Rate base

Abstract: The recent literature on endogenous economic growth allows for effects of fiscal policy on long-term growth. If the social rate of return on investment exceeds the private return, then tax policies that encourage investment can raise the growth rate and levels of utility. An excess of the social return over the private return can reflect learning-by-doing with spillover effects, the financing of government consumption purchases with an income tax, and monopoly pricing of new types of capital goods. Tax incentives for investment are not called for if the private rate of return on investment equals the social return. This situation applies in growth models if the accumulation of a broad concept of capital does not entail diminishing returns, or if technological progress appears as an expanding variety of consumer products. In growth models that incorporate public services, the optimal tax policy hinges on the characteristics of the services. If the public services are publicly-provided private goods, which are rival and excludable, or publiclyprovided public goods, which are non-rival and non-excludable, then lump-sum taxation is superior to income taxation. Many types of public goods are subject to congestion, and are therefore rival but to some extent nonexcludable. In these cases, income taxation works approximately as a user fee and can therefore be superior to lump-sum taxation. In particular, the incentives for investment and growth are too high if taxes are lump sum. We argue that the congestion model applies to a wide array of public expenditures, including transportation facilities, public utilities, courts, and possibly national defense and police.

Abstract: We investigate fair value accounting critics' assertions by restating earnings and regulatory capital to reflect banks' disclosed investment securities fair values. We find: (1) Fair value-based earnings are more volatile than historical cost earnings, but share prices do not reflect the incremental volatility. (2) Banks violate regulatory capital requirements more frequently under under fair value than historical cost accounting. Fair value-based violations help predict regulatory capital violations, but share prices do not reflect this potential increased regulatory risk. Only historical cost violations are market information events. (3) Share prices reflect interest rates changes, even though investment securities' contractual cash flows are fixed.

Abstract: This paper analyzes an emissions trading program that was introduced to reduce smog-causing pollution from large stationary sources. Using variation in state level electricity industry restructuring activity, I identify the effect of economic regulation on pollution permit market outcomes. There are two main findings. First, deregulated plants in restructured electricity markets were less likely to adopt more capital intensive environmental compliance options as compared to regulated or publicly owned plants. Second, as a consequence of heterogeneity in electricity market regulations, a larger share of the permitted pollution is being emitted in states where air quality problems tend to be more severe. (JEL L51, L94, L98, Q53, Q58) When the US federal government first began regulating major sources of air pollution in the 1960s, the conventional approach to meeting air quality standards involved establishing maxi mum emissions rates or technology based standards for regulated stationary sources. However, economists have long maintained that an emissions permit market could more efficiently coor dinate pollution abatement activities provided a series of assumptions are met. Over the past few decades, market based "cap and trade" (CAT) approaches to regulating emissions from industrial point sources have become a centerpiece of environmental regulation in the United States. In the theoretical first-best permit market equilibrium, the total social cost of meeting an emis sions cap is minimized. Each firm chooses a level of pollution abatement such that its marginal cost of reducing pollution is set equal to the social marginal benefit from emissions reduction. In practice, preexisting distortions in product markets that are subject to CAT regulation may interfere with the emissions permit market's ability to operate efficiently. This paper studies the effects of electricity market regulation on permit market outcomes in the context of a major US emissions trading program (the NOx Budget Program). The recent wave of electricity industry restructuring in the United States has resulted in significant interstate variation in economic regulation. Consequently, facilities in the same CAT program face very different economic regu lation and investment incentives in their respective electricity markets. Whereas rate base regu lated plants are guaranteed to earn a rate of return on prudent investments in pollution abatement equipment, "deregulated" plants operating in restructured electricity markets are offered no such

Abstract: The article presents a method for calculating the cross-section internal rate of return on contributions to pension systems financed according to the pay-as-you-go principle. The method entails a procedure for valuing the contribution flow of pay-as-you-go financing, and identifies the complete set of factors that determine the cross-section internal rate of return. The procedure makes it possible to apply the algorithm of double-entry bookkeeping in analyzing and presenting the financial position and development of pay-as-you-go pension systems.