Evasion Effects of Changing the Tax Mix*

This study assesses claims that shifting toward greater indirect taxes will reduce evasion, thereby improving the distribution of real net incomes and generating a 'fiscal dividend'. Practical considerations suggest that industry sectors which evade income taxes will also be strongly inclined to evade indirect taxes on their output. A general equilibrium analysis finds that changing the tax mix will have little or none of the claimed anti–evasion or distributional effects. Increased indirect taxes on evaders' consumption purchases will be shifted onto suppliers in the compliant sector. Evaders will end up evading less income taxes but evading more indirect taxes     

Institutional and Legal Context in Natural Experiments: The Case of State Antitakeover Laws

We argue and demonstrate empirically that a firm's institutional and legal context has first‐order effects in tests that use state antitakeover laws for identification. A priori, the size and direction of a law's effect on a firm's takeover protection depends on (i) other state antitakeover laws, (ii) preexisting firm‐level takeover defenses, and (iii) the legal regime as reflected by important court decisions. In addition, (iv) state antitakeover laws are not exogenous for many easily identifiable firms. We show that the inferences from nine prior studies related to nine different outcome variables change substantially when we include controls for these considerations.     

U.S. Real Interest Rates and Default Risk in Emerging Economies

This paper empirically investigates the impact of changes in U.S. real interest rates on sovereign default risk in emerging economies using the method of identification through heteroskedasticity. Policy‐induced increases in U.S. interest rates starkly raise default risk in emerging market economies. However, the overall correlation between U.S. real interest rates and the risk of default is negative, demonstrating that the effects of other variables dominate the anterior relationship.     

The Incredible HOLC? Mortgage Relief during the Great Depression

This paper examines the relief provided by the Home Owners’ Loan Corporation (HOLC), a New Deal program that purchased and refinanced over 1 million distressed residential mortgages. I document that the HOLC paid relatively high prices for its mortgages, most likely in an effort to encourage lender participation and stimulate the housing market. The consequence was that lenders were able to remove poorly performing assets from their balance sheets at attractive prices. While this meant the HOLC’s ability to seek principal reductions was somewhat limited, borrowers still received significant relief through the terms of the HOLC’s more modern and forgiving mortgage contracts.     

NEW CLASSICAL MACROECONOMIC THEORY AND FISCAL RULES: SOME METHODOLOGICAL PROBLEMS

This paper evaluates the theoretical basis of New ClassicalMacroeconomics (NCM) in general, and in particular the basisof one of NCM's main policy conclusions, namely fiscal rules.We analyse NCM in terms of its assumptions of market clearingand rational expectations formations and show how its call forfiscal rules is derived. We argue that NCM is describing a staticworld with no uncertainty. Indeed, we argue that fixed fiscalrules can only make sense in such a world. In view of NCM'sinstrumentalist position, its predictions are then discussedin light of the empirical evidence. The results are discouragingfor proponents of NCM. Our conclusion is that NCM has low explanatoryand predictive power and, as such, does not provide a strongbasis for determining economic policy.     

Gender Differences in Debt Repayment Problems after Divorce

Studies have shown that a growing number of divorced women were experiencing debt repayment problems during the 1980s. This study uses data from the Panel Study of Income Dynamics to (1) examine how debt repayment problems differ by marital status and gender and (2) investigate the role that supplemental income payments play in helping to mitigate repayment problems. The results show that divorced men and women are more likely to default on their debt obligations than married households. Further analysis reveals that increases in welfare payments significantly decrease the likelihood of default for divorced women but do not affect the probability of default for divorced men and married households. There is no evidence that payments related to child support and alimony affect default rates. The findings suggest that welfare benefits may help to mitigate the economic consequences of divorce for women.     

Mutual Fund Performance and the Incentive to Generate Alpha

To rationalize the well‐known underperformance of the average actively managed mutual fund, we exploit the fact that retail funds in different market segments compete for different types of investors. Within the segment of funds marketed directly to retail investors, we show that flows chase risk‐adjusted returns, and that funds respond by investing more in active management. Importantly, within this direct‐sold segment, we find no evidence that actively managed funds underperform index funds. In contrast, we show that actively managed funds sold through brokers face a weaker incentive to generate alpha and significantly underperform index funds.     

Conscientiousness,Financial Literacy,and Asset Accumulation of Young Adults

This study utilizes the 1997 National Longitudinal Survey of Youth to examine the relationship between financial literacy, conscientiousness, and asset accumulation among young adults. Findings indicate that both conscientiousness and financial literacy are consistent predictors of asset accumulation among young Americans. A one‐standard‐deviation increase in conscientiousness is correlated with a 40% increase in net worth, a 53% increase in illiquid asset holdings, and a 33% increase in liquid asset holdings. A one‐standard‐deviation increase in financial literacy is correlated with a 60% increase in illiquid asset holdings and a 30% increase in liquid asset holdings. Financial literacy moderates the effect of conscientiousness on net worth. These findings suggest that conscientiousness and financial literacy are important factors and that policies and programming with a dual emphasis on increasing conscientiousness and financial literacy are likely to have a positive impact on consumer savings and asset‐building.