The Income Effects of Alternative Inventory Costing Methods from an Information Economics Perspective

In the context of the statutory tax rate reductions enacted in the Tax Reform Act of 1986, this paper investigates the degree to which capital market participants anticipate and correctly interpret temporary income effects of tax-motivated income shifting. We find evidence consistent with financial analysts' earnings forecasts failing to anticipate earnings management that shifts income from fourth quarters in higher tax rate years to immediately following first quarters of lower tax rate years. The evidence suggests that this failure is not the result of a decision to ignore the income shifting, but rather an inability to recognize temporary components of reported earnings. We also find evidence that market prices do not fully reflect the temporary income effects of tax-motivated income shifting, and that analyst inefficiency explains about half of the market inefficiency. We interpret these inefficiencies as potentially important costs of tax planning that could limit the ability of public firm managers to implement otherwise optimal tax strategies.

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Five "Most Useful" Books for Management: Review Article:Management Thought in a Dynamic Economy. John F. Mee; Business and Society. Joseph W. McGuire; Motivation and Productivity. Saul W. Gellerman; Management Science in Action. William T. Morris; Information Economics and Management Systems. Adrian M. McDonough

The Journal of Business ◽

10.1086/294807 ◽

1965 ◽

Vol 38 (4) ◽

pp. 416

Author(s):

Charles E. Summer, Jr.

Keyword(s):

Information Economics ◽

Management Science ◽

Management Systems ◽

Business And Society ◽

Dynamic Economy ◽

Management Review

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Annuity Markets and Capital Accumulation

The B E Journal of Theoretical Economics ◽

10.1515/bejte-2018-0055 ◽

2019 ◽

Vol 20 (1) ◽

Author(s):

Shantanu Bagchi ◽

James A. Feigenbaum

Keyword(s):

Old Age ◽

Capital Stock ◽

Early Life ◽

Capital Accumulation ◽

Substitution Effect ◽

Income Effect ◽

Substitution Effects ◽

Income Effects ◽

Annuity Markets ◽

The One

AbstractWe examine how the absence of annuities in financial markets affects capital accumulation in a two-period overlapping generations model. Our findings indicate that the effect on capital is ambiguous in general equilibrium, because there are two competing mechanisms at work. On the one hand, the absence of annuities increases the price of old-age consumption relative to the price of early-life consumption. This induces a substitution effect that reduces saving and capital, and an income effect that has the opposite effect as households want to consume less when young, causing them to save more. On the other hand, accidental bequests originate from the assets of the deceased under missing annuity markets. The bequest received in early life always has a positive income effect on saving, but the bequest received in old age, conditional on survival, is effectively a partial annuity with both substitution and income effects. We find that when the desire to smooth consumption is high, the income effects dominate, so the capital stock always increases when annuity markets are missing. However, when the desire to smooth consumption is low, the substitution effects dominate, and the capital stock decreases with missing annuity markets.

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