Taxable treatment of the subsistence level of income in German Natural Law

Natural Law has influenced German tax theories up to the present day. It has also influenced the request for the subsistence level exemption and the granting of a basic allowance, which only developed their full persuasiveness when derived from Natural Law. This paper shows that Natural Law tax theory (mid 1600s to early 1800s), based the subsistence level tax exemption on the right to live, the individualistic state contract theory and the ability-to-pay principle. It also reveals that Adam Smith's view regarding ability-to-pay as a basis for taxation was already contained in British Natural Law and in older German traditions.     

Tax-related mandatory risk factor disclosures,future profitability,and stock returns

Review of Accounting Studies - Prior research finds that mandatory risk factor disclosures are informative in that they increase investors’ assessments of the volatility of a firm’s...     

The Elasticity of Taxable Income in New Zealand*

This paper reports estimates of the elasticity of taxable income with respect to the net‐of‐tax rate for New Zealand taxpayers. The relative stability of the New Zealand personal income tax system, in terms of marginal rates, thresholds and the tax base, provides helpful conditions for deriving these estimates. The elasticity of taxable income was estimated to be substantially higher for the highest income groups. Changes in the timing of income flows for the higher income recipients were found to be an important response to the announcement of a new higher rate bracket. The marginal welfare costs of personal income taxation were consistent across years, being relatively small for all but the higher tax brackets. For the top marginal rate bracket of 39 per cent, the welfare cost of raising an extra dollar of tax revenue was estimated to be well in excess of a dollar. Implications of the findings are that: disincentive effects of high top marginal rates can be substantial even when labour supply responses are small; the welfare costs of increases in top marginal tax rates can be high; and announcement effects of tax policy changes can lead to considerable income shifting between time periods.     

Time-varying stock returns and labor income risks in the US and UK

I propose and estimate conditional asset pricing models where the risk premiums of the markets are related to the conditional covariance of the markets with labor income growth within and across countries and the volatility of the markets are related to the shocks and interactions of stock returns and labor income growth. I document that the risk premiums for the US and UK stock markets are more related to the conditional covariance of returns with the labor income growth within countries than across countries. I also find significant interactions of volatilities between stock returns and labor income within countries but not across countries. The results are consistent with the hypothesis that prices of domestic stocks are determined to a greater extent by stochastic discount factors of domestic investors than foreign investors and vice versa.     

Linking wealth and labour income with stock returns and government bond yields

In this paper, I assess the predictive ability of the ratio of asset wealth to labour income for both stock returns and government bond yields. Using data for 16 Organization for Economic Co-operation and Development (OECD) countries, I show that when the wealth-to-income ratio falls, investors demand a higher stock risk premium. A similar link can be found for government bond yields when agents behave in a non-Ricardian manner or see government bonds as complements for stocks. In contrast, when investors display a Ricardian behaviour or perceive stocks and government bonds as good substitutes, a fall in the wealth-to-income ratio is associated with a fall in future bond premium.     

Tax Responses at Low Taxable Incomes: Evidence from Germany*

The desirability of a particular tax system depends on how different taxpayers react to it. Exploiting the personal allowance threshold and detailed German tax administration data, this paper examines responses at low taxable incomes to extend previous findings. Taxpayers bunch at the allowance threshold, and more so with non-wage income. Unlike in other studies, wage earners also bunch, at least if they file a tax return, while incomes gross of deductions do not. Deductions account for a sizeable share of the sharp bunching mass of taxpayers with non-wage income. A machine learning analysis identifies which deduction items predict such sharp bunching. The pattern of results suggests that local intensive-margin real responses induce moderate deadweight loss.     

The current account and stock returns

In this paper, I use stock return data to test an intertemporal model of the current account. I find that the model performs well in three countries: the U.K., Canada, and Japan. Hall [Hall, R.E., 1978. Stochastic implication of the life cycle-permanent income hypothesis: theory and evidence. J. Polit. Econ. 86 (6), 971–987] points out that because stock price predicts the future state of the economy, it predicts consumption. Assuming that consumption depends on permanent income, my empirical finding indicates that a representative agent smoothes consumption based on stock market information. In other words, stock market returns yield information about permanent income.     

Correlations between stock returns and bond returns: income and substitution effects

We attempt to better understand the varying correlations between stock and bond returns across countries and over sample periods using international data. The observation is that there are two forces that affect the correlation between stock and bond returns. The force that drives a positive correlation is identified as the income effect. The force that drives a negative correlation is identified as the substitution effect. In combination, the two effects help determine the actual correlation between stock and bond returns. We contribute to the literature by proposing an empirical method, the structural vector autoregression (VAR) identification method, to identify the two—income and substitution—effects and to measure the relative importance of the two effects that determine the actual net relation between the two asset returns. We further provide some evidence that the income and substitution effects are related to, among other things, the size of the financial market, the growth and volatility (risk) of the economy, and the business cycle over time. In addition, the framework of the income and substitution effects helps us better understand the automatic stabilizing effects of the dynamic optimal asset allocation during business cycles.     

人寿保险公司应税所得确认模式的国际比较

目前,世界上主要有三种确认人寿保险公司应税所得的模式,即以会计报告为基础的主流模式、以英国为代表的I-E模式、以新西兰为代表的I-E U模式。在不同模式的选择上不存在一个真理性的客观标准,从不同目的出发、在不同的约束条件和各具差异的税制传统下存在不同的选择。     

Do stock splits signal future profitability?

This study examines whether stock split announcements contain information content about future profitability, measured in terms of future earnings change, future earnings, or future abnormal earnings. We find that the split announcement year has the highest earnings change and the earnings change declines substantially over the subsequent five years. Our empirical results show little evidence that stock splits are positively related to future profitability. In fact, stock splits are in general negatively related to future profitability in subsequent years after the announcement, except for dividend-paying firms with a split factor less than 0.5. This negative relation holds regardless of future profitability measure. Therefore, our empirical finding suggests that stock splits are not useful signals of a firm’s future earnings prospects. JEL Classification G30     

Firm profitability and expected stock returns: Evidence from Latin America

Despite their higher valuation ratios, larger size, and higher investment needs, profitable firms outperform, in both raw and risk-adjusted returns, unprofitable firms in Latin America. The positive effect of firm profitability on stock returns is pervasive in univariate and bivariate sorts, panel regressions, across sub-regional markets, and among small and large stocks. A five-factor model that includes market, size, distress, profitability, and investment factors prices profitability portfolios better than other popular factor models. Five-factor alphas of profitability portfolios tend to be lower and less statistically significant, both individually and collectively, than alphas from other three widely-used pricing models.     

Fixed income excess returns and time to maturity

The paper explores the relationship between fixed income excess returns and maturity differentials. In a quest to quantify this relationship, we go beyond testing the monotonicity of excess returns, by exploring the functional form of excess returns' dependence on the maturity differential. Essentially, the paper tests whether the monotonicity of excess returns is linked to maturity differential in a linear or nonlinear fashion. The findings suggest that a quadratic relationship fits the data adequately, and therefore imply that excess returns exhibit sensitivity both to maturity differential and also to their location on the yield curve. Thus, although excess returns increase monotonically with maturity they do so at a decreasing rate.     

Alternative profitability measures and cross-section of expected stock returns: international evidence

Review of Quantitative Finance and Accounting - This paper provides an extensive international analysis of the cross-sectional return predictive power of a variety of firm-level profitability...     

Understanding analysts' use of stock returns and other analysts' revisions when forecasting earnings

We investigate analysts' use of stock returns and other analysts' forecast revisions in revising their own forecasts after an earnings announcement. We find that analysts respond more strongly to these signals when the signals are more informative about future earnings changes. Although analysts underreact to these signals on average, we find that analysts who are most sensitive to signal informativeness achieve superior forecast accuracy relative to their peers and have a greater influence on the market. The results suggest that the ability to extract information from the actions of others serves as one source of analyst expertise.     

The option to stock volume ratio and future returns

We examine the information content of option and equity volumes when trade direction is unobserved. In a multimarket asymmetric information model, equity short-sale costs result in a negative relation between relative option volume and future firm value. In our empirical tests, firms in the lowest decile of the option to stock volume ratio (O/S) outperform the highest decile by 0.34% per week (19.3% annualized). Our model and empirics both indicate that O/S is a stronger signal when short-sale costs are high or option leverage is low. O/S also predicts future firm-specific earnings news, consistent with O/S reflecting private information.     

Residual income past and future

This article considers the strengths and weaknesses of value-based management approaches based upon the residual income (RI) concept as the basis for incentive-based reward systems. The objective of these systems is to encourage optimal corporate investment selection by divisional managers and to encourage them to act as if they were independent owners of their divisions sharing a proportion of all losses and all profits. Part 1 of the article considers these systems in the light of the earlier RI debate in the 1960s and 1970s which raised a number of problems applicable to today's value-based systems. It also considers recent attempts to solve, perhaps, the major problem generated in the earlier debate—how to ensure that a single period RI is congruent with project net present value. Part 2 of the article provides a brief survey of current research into incentive systems based on RI. It then presents a possible programme of further research emphasising relevant research in finance theory.     

Using residual income to refine the relationship between earnings growth and stock returns

We use residual income (RI) to decompose earnings growth into growth in RI, growth in invested capital and other components and use this decomposition to explain stock returns. Our approach provides a significant increase in explanatory power vis-à-vis a regression of returns on levels and changes in earnings. While the market values growth in RI more than growth in invested capital, it still undervalues growth in RI and overvalues growth in invested capital. Earnings growth from growth in RI is more persistent, while earnings growth from growth in invested capital is more likely to reverse. Future returns are positively associated with growth in RI and negatively associated with growth in invested capital. A trading rule based on these findings generates significant hedge returns that persist after controlling for known risk factors. Hence, RI, a measure long recommended by accountants, allows investors to differentiate and evaluate different sources of earnings growth.     

Climate transition risk,profitability and stock prices

We investigate whether climate transition risk is reflected in the financial performance and cross-section pricing of publicly-traded European and US firms. Using a firm-level carbon risk score (CRS) that assesses the vulnerability of a firm's value to transition to a low-carbon economy, we find that firms with the lowest transition risk exposures perform better financially, and that European firms are more sensitive to transition risks than US firms. We also find that stocks with low exposure to transition risk offer greater returns to investors, consistent with the fact that stock prices of firms do not adequately reflect underlying climate transition risk. Relative financial performance of less vulnerable firms and underreaction effects to transition risk decreased after COP21.     

Insider trading and future stock returns in firms with concentrated ownership levels

We investigate the relationship between insider trading and stock returns in firms with concentrated ownership. To this end, we employ data from East Asian countries which span the period January 2003 to May 2012. Consistent with the previous literature, we find a significantly negative relation between the selling activity of insiders and stock returns. However, contrary to studies which focus on highly developed markets, we find that the buying activity of insiders is also inversely related to future stock returns. Our analysis shows that top directors with higher ownership levels drive this result, suggesting that the trading activity of insiders is not always associated with profit-making motives and can be explained by their level of ownership. Furthermore, we demonstrate that a trading strategy which focuses solely on purchases made by top directors with high ownership levels yields negative returns. The paper has important implications for outside investors who mimic the trading activity of insiders with the aim to realise profits.