Tax-Optimal Step-Up and Imperfect Loss Offset

In the field of mergers and acquisitions, German and international tax law allow for several opportunities to step up a firm's assets, i.e., to revaluate the assets at fair market values. When a step-up is performed the taxpayer recognizes a taxable gain, but also obtains tax benefits in the form of higher future depreciation allowances associated with stepping up the tax base of the assets. This tax-planning problem is well known in taxation literature and can also be applied to firm valuation in the presence of taxation. However, the known models usually assume a perfect loss offset. If this assumption is abandoned, the depreciation allowances may lose value as they become tax effective at a later point in time, or even never if there are not enough cash flows to be offset against. This aspect is especiallyrelevant if future cash flows are assumed to be uncertain. This paper shows that a step-up may be disadvantageous or a firm overvalued if these aspects are not integrated into the basic calculus. Compared to the standard approach, assets should be stepped up only in a few cases and - under specific conditions - at a later point in time. Firm values may be considerably lower under imperfect loss offset.

Border tax adjustments: Can energy and carbon taxes be adjusted at the border?

Will die Schweiz mit unilateralen energie- und klimapolitischen Massnahmen ambitionierte Ziele verfolgen, dann erfahren energieintensive Sektoren Nachteile im internationalen Wett- bewerb. Produktionsverlagerungen und „carbon leakage“ sind die Folgen, was nicht im Sinne der Schweizer Wirtschaft und der globalen Klimaziele ist. Mit Grenzausgleichsmassnahmen (BAM) kann die Schweiz ihre energieintensiven Betriebe nicht vor internationalen Wettbe- werbsnachteilen schützen. Weiter kommt hinzu, dass die Einführung von BAM aus rechtli- cher Sicht „riskant“ ist und bei einem Schweizer Alleingang mit hohen Vollzugshürden ge- rechnet werden muss. Für die Schweiz macht eine Einführung von BAM nur im Rahmen ei- ner grösseren Klimakoalition Sinn (bspw. zusammen mit der EU). Alternativen zu BAM sind die einfacher und autonom umsetzbaren Ausnahmeregelungen für energieintensive Betriebe oder Output-based-allocation-Systeme.

Special Tax Treatment as Trade Policy: A Database on Export Processing and Special Economic Zones

Many countries treat income generated via exports favourably, especially when production takes places in special zones known as export processing zones (EPZs). EPZs can be defined as specific, geographically defined zones or areas that are subject to special administration and that generally offer tax incentives, such as duty‐free imports when producing for export, exemption from other regulatory constraints linked to import for the domestic market, sometimes favourable treatment in terms of industrial regulation, and the streamlining of border clearing procedures. We describe a database of WTO Members that employ special economic zones as part of their industrial policy mix. This is based on WTO notification and monitoring through the WTO’s trade policy review mechanism (TPRM), supplemented with information from the ILO, World Bank, and primary sources. We also provide some rough analysis of the relationship between use of EPZs and the carbon intensity of exports, and relative levels of investment across countries with and without special zones.

The Optimal Capital Structure of Banks: Balancing Deposit Insurance, Capital Requirements and Tax-Advantaged Debt

The capital structure and regulation of financial intermediaries is an important topic for practitioners, regulators and academic researchers. In general, theory predicts that firms choose their capital structures by balancing the benefits of debt (e.g., tax and agency benefits) against its costs (e.g., bankruptcy costs). However, when traditional corporate finance models have been applied to insured financial institutions, the results have generally predicted corner solutions (all equity or all debt) to the capital structure problem. This paper studies the impact and interaction of deposit insurance, capital requirements and tax benefits on a bankÇs choice of optimal capital structure. Using a contingent claims model to value the firm and its associated claims, we find that there exists an interior optimal capital ratio in the presence of deposit insurance, taxes and a minimum fixed capital standard. Banks voluntarily choose to maintain capital in excess of the minimum required in order to balance the risks of insolvency (especially the loss of future tax benefits) against the benefits of additional debt. Because we derive a closed- form solution, our model provides useful insights on several current policy debates including revisions to the regulatory framework for GSEs, tax policy in general and the tax exemption for credit unions.

Risk, Transaction Costs, and Tax Assignment: Government Finance in the Ottoman Empire

Risk and transaction costs often provide competing explanations of institutional outcomes. In this paper we argue that they offer opposing predictions regarding the assignment of fixed and variable taxes in a multi-tiered governmental structure. While the central government can pool regional risks from variable taxes, local governments can measure variable tax bases more accurately. Evidence on tax assignment from the mid-sixteenth century Ottoman Empire supports the transaction cost explanation, suggesting that risk matters less because insurance can be obtained in a variety of ways.

Fiscal Federalism and Tax Equalization: The potential for progressive local taxes

We construct an empirically informed computational model of fiscal federalism, testing whether horizontal or vertical equalization can solve the fiscal externality problem in an environment in which heterogeneous agents can move and vote. The model expands on the literature by considering the case of progressive local taxation. Although the consequences of progressive taxation under fiscal federalism are well understood, they have not been studied in a context with tax equalization, despite widespread implementation. The model also expands on the literature by comparing the standard median voter model with a realistic alternative voting mechanism. We find that fiscal federalism with progressive taxation naturally leads to segregation as well as inefficient and inequitable public goods provision while the alternative voting mechanism generates more efficient, though less equitable, public goods provision. Equalization policy, under both types of voting, is largely undermined by micro-actors' choices. For this reason, the model also does not find the anticipated effects of vertical equalization discouraging public goods spending among wealthy jurisdictions and horizontal encouraging it among poor jurisdictions. Finally, we identify two optimal scenarios, superior to both complete centralization and complete devolution. These scenarios are not only Pareto optimal, but also conform to a Rawlsian view of justice, offering the best possible outcome for the worst-off. Despite offering the best possible outcomes, both scenarios still entail significant economic segregation and inequitable public goods provision. Under the optimal scenarios agents shift the bulk of revenue collection to the federal government, with few jurisdictions maintaining a small local tax.

The emission reduction effect and economic impact of an energy tax vs. a carbon tax in China : a dynamic CGE model analysis

Chinese government commits to reach its peak carbon emissions before 2030, which requires China to implement new policies. Using a CGE model, this study conducts simulation studies on the functions of an energy tax and a carbon tax and analyzes their effects on macro-economic indices. The Chinese economy is affected at an acceptable level by the two taxes. GDP will lose less than 0.8% with a carbon tax of 100, 50, or 10 RMB/ton CO2 or 5% of the delivery price of an energy tax. Thus, the loss of real disposable personal income is smaller. Compared with implementing a single tax, a combined carbon and energy tax induces more emission reductions with relatively smaller economic costs. With these taxes, the domestic competitiveness of energy intensive industries is improved. Additionally, we found that the sooner such taxes are launched, the smaller the economic costs and the more significant the achieved emission reductions.

Differential activation of proliferation and cytotoxicity in human T-cell lymphotropic virus type I Tax-specific CD8 T cells by an altered peptide ligand.

Human T-cell leukemia virus type I (HTLV-I) gives rise to a neurologic disease known as HTLV-I-associated myelopathy/tropical spastic paraparesis (HAM/TSP). Although the pathogenesis of the disease is unknown, the presence of a remarkably high frequency of Tax-specific, cytotoxic CD8 T cells may suggest a role of these cells in the development of HAM/TSP. Antigen-mediated signaling in a CD8 T-cell clone specific for the Tax(11-19) peptide of HTLV-I was studied using analog peptides substituted in their T-cell receptor contact residues defined by x-ray crystallographic data of the Tax(11-19) peptide in the groove of HLA-A2. CD8 T-cell stimulation with the wild-type peptide antigen led to activation of p56lck kinase activity, interleukin 2 secretion, cytotoxicity, and clonal expansion. A Tax analog peptide with an alanine substitution of the T-cell receptor contact residue tyrosine-15 induced T-cell-mediated cytolysis without activation of interleukin 2 secretion or proliferation. Induction of p56lck kinase activity correlated with T-cell-mediated cytotoxicity, whereas interleukin 2 secretion correlated with [3H]thymidine incorporation and proliferation. Moreover, Tax peptide analogs that activated the tyrosine kinase activity of p56lck could induce unresponsiveness to secondary stimulation with the wild-type peptide. These observations show that a single amino acid substitution in a T-cell receptor contact residue of Tax can differentially signal CD8 T cells and further demonstrate that primary activation has functional consequences for the secondary response of at least some Tax-specific CD8 T cells to HTLV-I-infected target cells.