EVADING TAXES BY SELLING FOR CASH

West Germany's...high wages and...associated costs that burdenemployers...provide an incentive to go "black". A skilled buildermight take home DM12 an hour net of tax, but the homeowner willpay DM56 once income taxes, social security, VA T and administrativecharges have been added on. There is much scope for splittingthe difference her     

A Policy for Debt-Deflation

As recovery begins, the level of outstanding debt and the weakness of the housing market remain a major constraint on consumer spending. In this invited article Gordon Pepper sets out what is the appropriate policy repsonse to the problem of debt-deflation. In the Briefing Paper on page 39 Alistair Milne provides a detailed background.     

Transparency and Liquidity: A Study of Block Trades on the London Stock Exchange under Different Publication Rules

This article examines whether reducing a market's transparency, by delaying the publication of prices for block trades, has any impact on liquidity. The analysis uses a sample of 5987 blocks from the London Stock Exchange that cover three different publication regimes: immediate (1987/88), 90 minutes (1991/92), and 24 hours (1989/90). Delaying publication does not affect the time taken by prices to reach a new level, which is rapid under all regimes. Spreads differ across years, but their size relates more closely to market volatility than to speed of publication. There is therefore no gain in liquidity from delayed publication.     

The Equity Accounting Saga in Australia: Cyclical Standard Setting

Equity accounting in Australia has had a long, chequered history. This article examines that history by reference to a succession of six Exposure Drafts, one Statement of Accounting Practice and two Standards issued between 1968 and 1995. We adapt Nobes' (1991, 1992a. 1992b) cycle model of regulation to explain variation in 'standardization' across these documents. Nobes defined 'standardization' to mean the restriction of choice in accounting methods but we modify the concept to allow for measurement rule 'improvements' and changes in required disclosure levels. Nobes' cycle model has four stages: a starting point of varied practice: energy inputs, often crises, drawing attention to the issue at hand: forces opposing and forces in favour of standardization. A cycle- like pattern of variation in standardization emerges in the present context. Potential shortcomings of the cycle model are addressed, including Skerratt and Whittington's (1992) criticisms of Nobes' cycle model. The article extends the literature with respect to a cyclical explanation of the standard setting process. The cycle pattern evident here reflects a slow and incomplete resolution of various conceptual and legal difficulties in regulating equity accounting in Australia.     

RENT SEEKING AND TAX REFORM

Tax reform can either increase or reduce the amount of rent seeking, depending essentially on what is done. If tax reform involved eliminating special treatment of special groups and using the money saved either to lower the general tax rate or to discontinue government activities that most people would be better off without, then it would reduce the amount of rent seeking. Savings may, however, be used to reduce the degree of generally beneficial government activity. This is rather apt to increase the amount of rent seeking in the long run.     

Bank Bonuses and Bailouts

This paper shows that bonus contracts may arise endogenously as a response to agency problems within banks, and analyzes how compensation schemes change in reaction to anticipated bailouts. If there is a risk‐shifting problem, bailout expectations lead to steeper bonus schemes and even more risk taking. If there is an effort problem, the compensation scheme becomes flatter and effort decreases. If both types of agency problems are present, a sufficiently large increase in bailout perceptions makes it optimal for a welfare‐maximizing regulator to impose caps on bank bonuses. In contrast, raising managers' liability can be counterproductive.     

Monetary Policy and Capital Inflow*

Capital inflow has been depicted in the model developed by Pentti Kouri and Michael Porter as being determined exclusively by monetary forces, with GNP entering the equation through its impact on the demand for money. If this is correct, disaggregation of GNP should have little effect on the estimates of response parameters in the model. It is found that replacing GNP by investment and non-investment spending has a significant effect on the estimates, suggesting that capital inflows have direct purposes which are not well represented in a purely monetary model. An attempt is made to construct a money policy equation as the second part of a simultaneous system depicting the interplay of monetary policy and capital inflow. In spite of claims to the contrary, it is found that simultaneous estimation gives results which differ considerably from those of single-equation methods.