Advanced Search
MyIDEAS: Login to save this paper or follow this series

Taxes, Regulations, and the Value of U.S. and U.K. Corporations

Contents:

Author Info

  • Ellen R. McGrattan
  • Edward C. Prescott

Abstract

We derive the quantitative implications of growth theory for U.S. corporate equity plus net debt over the period 1960–2001. There were large secular movements in corporate equity values relative to GDP, with dramatic declines in the 1970s and dramatic increases starting in the 1980s and continuing throughout the 1990s. During the same period, there was little change in the capital-output ratio or earnings share of output. We ask specifically whether the theory accounts for these observations. We find that it does, with the critical factor being changes in the U.S. tax and regulatory system. We find that the theory also accounts for the even larger movements in U.K. equity values relative to GDP in this period.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://research.mpls.frb.fed.us/research/sr/sr309.pdf
Download Restriction: no

Bibliographic Info

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000000715.

as in new window
Length:
Date of creation: 02 Dec 2004
Date of revision:
Handle: RePEc:cla:levrem:122247000000000715

Contact details of provider:
Web page: http://www.dklevine.com/

Related research

Keywords:

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Poterba, James M., 2002. "Taxation, risk-taking, and household portfolio behavior," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 17, pages 1109-1171 Elsevier.
  2. John H. Boyd & Ravi Jagannathan, 1994. "Ex-dividend price behavior of common stocks," Staff Report, Federal Reserve Bank of Minneapolis 173, Federal Reserve Bank of Minneapolis.
  3. Fernando Alvarez & Urban J. Jermann, . "Quantitative Asset Pricing Implications of Endogenous Solvency Constraints," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 10-99, Wharton School Rodney L. White Center for Financial Research.
  4. Andrew B. Abel, 2002. "The effects of a baby boom on stock prices and capital accumulation in the presence of Social Security," Working Papers 03-2, Federal Reserve Bank of Philadelphia.
  5. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, Elsevier, vol. 41(2), pages 257-275, April.
  6. Ellen R. McGrattan & Edward C. Prescott, 2003. "Average debt and equity returns: puzzling?," Staff Report, Federal Reserve Bank of Minneapolis 313, Federal Reserve Bank of Minneapolis.
  7. James M. Poterba & Lawrence A. Summers, 1984. "New Evidence that Taxes Affect the Valuation of Dividends," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 338, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Steve Bond & Lucy Chennells & Michael Devereux, 1995. "Company dividends and taxes in the UK," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 16(3), pages 1-18, August.
  9. Vincenzo Quadrini & José-Víctor Ríos-Rull, 1997. "Understanding the U.S. distribution of wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Spr, pages 22-36.
  10. Carol Corrado & Charles Hulten & Daniel Sichel, 2005. "Measuring Capital and Technology: An Expanded Framework," NBER Chapters, National Bureau of Economic Research, Inc, in: Measuring Capital in the New Economy, pages 11-46 National Bureau of Economic Research, Inc.
  11. Hans-Werner Sinn, 1991. "Taxation and the Cost of Capital: The "Old" View, the "New" View and Another View," NBER Working Papers 3501, National Bureau of Economic Research, Inc.
  12. Robert E. Hall, 1999. "The Stock Market and Capital Accumulation," NBER Working Papers 7180, National Bureau of Economic Research, Inc.
  13. Ellen R. McGrattan & Edward C. Prescott, 2001. "Taxes, Regulations, and Asset Prices," NBER Working Papers 8623, National Bureau of Economic Research, Inc.
  14. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 213-24, January.
  15. Constantinides, G.M. & Donalson, J.B. & Mehra, R., 1997. "Junior Can't Borrow: A New Perspective on the Equity Premium Puzzle," Papers, Columbia - Graduate School of Business 97-24, Columbia - Graduate School of Business.
  16. Martin Feldstein, 1983. "Inflation and the Stock Market," NBER Chapters, National Bureau of Economic Research, Inc, in: Inflation, Tax Rules, and Capital Formation, pages 186-198 National Bureau of Economic Research, Inc.
  17. Ellen R. McGrattan & Edward C. Prescott, 2004. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," Levine's Bibliography 122247000000000715, UCLA Department of Economics.
  18. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 21(3), pages 905-40, September.
  19. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292 Elsevier.
  20. Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 451-514.
  21. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(3), pages 446-61, June.
  22. Boyan Jovanovic & Jeremy Greenwood, 1999. "The Information-Technology Revolution and the Stock Market," American Economic Review, American Economic Association, American Economic Association, vol. 89(2), pages 116-122, May.
  23. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, Econometric Society, vol. 39(5), pages 659-81, September.
  24. John Heaton & Deborah Lucas, 2000. "Stock Prices and Fundamentals," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1999, Volume 14, pages 213-264 National Bureau of Economic Research, Inc.
  25. James M. Poterba & Lawrence H. Summers, 1985. "The Economic Effects of Dividend Taxation," NBER Working Papers 1353, National Bureau of Economic Research, Inc.
  26. Baxter, M. & Jermann, U.J., 1993. "The International Diversification Puzzle is Worse than you Think," RCER Working Papers 350, University of Rochester - Center for Economic Research (RCER).
  27. Elton, Edwin J & Gruber, Martin J, 1970. "Marginal Stockholder Tax Rates and the Clientele Effect," The Review of Economics and Statistics, MIT Press, vol. 52(1), pages 68-74, February.
  28. Donaldson, John B & Mehra, Rajnish, 1984. "Comparative Dynamics of an Equilibrium Intertemporal Asset Pricing Model," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 491-508, July.
  29. John Y. Campbell & Robert J. Shiller, 2001. "Valuation Ratios and the Long-Run Stock Market Outlook: An Update," NBER Working Papers 8221, National Bureau of Economic Research, Inc.
  30. Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," NBER Working Papers 8876, National Bureau of Economic Research, Inc.
  31. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  32. Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," American Economic Review, American Economic Association, American Economic Association, vol. 92(4), pages 745-778, September.
  33. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
  34. Gustavo Grullon & Roni Michaely, 2002. "Dividends, Share Repurchases, and the Substitution Hypothesis," Journal of Finance, American Finance Association, American Finance Association, vol. 57(4), pages 1649-1684, 08.
  35. Philip Shirley, 1997. "Share repurchases," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 18(2), pages 211-221, May.
  36. John Laitner & Dmitriy Stolyarov, 2003. "Technological Change and the Stock Market," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1240-1267, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cla:levrem:122247000000000715. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David K. Levine).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.