to locate jobs and production in the U.S. But Mr. Trump, in his first comments on the subject, called it “too complicated.”
“Anytime I hear border adjustment, I don’t love it,” Mr. Trump said in an interview with The Wall Street Journal on Friday. “Because usually it means we’re going to get adjusted into a bad deal. That’s what happens.”
Here is the WSJ piece. I am not suggesting, however, that I favor his preferred alternative or for that matter most of his other policy ideas. By the way, here is Trump on heroes. A willingness to think things through from scratch is in some ways admirable, but dangerous in matters of foreign policy and nuclear weapons, where predictability is at a premium.
And see some related remarks from Conor Sen.
Paul Krugman on tariffs and the trade balance
Here is a long post on those topics, worth a careful read and it contains many good points. But, Nobel Prize in trade or not, I am not convinced by all of it. On his first topic, I do not think a Trump administration will give us a pure VAT, rather I think the final outcome (if there is one), will indeed be more like a tax on (some) imports and various subsidies to exports; Jared Bernstein suggests the same. On the second topic, given that the U.S. dollar is a global reserve currency, I don’t think it has to be the case for model-embedded reasons that “…reduced openness to trade should also inhibit capital flows”, though it is likely the case for broader political economy reasons (if they mess around with your trade, you are more afraid to invest your capital). Krugman’s claim “…trade deficits are always a temporary phenomenon”, while technically correct, represents an odd, sudden conversion (reconversion?) to Don Boudreauxism, and a return to the kind of 2006 analysis/worries that predicted America would see a dollar crisis. Yes, temporary along some time horizon. But is the American trade deficit, which by now has persisted for decades, best and most usefully modeled as something due to flip because of an intertemporal budget constraint? Maybe. But maybe not, as that view has performed extremely poorly in predicting the value of the dollar. (Most of all, it depends on the country, but it’s least likely to be true for America. And what about “dark matter“?) On most days, you’ll find more takers on the intertemporal budget constraint approach to macro over at Minnesota, and no I don’t think the “different models for different questions” trope gets one out of this box. At the macro level, that constraint either kicks in or it doesn’t. Finally, toward the end of the post there is an overestimate of how much an implied dollar depreciation is likely to persist in the forward rate in a manner that would limit investment from abroad. For the USD, predicted movements as embedded in the futures or forward rate are generally quite small relative to movements due to “news”; of course the same isn’t always true for Argentina and other disaster-prone countries.
Here are comments from Brad DeLong.
Saturday assorted links
1. These “world-improving innovations of 2016” seem lame to me.
2. Kasparov on the future of AI.
3. The birthday lecture culture that is German.
4. Good Jared Bernstein post on the new Republican tax plan.
5. What Jacob Levy has been up to.
6. Joyce Appleby has passed away.
7. Actors seek posthumous protection for big-screen resurrections.
Floating exchange rates and tariffs
Not long ago I mentioned that a joint export subsidy and import tax would be offset by an appreciation of the real exchange rate. It’s worth pondering whether such results are the same for fixed and floating rates.
In the simplest model, the choice of exchange rate doesn’t matter. The real terms of trade adjust to the subsidy/tax mix under either regime, with the same final equilibrium.
That said, you might think that goods prices in international trade are nominally sticky in a way that exchange rates are not. Indeed you would be right, noting we don’t have a completely clear idea how much delivery lags and service quality changes sub in for some of (not all) the real price movements.
But there is a subtler difference as well. In a world of floating exchange rates, terms of trade move around more, in real terms, than if exchange rates were fixed. Call it noise, bubbles, or whatever, but sometimes nominal exchange rates have a “mind of their own,” and real exchange rates move much of the way with them.
For that reason, companies that engage in international trade have to be more robust to possible “taxes” — which include unfavorable exchange rate movements — than under the fixed rate regime. As a quick shorthand, I would say those companies need to have more market power to put up with the exchange rate volatility, though you can give the required corporate properties a few different twists, typically involving fixed costs, sunk costs, option values and the like rather than just market power in its simplest conception (it’s complicated.)
In other words, floating exchange rates, especially when there is a historical experience of ongoing real exchange rate volatility, will mean companies are more tariff-robust.
This is one reason why the Trump protectionist talk, while it is 110% bad, and bad for American foreign policy as well, and bad for uncertainty, and bad bad bad bad bad, and sometimes connected to bad bad bad people as well (did I say bad? It’s BAD!), won’t quite have the negative economic impact that many people think.
Think back to the mid-80s, when the USD went from 3.45 Deutschmarks to 1.7 Deutschmarks in what, less than two years’ time? That was the equivalent of a huge tax on Mercedes-Benz as an exporting firm. Did Mercedes like that? No. Did they manage? Well, mostly, sort of. Of course they had a fair amount of market power at the time, they would have less today.
A five percent tariff, relative to the built-in adjustments possible in light of changes in floating exchange rates, is for the most part manageable, at least on narrow economic grounds. Much of that five percent ends up as a tax on the monopoly profits of exporters. You can google and read up on “exchange rate pass-through.”
You will note that some of this argument draws on earlier research by Paul Krugman, though I am not suggesting he necessarily agrees with my application or interpretation; here are his recent remarks.
The foreign policy and presidential signaling and uncertainty-related issues, not the narrow economics, are still the main problem with a five or ten percent trade tax, and they are reason not to go down this route. But it is worth being clear on the economics. The oversimplified statement of the neglected insight here is “floating exchange movements tax trade all the time.”
Saturday assorted links
1. Me on Trump and Carrier on NPR.
2. What does profit repatriation really mean?
3. Is the internet ruining or improving TV?
4. Simmons and Gladwell on the future of football.
5. A very good tweet storm about books and reading.
6. “The average time from enquiry to order is 11 years, and the longest commission in the foundry’s history took 100 years to produce.“
Airport Privatization
Airports in the United States need investment and improvements in operations efficiency and are thus ripe for privatization. Privatization is not a radical concept, around the world today many airports are run by private corporations or in public-private partnerships. In their latest report, The Ownership of Europe’s Airports, the Airports Council International writes:
Today, over 40% of European airports have at least some private shareholders – and these airports handle the lion’s share of air traffic. This year, about 3 out of every 4 passenger journeys will be through one of these airports…it is only a matter of time before fully publically-owned airports become a minority in the EU.
Moreover, even the public airports are typically structured as corporations that must pay their own way:
[Europe’s] airports – be they public or private – are to be run as businesses in their own right, strongly incentivised to continuously improve and underpinned by the principle that users pay a reasonable price to cover the cost of providing the facilities and services that they benefit from. There is no denying the tangible benefits that this approach has brought the EU – significant volumes of investment in necessary infrastructure, higher service quality levels, and a commercial acumen which allows airport operators to diversify revenue streams and minimise the costs that users have to pay – all of which are fundamental requirements to boost air connectivity.
The biggest restriction on airport privatization is that if a state or local government sells an airport it must use all of the proceeds to fund airport infrastructure–which makes the procedure pointless from their point of view. As I mentioned earlier, there is an Airport Privatization Pilot Program (APPP) which lifts this restriction but only if 65% of the air carriers serving the airport agree to the privatization. The APP is also slow and includes other restrictions. The Congressional Research Service has a good run down.
[Restrictions] include the need for 65% of air carriers serving the airport to approve a lease or sale of the airport; restrictions on increases in airport rates and charges that exceed the rate of increase of the Consumer Price Index (CPI), and a requirement that a private operator comply with grant assurances made by the previous public sector operator to obtain AIP [Federal] grants. In addition, after privatization the airport will be eligible for AIP formula grants to cover only 70% of the cost of improvements, versus the normal 75%- 90% federal share for AIP projects at publicly owned airports. This serves as a disincentive to privatize an airport, because it will receive less federal money after privatization.
The airlines are lukewarm on privatization. Although they would benefit from better operational efficiency, they are big recipients of the explicit and implicit subsidies and they use their effective control over airports to limit competition.
The main danger of privatization is that of monopoly power–it wouldn’t be a good idea to sell all of a city’s airports to the same corporation, for example. Thus, privatization should be accompanied by steps to increase competition. There are over 5000 non-commercial airports in the United States and some of the “National” General Aviation Airports already serve international flights (mainly corporate jets) and could be expanded to allow more commercial traffic.
Privatization should not be thought of as just a transfer of ownership but rather as a changing of the rules of the game to allow for many more private airports.
Addendum: Michael Sargent at Heritage has a useful and detailed plan. Robert Poole and Chris Edwards from Cato offer a good overview.
Why has it taken so long for a China crash to arrive?
This is an underdiscussed question, and it is the topic of my latest Bloomberg column. Here is one part of the argument:
Unlike the U.S., China is full of large, state-owned enterprises. That gives the Chinese government the ability to manipulate a large stock of asset wealth. The U.S. government is more dependent on flows of revenue from taxation and the private sector.
When bad economic news arrives, the Chinese government can instruct the companies it owns to spend wealth to keep workers employed. Think of this as using the companies to conduct fiscal policy rather than laying off workers, building another bridge or erecting another steel plant. Whereas Western economies take an immediate hit to income in bad times, the Chinese have been converting this into a hit to wealth, insulating themselves from major downturns.
That can be useful, but it also can be abused. Indeed, China has ended up with too few bankruptcies and significant excess capacity and lots of low-performing firms.
One problem comes when the stocks of corporate wealth are nearly exhausted, or perhaps sooner when managers of state-owned companies rebel against this policy and demand alternatives. Another problem is that too many low-productivity firms survive. So when the dramatic Chinese recession finally does come, it will be without the protective buffers of wealth that the U.S. had during its financial crisis.
The wealth vs. income distinction still does not receive enough attention in macro. There is much more at the link. I also consider under what conditions China might avoid a crack-up altogether, namely if the forces of catch-up keep on validating the ongoing malinvestments. Forecasting China is more like judging a race than just identifying a bubble. Note that “At least by traditional metrics, the Chinese system has showed signs of trouble and excess capacity at least since 2006.”
Saturday assorted links
1. Review of the new Richard Posner biography.
3. The blind astronomer of Nova Scotia.
And this:
A couple of months ago, Patrick Collison came to me with another crazy idea. He said Stripe wanted to make “simple incorporation as a service”, so that any entrepreneur worldwide could have a corporate entity and a bank account spun up about as easily as they could get an EC2 server.
This idea is crazy. I’ve incorporated four companies and opened business bank accounts for all of them. The most recent required over a hundred pages of documentation and six weeks of negotiation to assuage a risk department’s concerns about foreign tech entrepreneurs. (Thanks, Bitcoin.) You’re not supposed to be able to do this.
Stripe did it. With crazy speed: the project was in beta within 11 weeks of conception. It can take that long to form a single company in much of the world. Stripe solved the problem like an engineer: establishing one company requires an annoying amount of form-filling so instead of buckling down and doing it you just make a company-establishing web application and abstract away form-filling for all time.
And they’re crazily ambitious about where it ends up: not simply incorporating companies, but eating all of the crufty back office work which distracts Internet businesses from getting more real products into the hands of real customers. Payments, contracts, invoices, bookkeeping, incorporation, taxes, etc etc, all things you have to do even if what you’re actually doing is selling bingo cards to elementary schoolteachers.
Crazy! But stay tuned…
*The Nordic Gender Equality Paradox*
That is the new and quite interesting book by Nima Sanandaji. The main point is that there are plenty of Nordic women in politics, or on company boards, but few CEOs or senior managers. In fact the OECD country with the highest share of women as senior managers is the United States, coming in at 43 percent compared to 31 percent in the Nordics. More generally, countries with more equal gender norms do not have a higher share of women in senior management positions. Within Europe, Bulgaria does best and other than Cyprus, Denmark and Sweden do the worst in this regard.
One reason for the poor Nordic performance at higher corporate levels is high taxes, which limits the amount of household services supplied through markets. If it is harder to hire someone to do the chores, that makes it harder for women to invest the time to climb the career ladder. Generous maternity leave policies may encourage women to take off “too much” time, or at least this is suggested by the author. A history of communism is also strongly correlated with women rising to the top in business and management; this may stem from a mix of relatively egalitarian customs and a more general mixing up of status relations in recent times and a turnover of elites.
I don’t find this book to be the final word, and I would have liked a more formal econometric treatment. It is nonetheless a consistently interesting take which revises a lot of the stereotypes many people have about the Nordic countries as being so absolutely wonderful for gender egalitarianism in every regard.
Here is the book’s website, from Timbro (a very good group), I don’t yet see it on Amazon.
Why Germany doesn’t like negative interest rates
The business models of German financial institutions depend critically on the presence of positive nominal interest rates. The International Monetary Fund noted in its latest Financial Stability Report that the pre-tax profits of German and Portuguese banks are most affected by negative rates.
German life insurers are also vulnerable. They have to guarantee a minimum rate of return, which is now 1.25 per cent a year. This is hard to do when the yield of the 10-year German government bond is only 0.13 per cent. Germany and Sweden are the two EU countries where life insurers face the biggest gap between market rates and guaranteed rates. To achieve the promised returns, the insurers have to take on more risk, for example by buying corporate bonds or tranches of complex financial products. If, or rather when, the next financial crisis arrives and triggers a change in the valuation of these assets, we may find that sections of the German financial sector are insolvent.
Of the German banks, the Sparkassen and the mutual savings banks are most affected. They are classic savings and loans outlets in that they lend locally and fund themselves through savings. Credit demand is more or less fixed. So when savings exceed loans, as they now do in Germany, the banks deposit their surplus with the ECB at negative rates — known as “penalty rates” in Germany. They cannot offset the losses by cutting interest rates on savings accounts because of the zero lower bound. Savers would switch from accounts to cash in safe deposit boxes.
That is from the always superb Wolfgang Münchnau at the FT. Regulatory and federalistic issues are another and underdiscussed reason why the eurozone is not an optimal currency area.