Roger H. Gordon

The Association Between Men's Economic Status and Their Family and Community Origins

This study uses intergenerational data from the Panel Study of Income Dynamics to investigate the relationship between mens economic status and the characteristics of the families and communities in which they grew up. It is distinguished from most previous studies by its emphasis on community influences and on influences from poverty and welfare use. Also, our parental characteristics data are more comprehensive and accurate than those of many earlier studies. We find substantial disadvantages in economic status for black men, men from lower-income families, and men from more welfare-dependent families or communities. Otherwise, we do not find strong evidence of community influences. This, however, might be due to the grossness of the geographic detail at which our community variables are measured.

Taxation of Corporate Capital Income: Tax Revenues Versus Tax Distortions

This paper shows that when uncertainty is taken into account explicitly, taxation of corporate income can leave corporate investment incentives, and individual savings incentives, basically unaffected, in spite of the sizable tax revenues collected. In some plausible situations, such taxes can increase efficiency. The explanation for these surprising results is that the government, by taxing capital income, absorbs a certain fraction of both the expected return and the uncertainty in the return. While investors as a result receive a lower expected return, they also bear less risk when they invest, and these two effects are largely offsetting.

Taxation and the stock market valuation of capital gains and dividends: Theory and emphirical results

Dividends seem to be more heavily taxed than capital gains. Why then do corporations pay dividends rather than repurchasing shares or retaining earnings? Either corporations are not acting in the interests of shareholders, or else shareholders desire dividends sufficiently for nontax reasons to offset the tax effect. In this paper, we measure the relative valuation of dividends and capital gains in the stock market, using a variant of the capital asset pricing model. We find that dividends are not valued differently systematically from capital gains. This finding is consistent with share price maximization by firms but inconsistent with the fact that most shareholders pay a heavier tax on dividends. We also show that the relative value of dividends provides an indirect measure of a marginal Tobins q. The measured value of dividends relative to capital gains tends to be higher during prosperous periods, as is consistent with this interpretation. We hope that this time series on a marginal Tobins q will prove to be useful in forecasting the rate of investment.

Do Taxes Affect Corporate Debt Policy? Evidence from Us Corporate Tax Return Data

Past attempts to measure the impact of taxes on corporate debt policy have focused on larger firms. Given that the top statutory corporate tax rate has varied little in recent years, tax incentives vary among these firms, almost entirely due to current or prospective tax losses. Results are inevitably mixed, given that firms with losses or nondebt tax shields may have different propensities to borrow even ignoring taxes. This paper uses US Statistics of Income balance sheet data on all corporations, to compare the debt policies of firms of different sizes. Given the progressivity in the corporate tax schedule, small firms face very different tax rates than larger firms. Relative tax rates have also changed frequently over time. Our results suggest that taxes have had a strong and statistically significant effect on debt levels. In particular, the difference in corporate tax rates currently faced by the largest vs. the smallest firms (35% vs. 15%) is forecast to induce larger firms to finance an additional 8% of their assets with debt, compared with smaller firms.

Can High Personal Tax Rates Encourage Entrepreneurial Activity

When the top personal tax rates are above the corporate rate, high income individuals have an incentive to reclassify their earnings as corporate rather than personal income for tax purposes. At least U.S. tax law imposes strict limits on the extent to which employees in publicly traded corporations can engage in such income shifting. However, entrepreneurs setting up new firms can easily reclassify their income for tax purposes. This tax incentive therefore favors entrepreneurial activity. In the United States, these tax incentives were huge during the 1950s and 1960s, though they have been much smaller since then.

Government as a Discriminating Monopolist in the Financial Market: The Case of China

To date, China has maintained a variety of restrictions on its financial markets. In addition to imposing capital controls and regulating interest rates, the government controls both the set of firms that can sell equity on the domestic or foreign stock markets, and the amount they can sell. China is unique in that foreigners pay much less than domestic investors for intrinsically identical shares. In this paper, we show that these characteristics of the Chinese financial market are consistent with a government choosing regulations to maximize a standard type of social welfare function. The observed policy of charging much higher prices for equity sold to domestic than to foreign investors can simply reflect the more inelastic demand for equity by domestic investors. Under certain conditions, these regulations are equivalent to income taxes on business and interest income. The pattern of tax rates is not qualitatively different from those commonly observed elsewhere, particularly in other countries with capital controls. Given the ease with which firms and individuals can evade income taxes, however, indirect taxation through restrictions on the financial market may serve as an effective alternative.

Do We Collect Any Revenue from Taxing Capital Income

The wide variation in effective tax rates on income from different types of capital received by different investors creates numerous tax arbitrage opportunities that result in a loss in both government revenue and economic efficiency. The objective of this chapter is to estimate the revenue and distributional effects of tax arbitrage, using tax data from 1983, by examining the effects of two tax changes that would each substantially reduce the opportunities for tax arbitrage. Our principal conclusions are as follows: 1. Taxing real rather than nominal interest income would have raised government revenue in 1983 by

Tax evasion in an open economy:: Value-added vs. income taxation

25.5 billion. 2. This increase in revenue would occur mainly at the expense of those in the highest tax brackets. 3. Taxing the cash flow from real capital and exempting from tax any income from financial assets would have raised government revenue by

Sibling and Intergenerational Correlations in Welfare Program Participation

17.4 billion. Since this tax change eliminates all distortions to savings and investment decisions, our revenue forecast suggests that the tax law in 1983 subsidized savings and investment on average. 4. This tax change would benefit those in the highest tax brackets, who have large income from financial assets, at the expense of those in lower tax brackets. 5. Either tax change should improve the efficiency of the allocation of existing capital and improve savings incentives.

The change in productivity of Chinese state enterprises, 1983–1987

Abstract Ignoring tax evasion possibilities, a value-added and a cash-flow income tax have similar behavioral and distributional consequences. Yet the available means of tax evasion under each can be very different. Under a VAT, avoidance occurs through cross-border shopping, whereas under an income tax it can occur through shifting taxable income abroad. Given evasion, we show that a country would make use of both taxes in order to minimize the efficiency costs of evasion activity, relying relatively more on whichever tax is harder to evade. We then make use of aggregate Danish tax and accounting data from 1992 to measure the amount of evasion that occurred under the two taxes. While the estimates of evasion activity are small, the figures imply that Denmark could reduce the real costs of evasion activity by relying more on value-added taxes.