Jeff Strnad | Stanford University (original) (raw)

Papers by Jeff Strnad

Social Science Research Network, 2002

2. The first "oil shock" took place in 1973 and necessitated U.S. aid to Israel during the Yom Ki... more 2. The first "oil shock" took place in 1973 and necessitated U.S. aid to Israel during the Yom Kippur War. The second oil shock began in December of 1978 and was later fueled by the Iran Hostage Crisis in November of 1979 and the Russian invasion of Afghanistan in December of 1979. These events prompted President Carter to take a hard line with the Soviet Union: "Let our position be absolutely clear. An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force." YERGIN, supra note 1, at 702. Saddam Hussein's invasion of Kuwait in August of 1990 precipitated another oil shock and the Gulf War. See YERGIN, supra note 1, at 603-06, 684-702, 769-79. The September 11, 2001 attacks on the World Trade Center initiated another round of concern about the impact of oil supply issues on U.S. foreign policy. See, e.g.

Indiana Law Journal, 1986

Professor Popkin makes two major sets of points in reply to my recent article.' The first set of ... more Professor Popkin makes two major sets of points in reply to my recent article.' The first set of points involves the proper application of the Haig-Simons ideal to issues of tax timing. Professor Popkin argues that the proper interpretation of that ideal calls for increases in wealth to be taxed as they occur rather than for a cash flow income tax ("CFIT") that taxes revenues as they are received and allows costs to be deducted when they are paid. He also constructs a "control and dominion theory" that he claims supports his proposed tax over the CFIT. Part I contains a reply to these claims. The conventional statement of the Haig-Simons ideal requires that if wealth increases from AtoA to AtoB over an accounting period, then taxes should reduce wealth by the tax rate multiplied by $(A-B). Both the CFIT and Professor Popkin's proposed tax involve the same total net tax over time. His proposed tax, however, moves this net tax to an earlier point than the CFIT, and, as a result, does not tax wealth changes in a Haig-Simons manner. Professor Popkin's control and dominion theory is motivated by the fear of abuse. Under a CFIT, the government will share in the costs of investment through an immediate deduction, but the taxpayer may not act as a proper fiduciary in protecting the government's investment. Part I concludes with two points. First, the danger of abuse is minimal. Second, attempting to address the abuse does not imply the use of Professor Popkin's proposed tax. Professor Popkin's second set of arguments consists of a normative evaluation of the methodology used to apply the Haig-Simons ideal. His main argument is that the pre-tax situation in the tax world rather than the notax world situation is the proper benchmark to use in assessing after-tax results. Part 11 shows that neither of these two benchmarks has a very strong normative justification at present. In addition, if the pre-tax situation in the tax world is used as a benchmark, the CFIT can be taken as the embodiment

Stanford Law Review, Feb 1, 1994

The total notional amount for "swaps," a set of recently developed instruments, exceeds the combi... more The total notional amount for "swaps," a set of recently developed instruments, exceeds the combined value of all shares listed on the New York and Tokyo stock exchanges.

American Law and Economics Review, Apr 23, 2007

Bayesian empirical approaches appear frequently in fields such as engineering, computer science, ... more Bayesian empirical approaches appear frequently in fields such as engineering, computer science, political science and medicine, but almost never in law. This article illustrates how such approaches might be very useful in empirical legal studies. In particular, Bayesian approaches enable a much more natural connection between the normative or positive issues that typically motivate such studies and the empirical results.

Stanford Law Review, Apr 1, 1985

This article shows that the traditional mapping between tax bases and tax treatments for investme... more This article shows that the traditional mapping between tax bases and tax treatments for investment and borrowing transactions is deeply flawed. In a non-general-equilibrium setting where the effect of taxes on pre-tax prices is not included in the analysis, I show that the cash flow income tax and not the traditional income tax implements the Haig-Simons ideal. Furthermore, in the same setting the cash flow income tax is not equivalent to yield exemption.

Stanford Law Review, 1987

The Haig-Simons ideal is an important normative concept. But using it requires that one specify a... more 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.

Social Science Research Network, 2005

Social Science Research Network, 2003

The extensive literature on inflation and the income tax shows that a tax-system based on nominal... more The extensive literature on inflation and the income tax shows that a tax-system based on nominal costs and revenues may result in considerable distortion even at moderate degrees of inflation. Much of this distortion arises from the use of unindexed historical cost to compute taxes for items such as depreciable assets, inventories, and capital gains. This approach results in over-taxation and consequent increases in the cost of capital. It is tempting, but mistaken, to think that a deflationary environment involves the same phenomena but with the signs reversed. As inflation falls and turns into deflation, the impacts on items subject to historical cost accounting change continuously but only up the point where deflation reaches the "zero bound rate," the rate at which nominal riskless interest rates fall to zero. For perpetual rates of deflation equal or greater than the zero bound rate, any tax system that allows full recovery of nominal costs and provides for full taxation of nominal gains becomes equivalent to a cash flow income tax regardless of the timing for cost recovery specified by the tax system. No distortions arise from historical cost accounting or other timing rules in the tax system. The zero bound rate serves as a discontinuity with respect to the interaction of many features of the tax system with inflation or deflation. Above that rate, the cost of capital for depreciable assets falls as the inflation rate falls. Below that rate, the opposite occurs: The cost of capital increases as deflation intensifies. Similar discontinuities occur at the zero bound rate for the tax treatment of debt and the impact of loss limitations. Above the zero bound rate, certain factors in the tax system tend to make the impact of inflation less than one-to-one on the cost of debt for borrowers. Below the zero bound rate, there is a one-to-one effect. Loss limitation effects for new investments intensify as inflation falls, but this effect stops once the zero bound rate is reached. Given the current stance of central banks, individual and firms are more likely to expect a bout of deflation lasting several quarters or years than perpetual deflation. The impact of expected temporary deflation on the user cost of capital for depreciable assets depends on the expected intensity of the deflation. If individuals and firms expect temporary moderate deflation, the user cost of capital will fall, with the percentage drops being larger for shorter-lived assets. If individuals and firms expect temporary severe deflation, the user cost will rise and more so in percentage terms for long-lived assets. This paper is addressed to a general audience and consequently contains a great deal of basic background material. Results that the author believes are new are concentrated in Parts II and IV. Part I reviews some well-known results on inflation and taxation. Part III provides a macroeconomics orientation that serves as background for the discussion in Part IV. Some readers may wish to focus primarily or solely on Parts II and IV.

Social Science Research Network, 2002

Social Science Research Network, 2004

Jeff Strnad 7. The characterization is from the U.S. Surgeon General who notes that "[o]verweight... more Jeff Strnad 7. The characterization is from the U.S. Surgeon General who notes that "[o]verweight and obesity may not be infectious diseases, but they have reached epidemic proportions in the United States." U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, The Surgeon General's Call to Action to Prevent and Decrease Overweight and Obesity, at XIII. The visibility of the "epidemic" has increased to the point where it is being discussed in the popular press.

RePEc: Research Papers in Economics, Nov 1, 1984

Some economists have argued that offsetting effects on risk and return may make capital income ta... more Some economists have argued that offsetting effects on risk and return may make capital income taxes nondistorting. This paper performs three tasks. First, the conditions under which the argument is true are studied in an asset pricing model that unlike earlier models allows the timing of depreciation deductions to vary and incorporates the effectiveness and distribution of government expenditures. One result is that it is plausible that the nondistortion result holds regardless of that timing or of the distribution and effectiveness of expenditures if the pre-tax riskless rate is zero. A second task concerns the cases where the pre-tax riskless rate is not negligible and the nondistortion result does not hold. Then the degree and pattern of distortion depends on the general equilibrium impact of taxes and expenditures on average risk aversion and on the pre-tax riskless rate. An interesting result emerges concerning the impact of the timing of depreciation allowances. When average risk aversion stays constant, the conventionally expected effect that faster write-offs result in more investment will occur if and only if the pre-tax riskless rate falls when timing is accelerated. This is true because in the absence of any change in the pre-tax riskless rate, changes in depreciation timing cause changes in risk and expected return that exactly off set each other. Finally, the paper shows that the failure to add a premium for "capital risk" to the standard economic depreciation allowance based on expected decline in asset value does not change that result unless the income tax system has the pathology of allowing used asset sales to be tax free. The current U.S. tax system seems to be free of that pathology.

RePEc: Research Papers in Economics, 1994

Two desirable properties for a tax system that must specify tax treatments for new financial inst... more Two desirable properties for a tax system that must specify tax treatments for new financial instruments are consistency and universality. A tax system is universal if the system can designate a tax treatment for any cash flow pattern. Consistency requires that the tax treatment for each cash flow pattern be unique. A third property, linearity, holds if dividing the cash flow into different combinations of securities will not affect the tax treatment. One way to achieve consistency and universality is to construct a tax system with a single systematic pattern of taxation, such as cash flow taxation or accretion taxation. But this extreme degree of homogeneity is not necessary. Consistent and universal tax systems can harbor radically different treatments for different types of transactions. "Bifurcation approaches" divide a new financial instrument into certain prototype transactions with known tax treatments. The tax treatment for the new instrument is the sum of the tax treatments of the prototypes that sum up to the instrument. "Integration approaches" use rules that tax aggregates of instruments within the taxpayer's portfolio. Bifurcation methods have a natural connection to linearity. These methods will not achieve consistency and universality in a nonlinear setting unless they are accompanied by elements of an integration approach. All universal and linear tax systems can be generated by "the spanning method," a specific kind of bifurcation. Spanning method approaches are only a subclass of a broader set of integration ap� proaches that achieve consistency and universality. In evaluating integration approaches, a key property is continuity, the requirement that tax treatments do not jump in response to small changes in any given portfolio. Continuity is a generalization of consistency. The existence of jumps leads to the possibility of serious tax manipulation of the same sort that would arise from inconsistencies. The current U.S. tax system includes some direct inconsistencies. That is, the same transaction can be packaged different ways to achieve different tax results. These in consistencies can only be eliminated by fundamental reform. Even the most powerful integration approaches cannot address the problem of direct inconsistencies. This fact raises difficulties for authorities such as the Tr easury Department and the courts who have only low level reform at their disposal. In promulgating regulations or deciding cases that involve new financial instruments, these authorities must choose rules using a second best approach. Loose ends in the form of inconsistencies or lack of universality are inevitable.

RePEc: Research Papers in Economics, May 1, 1991

The theoretically ideal tax depreciation rule under an accretion tax is economic depreciation, a ... more The theoretically ideal tax depreciation rule under an accretion tax is economic depreciation, a stream of deductions that replicates the decline in value of an asset over time. When the future value path of an asset is known in advance, the tax depreciation schedule should be based on the age-price profile for surviving assets. When the future value path of an asset is uncertain, this approach fails. A taxpayer can accelerate the statutory schedule by "strategic loss-taking ." A series of special disposition rules (where each rule is combined with an adjustment in the ex ante depreciation schedule) address this problem , but each such rule has particular disadvantages. Finally, strategic loss...: taking and rules designed to address it are particularly important in formulating a policy toward group accounting methods of depreciation.

Journal of Mathematical Economics, 1987

This paper characterizes neutral social functions that are fully implementable. A necessary condi... more This paper characterizes neutral social functions that are fully implementable. A necessary condition for full implementation under either the Nash equilibrium concept or the strong Nash equilibrium concept is that the neutral social function being implemented be monotonic and simple. If a neutral monotonic social function is simple and the set of winning coalitions is nondictatorial then the social function is fully implementable by a set of Nash equilibria. For finite alternative sets a neutral monotonic social function will be fully implementable by a set of strong Nash equilibria if and only if it is simple and dictatorial.