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The Bankruptcy of Conventional Tax Timing Wisdom is Deeper than Semantics: A Rejoinder to Professors Kaplan and Warren

Strnad, Jeff (1986) The Bankruptcy of Conventional Tax Timing Wisdom is Deeper than Semantics: A Rejoinder to Professors Kaplan and Warren. Social Science Working Paper, 599. California Institute of Technology , Pasadena, CA. (Unpublished)

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The Haig-Simons ideal is an important normative concept. But using it requires that one specify a method of measuring the value of changes in wealth. I use market value and present value, the concepts of value employed in modern finance theory. Professors Kaplow and Warren disagree with a result that I show follows from those concepts of value: That the CFIT implements the Haig-Simons ideal in a non-general-equilibrium setting. But their critique is ineffective because they do not present an alternative concept of value and give reasons for using it in the definition of the Haig-Simons ideal instead of market value or present value. It is questionable whether such an alternative concept can be constructed that is also consistent with the idea of value contained in modern finance theory. Professors Kaplow and Warren generally agree with my position that it is important to take general equilibrium effects into account in assessing alternative tax policies. But their attempt to make a general equilibrium argument for the equivalence of the CFIT and yield exemption fails. In fact, using their approach reinforces the conclusion in my original article that the equivalence holds in a non-general-equilibrium setting only for breakeven transactions.

Item Type:Report or Paper (Discussion Paper)
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Additional Information:The numerical simulations in this rejoinder were made possible through use of equipment provided by I.B.M. Corporation. Joe Bankman, Tom Griffith, Mark Kelman, Roberta Romano, and Alan Schwartz made helpful comments on earlier drafts. I am also indebted to Bill Klein for very helpful discussions concerning the subject matter. All remaining errors are my own. Published as Strnad, Jeff. "The Bankruptcy of Conventional Tax Timing Wisdom Is Deeper Than Semantics: A Rejoinder to Professors Kaplow and Warren." Stanford Law Review (1987): 389-417.
Group:Social Science Working Papers
Subject Keywords:Taxes, Present value, Market value, Investment return rates, Financial investments, Income taxes, Investment tax credits, Investment value, Investors, Net present value
Series Name:Social Science Working Paper
Issue or Number:599
Record Number:CaltechAUTHORS:20170913-161741394
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:81429
Deposited By: Jacquelyn Bussone
Deposited On:15 Sep 2017 18:00
Last Modified:03 Oct 2019 18:42

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