SHOULD WE CARE ABOUT THE COMPOSITION OF TAX‐BASED STIMULUS PACKAGES?

We investigate the effects of tax policy shocks on the U.S. economy over the 1972:3–2008:4 period within a structural vector autoregressive (SVAR) framework. Disaggregating tax shocks suggests that the positive output multipliers documented for total taxes by the previous literature are present only for indirect tax innovations. We also show that both labor and corporate taxes have similar effects on output, with labor tax multipliers being slightly larger in magnitude. The positive and negative responses of inflation following respectively corporate and labor tax shocks imply that former shocks work through aggregate supply, whereas the latter work predominantly through aggregate demand. (JEL C32, E62, H20)     

2022 KLEIN LECTURE PARENTAL EDUCATION AND INVENTION: THE FINNISH ENIGMA

Why is invention strongly positively correlated with parental income not only in the United States but also in Finland, which displays low income inequality and high social mobility? Using data on 1.45 M Finnish individuals and their parents, we find the following: (i) the positive association between parental income and off-spring probability of inventing is greatly reduced when controlling for parental education; (ii) instrumenting for the parents having an MSc degree using distance to nearest university reveals a large causal effect of parental education on offspring probability of inventing; and (iii) the causal effect of parental education has been markedly weakened by the introduction in the early 1970s of a comprehensive schooling reform.     

Strategic responsiveness and Bowman's risk–return paradox

One of the most enduring puzzles in the strategy literature is the negative association between risk and return known as the Bowman paradox. This paper formalizes a model of strategic conduct based on the concept of strategic fit and the heterogeneity of firm strategic capabilities. This model is shown mathematically to yield the negative association of the Bowman paradox. Furthermore, the model makes several other testable predictions. To examine these predictions, simulated data from the model are compared with a large empirical study of 45 industries during 1991–2000. The predictions of the model are consistent with the empirical data. Copyright © 2007 John Wiley & Sons, Ltd.     

Deutsche Mark–Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies

This paper provides a detailed characterization of the volatility in the deutsche mark–dollar foreign exchange market using an annual sample of five-minute returns. The approach captures the intraday activity patterns, the macroeconomic announcements, and the volatility persistence (ARCH) known from daily returns. The different features are separately quantified and shown to account for a substantial fraction of return variability, both at the intraday and daily level. The implications of the results for the interpretation of the fundamental driving forces behind the volatility process is also discussed.     

IFRS 4 Insurance Contracts — verbesserte Versicherungsrechnungslegung?

IFRS 4, issued at March 31^st, 2004, represents phase I of the IASB project on insurance accounting enabling insurance companies in the European Economic Area to prepare their financial statements according to IAS/IFRS by providing basic rules. The incentives resulting from the ?temporary“ declaration are rather complex; IFRS 4 contains only few provisions including temporary choices in accounting treatment. Although phase II of the insurance project dealing with insurance liabilities and other actuarial positions is rather well predictable in many respects the IASB keeps a significant scope of discretion for this phase. IFRS 4 does not represent a self-contained accounting concept; the asset and the debit side of the balance sheet are not coordinated, the former is characterized by a significantly higher volatility. IFRS 4 merely aims at ?limited improvements to accounting (…) for insurance contracts“. This moderate objective can be regarded as accomplished. Some of the new mandatory regulations, however, are internationally controversial issues. The effects of IFRS 4 on the price of shares and the cost of capital of insurance companies represent a worthwhile issue for research. Increased transparency, especially due to additional disclosure requirements, and enhanced volatility are opposing each other, and it is rather difficult to assess which effect will predominate under which circumstances.