The Three Hurdles of Tax Planning: How Business Context,Aims of Tax Planning,and Tax Manager Power Affect Tax Expense

The question of why some companies pay fewer taxes than others is a widely investigated topic of interest. One of the well‐known explanations is a phenomenon called tax avoidance. We develop a grounded theory model of influences on corporate tax planning through a series of 19 in‐depth German tax expert interviews. Our research identifies three independent hurdles in the tax planning process, which can help to explain different levels of tax expense across companies. Those three hurdles sequentially address which tax planning methods are available (defined by business characteristics), desirable (given via aims of tax planning), and implementable (determined by tax manager power). A large part of previous research has estimated the influence of firm characteristics, which we incorporate in the broader term business characteristics, on tax expense, while the other influences that we identify have largely been left “out of the equation.” In the light of the current public debates on tax avoidance, we reveal two important findings: First, we find that companies vary widely in the aggressiveness of their aims of tax planning, which contrasts sharply with the picture often drawn by undifferentiated media reports. Second, tax managers can assume very different levels of power in their organization. The implementation of desirable tax planning methods varies depending on this level of tax manager power. In conclusion, our three‐hurdle grounded theory provides generalizable insights into important influences on corporate tax planning which help to explain the observed variation in tax expenses across firms.     

Search practices in the early phase of the innovation process and ambidexterity: testing a sample of high-tech companies

This paper investigates the relationship between the practices put in place by firms to search for local and distant knowledge, ambidexterity and firms’ performances; attention is then focused on analysing the antecedents and consequences of ambidexterity in the search phase of the innovation process. Structural equation modelling has been used in order to test these hypotheses in a sample of Italian high-tech companies. Results of the study show a positive impact of the practices used by firm to search for distant knowledge on both ambidexterity and firms’ performances as well. Implications of these results are discussed in the paper.     

Unemployment duration and unemployment insurance: a comparative analysis based on Scandinavian micro data

Based on pooled register data from Norway and Sweden, we findthat differences in unemployment duration patterns reflect dissimilaritiesin unemployment insurance (UI) systems in a way that convincinglyestablishes the link between economic incentives and job searchbehaviour. Specifically, UI benefits are relatively more generousfor low-income workers in Sweden than in Norway, leading torelatively longer unemployment spells for low-income workersin Sweden. Based on the between-countries variation in replacementratios, we find that the elasticity of the outflow rate frominsured unemployment with respect to the replacement ratio isapproximately one in Norway and 0.5 in Sweden.     

Dynamically stable preferences

In the framework of dynamic choice under uncertainty, we define dynamic stability as a combination of two assumptions prevalent in the literature: dynamic consistency and the requirement that updated preferences have the same “structure” as ex ante ones. Dynamic stability also turns out to be a defining characteristic of the multiplier preferences of Hansen and Sargent (2001) [24] within the scope of variational preferences. Generally, for any class of invariant preferences, dynamic stability is shown to be connected to another independent property — consequentialism.     

Finance, governments, and trade

We study how financial transactions may respond to exogenous variation in trade opportunities not only directly, but also through policy channels. In more open economies, governments may find it more difficult to fund and enforce public policies that substitute private financial transactions, and more appealing to deregulate financial markets. We propose a simple theoretical model of such policy-mediated relationships between trade and financial development. Empirically, we document in a country panel dataset that, before the 2007–2008 crisis, financial market volumes were robustly and negatively related to the share of government consumption in GDP in regressions that also include indicators of financial regulation and trade openness, and we seek support for a causal interpretation of this result in instrumental variable specifications.     

Willingness to Pay to Reduce Mortality Risks: Evidence from a Three-Country Contingent Valuation Study

Valuing a change in the risk of death is a key input into the calculation of the benefits of environmental policies that save lives. Typically such risks are monetized using the Value of a Statistical Life (VSL). Since the majority of the lives saved by environmental policies are those of older persons, there has been much recent debate about whether the VSL should be lower for the elderly to reflect their fewer remaining life years. We conducted a contingent valuation survey in the UK, Italy and France designed to answer this question. The survey was administered in these three countries following a standardized protocol. Our results suggest that the VSL is €1.022 million or €2.264 million, depending on whether we use median or mean WTP. The VSL is not significantly lower for older persons, but is higher for persons who have been admitted to a hospital or emergency room for cardiovascular and respiratory problems. Income is positively and significantly associated with WTP. The income elasticities of the WTP increase gradually with income levels and are between 0.15 and 0.5 for current income levels in EU countries. We use the responses to the WTP questions to estimate the value of an extension in remaining life expectancy. The value of a loss of one year’s life expectancy is €54,000 or €163,000.     

Earthquake effects on tourism in central Italy

This paper proposes an approach to economic assessment of the impact on tourist flows of the earthquake that hit the Umbria region in Central Italy on September 26, 1997. Local arrivals in Assisi fell drastically the month following the main shock, compared to the same month of the previous year. The event study methodology, frequently applied in finance, is employed to evaluate the statistical relevance of the shock over time and space. A further and straightforward application of the event study analysis assesses the substantial amount of loss between October 1997 and June 1998 due to the drop of tourism business.     

Information Leakage Prior to Company Issued Guidance

We find that information leakages prior to public guidance issued by company management exist even after Regulation Fair Disclosure (FD), and are more pronounced when characteristics of the firm, the guidance, or the industry reflect higher levels of information asymmetry. Since public guidance is only partially leaked, this information leakage can be used to anticipate the information content of the impending public guidance. We simulate a trading strategy based on the preguidance leakage in the period after Regulation FD, which suggests that information leakage is an effective signal of the information content within impending public guidance.     

Optimal exercise of American put options near maturity: A new economic perspective

Review of Derivatives Research - The critical price $$S^{*}\left( t\right) $$ of an American put option is the underlying stock price level that triggers its immediate optimal exercise. We provide...