Offset Provisions Research Articles

경제위기와 결손금 공제제도의 개편방안

As a response policy to COVID-19, the Korean government has extended the loss carryforward period and the loss carryback period. This study explores a desirable reform plan for the loss offset provisions in an economic crisis, and to estimate the effect of this tax reform. In most OECD countries, loss carryback is normally allowed very limitedly, but during economic downturns, it is actively used to solve the problem of liquidity shortages of companies. Although it is not necessary to permanently extend the loss carryback period of SMEs, the expansion of loss carryback period should be given priority over that of loss carryforward period during economic downturn. In addition, SMEs that would have been subject to loss carryback are smaller and have a higher debt ratio than SMEs that did not. It suggests that the extension of the loss carryback period for SMEs can significantly help in resolving the liquidity problem of small businesses, which are having difficulty in raising funds due to the sluggish economy. Finally, we estimate the financial effect of extending the loss carryback period from one year to three years. It is expected that corporate tax will be reduced by KRW 114.1 billion and income tax by KRW 4.1 billion in 2022. However, since the loss carryforward will be reduced by the same amount as the loss carryback, from a long-term perspective, the effect of the extension of the loss carryback period on the net finance is expected to be much smaller than this.

Capital Income Taxation under Full loss offset Provisions of a Prospect Theory Investor

In this paper we examine capital income taxation of a reference dependent sufficiently loss averse investor in a two period portfolio choice model under full loss offset provisions. Capital income taxation with loss offset provisions has been found to stimulate risk taking in expected utility models under certain assumptions about attitudes towards risk but would such effect be found under prospect theory type of preferences? We observe that the impact of capital income taxation depends on investors’ reference levels relative to their endowment income and thus we explore capital income taxation for different types of loss averse investors in terms of their ambition. We consider the less ambitious investors to be the ones with relatively low reference levels (they avoid relative losses in both periods) and more ambitious investors to be those with relatively high reference levels. We analyze two types of more ambitious investors: investors with higher time preference (who experience relative losses only in the second period under the bad state of nature) and investors with lower time preference (who experience relative losses only in the first period). We observe that capital income taxation stimulates current consumption in most cases which encourages risk taking, although the final outcome would depend on the investors’ degree of risk aversion, the rate of time preference and the tax rate in relation to certain thresholds. Current consumption could be discouraged for some ambitious type of investors that have relatively high second period reference levels but not necessary first period reference levels. in summary, to determine the impact of capital income taxation on the decision variables the reference levels in relation to endowment income play the most significant role. Ignoring reference depended preferences can lead to different conclusions for investors reaction to capital income taxation. We also find certain type of investors whose happiness level increases with capital income taxation under full loss offset provisions.

Strategic landscape-scale planning to improve mitigation hierarchy implementation: An empirical case study in Mediterranean France

Continued urban development is a major cause of the loss of biodiversity. In this context, the objective of a No Net Loss (NNL) of biodiversity has been adopted in many countries worldwide. Reaching such an objective requires the application of the mitigation hierarchy, an environmental policy that aims to minimise the impact of urban development. It consists of a hierarchy transposed in France by a sequence of avoidance, reduction and, as a last resort, offsetting of residual impacts on biodiversity that have not been avoided or reduced. Currently, a project-by-project approach with little avoidance, much investment in the reduction of impacts and piecemeal efforts to offset biodiversity losses, significantly limits the effectiveness of the application of the mitigation hierarchy. This difficulty is largely due to a lack of both anticipation and more strategic planning of the mitigation hierarchy by decision-makers at the landscape scale. The purpose of this study is to propose a method that “scales up” the implementation of the mitigation hierarchy from the project-level to a landscape-scale approach. Based on an empirical study, we propose an operational framework for implementation of the mitigation hierarchy at this landscape scale on the basis of spatial indices that are used to (1) set priorities for impact avoidance and (2) pre-identify sites as candidates for offset provision. This methodology provides a much-needed tool to anticipate for the avoidance step and integrate offsetting into the planning process in a more Strategic Environmental Assessment type approach. We show how the use of this method is relevant in a territory that is currently undergoing rapid population growth and urbanization (Montpellier Metropolitan Territory in the south of France). Finally, this paper illustrates the importance of conducting such research in close collaboration with practitioners and public decision-makers to facilitate interactions between developers and conservation stakeholders and improve implementation by land-use planners.

Does it matter why we do restoration? Volunteers, offset markets and the need for full disclosure

SummaryVolunteers are behind much of the ecological restoration work done in Australia. Private landholders, environmental nongovernment organisations (ENGOs) and community groups all donate time and money to much‐needed restoration and revegetation efforts. Biodiversity offsetting has emerged as a potential source of financial support for such work. We consider the question: should it matter to practitioners of restoration, particularly landholders and volunteers, how it is financed? We argue it should, because when offsets fund restoration work, the net environmental outcome is usually intended to be neutral – not an environmental gain. This is often not clear, because only the localised environmental gain is seen by the restoration practitioner, not the associated loss. For mandated offsets, the restoration work is required to occur regardless of whether the volunteer contributes to it or not, so their contribution only replaces work that would otherwise be done by a commercial provider. We contend that informed involvement in offset provision requires full disclosure, particularly to volunteers and landholders. Unfortunately, however, such transparency does not always occur. We acknowledge that there are valid reasons why well‐informed practitioners might willingly subsidise offset provision, but they might equally choose not to. Furthermore, offsets are intended to cover the full cost of biodiversity damage, creating a disincentive for damage by developers. Yet, subsidies from offset providers work against sending market signals that reflect the true replacement cost of biodiversity. We recommend that all ENGOs, developers, offset funders and brokers commit to transparency, particularly to landholders, donors and volunteers, about the environmental impact that is to be offset and the fact that their involvement generates no additional environmental benefit, as the offset is a condition of approval for a permitted loss, much like the rehabilitation of a mine site. Providing restoration services in partnership with industry may be something that landholders, volunteers and ENGOs are happy to support. But this must be decided consciously, not through unnoticed incremental changes that contradict some volunteers’ values or donors’ understanding of an organisation's mission.

Mapa Conceitual da Fraude: Configuração Teórica e Empírica dos Estudos Internacionais e Oportunidades de Pesquisas Futuras

Objetivo: Explicar o fenômeno da fraude pela construção de um mapa conceitual e sintetizar os diversos tipos de fraudes. Método: O estudo realizou uma revisão de literatura, por meio nos trabalhos teóricos e uma síntese de pesquisa, referente aos trabalhos empíricos. Resultados: A revisão de literatura construída permitiu identificar que a Teoria do Triângulo da Fraude teve sua origem a partir do crime de colarinho branco. Os elementos da teoria (oportunidade, motivação e racionalização) evoluíram desde 1950 e recentemente são criticados, pois descobertas têm sido feitas que modificam o entendimento dos motivos ex ante. Principalmente, demonstram evidências de que o elemento racionalização (a parte cognitiva) é limitado e ainda não está claro na literatura. Além disso o trabalho traz as revistas e autores mais profícuos da temática das fraudes. Contribuições: As evidências desta pesquisa demonstram a interdisciplinaridade do tema e apontam oportunidades de pesquisas. Este trabalho contribui, também, para as pesquisas de prevenção e detecção da fraude, pelo entendimento dos motivos que levam indivíduos a tais atos criminosos ou desvios de conduta.

Intrinsic and extrinsic effects on behavioral tax biases in risky investment decisions

Individuals often do not take taxes correctly into account, which results in distorted or unexpected investments. We shed further light on the discussion of such behavioral tax perception biases by analyzing intrinsic and extrinsic effects on investment decisions. We study two dimensions: (1) the influence of emotions and perceived risk (individual dimension, intrinsic effects) and (2) the influence of available tax information by varying tax complexity and salience (tax system dimension, extrinsic effects). In our laboratory experiment, we construct the payoff structure such that the subjects are confronted with exactly the same choices in net terms in a situation with or without a capital gains tax. This design allows us to identify pure tax perception biases. We show that both dimensions are able to explain tax perception biases. In particular, we find evidence that perceived risk is lower and consequently willingness to take risk is higher with a capital gains tax (with full loss offset provision) than without taxation. Furthermore, this positive effect on risky investment is higher in a situation with a rather low level of tax information in which tax complexity is high and tax salience is low.

Intrinsic and Extrinsic Effects on Behavioral Tax Biases in Risky Investment Decisions

In a variety of recent papers, it is shown that individuals do not take taxes correctly into account, which results in distorted or unexpected investment behavior. We shed further light on the discussion of such behavioral tax perception biases by analyzing intrinsic and extrinsic effects on decision behavior. We study two dimensions: (1) the influence of emotions and cognition (individual dimension, intrinsic effects) and (2) the influence of available tax information by varying tax complexity and salience (tax system dimension, extrinsic effects). In our laboratory experiment, we construct the payoff structure such that the subjects are confronted with exactly the same choices in net terms in a situation with or without a capital gains tax. This design allows us to identify pure tax perception biases. We show that both dimensions are able to explain tax perception biases. In particular, we find evidence that perceived risk (cognition) is lower and consequently willingness to take risk is higher with a capital gains tax (with full loss offset provision) than without taxation. Furthermore, this positive effect on risky investment is higher in a situation with a rather low level of tax information in which tax complexity is high and tax salience is low. In addition, we are able to provide evidence that the use of decision heuristics can explain the observed tax bias differences between our information treatments. In particular, we find a negative relationship between the information level and the use of heuristics.

Additionality and reverse crowding out for pollution offsets in water quality trading

Market-based environmental policies frequently include offset provisions that allow polluters who are not subject to a binding cap to participate in trading programs. When offsets are used for compliance, it is important that they are additional in the sense that the payment from the trading program induces environmental benefits that would not occur without the program. In this paper we analyze a water quality trading program in Ohio, U.S., to estimate the extent to which the offsets are additional. Using data from the program and a farmer survey, we estimate the number of additional conservation practices that are adopted by farmers who participated in the trading program relative to the counterfactual outcome without the program. Using matching methods, we find no statistically significant increase in the number of conservation practices due to the trading program. We also examine whether the trading program may have crowded out government funding. We also do not find significant evidence for such crowding out, instead finding some evidence that the trading program may have led to greater participation in federal cost-share programs.

Real Tax Effects and Tax Perception Effects in Decisions on Asset Allocation

We test the predictions of the theoretical literature initiated by the study of Domar and Musgrave (1944) with a laboratory experiment in which subjects have to decide on the composition of an asset portfolio. Our simple design enables us to distinguish between Real Tax Effects and Perception Effects when a proportional income tax, with and without a full loss offset provision, is introduced. Observed investment behavior is partially inconsistent with the theoretical predictions if we do not control for the Perception Effects. However, if we consider these effects, we find support for the theory. The isolated Perception Effects can explain the unexpected behavior observed in previous studies and has both scientific and political implications.

Entrepreneurial innovations and taxation

Stimulating entrepreneurship is high on the policy agenda of many countries. We study the effects of tax policies on entrepreneurs' choice of riskiness (or quality) of an innovation project, and on their mode of commercializing the innovation (market entry versus sale). Limited loss offset provisions in the tax system induce entrepreneurs innovating for entry to choose projects with inefficiently little risk. The same distortion does not arise when entrepreneurs sell their innovation in a competitive bidding process to an incumbent before the uncertainty is revealed. Tax systems which systematically favor market entry of entrepreneurs can thus lead to welfare losses due to inefficient quality choices, despite leading to more competition in the product market.

The Social Security Windfall Elimination and Government Pension Offset Provisions for Public Employees in the Health and Retirement Study

This article uses Health and Retirement Study data to investigate the effects of Social Security's Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) on Social Security benefits received by households. The provisions reduce benefits for individuals or the dependents of individuals whose work histories include jobs for which they were entitled to a pension and were not subject to Social Security payroll taxes (“noncovered” employment). We find that about 3.5 percent of households are subject to either the WEP or the GPO, and that the provisions reduce the present value of their Social Security benefits by roughly one-fifth. Households affected by both provisions experience benefit reductions of about one-third. Under the WEP, the Social Security benefit reduction is capped at one-half of the amount of the pension from noncovered employment, which substantially reduces the WEP penalty and prevents the WEP adjustment from falling disproportionately on households in the lowest earnings category.

Real Tax Effects and Tax Perception Effects in Decisions on Asset Allocation

We test the predictions of the theoretical literature initiated by the study of Domar and Musgrave (1944) with a laboratory experiment in which subjects have to decide on the composition of an asset portfolio. Our simple design enables us to distinguish between Real Tax Effects and Perception Effects when a proportional income tax, with and without a full loss offset provision, is introduced. Observed investment behavior is partially inconsistent with the theoretical predictions if we do not control for the Perception Effects. However, if we consider these effects, we find support for the theory. The isolated Perception Effects can explain the unexpected behavior observed in previous studies and has both scientific and political implications.

Climate Change Mitigation Policies: Implications for Agriculture and Water Resources

AbstractThis study examines how the proposed American Clean Energy and Security Act (H.R. 2454) would affect U.S. agriculture with special reference to water resources. The bill's cap and trade provisions for greenhouse gases would significantly raise fertilizer, irrigation pumping, and other energy‐related costs. By 2030, it would reduce U.S. irrigation water use by >11 percent and fertilizer use by >18 percent with positive implications for water conservation and quality. Carbon offset provisions create financial incentives for farmers to sequester carbon by planting trees on cropland, reducing agricultural production and raising prices. Because sequestration potential differs by region, most of the estimated 51 million acres of converted cropland would be in the Corn Belt and Mississippi Delta. Afforestation would reduce Delta water use further, but increase water use in other regions compared to cap and trade alone. Compared to a no‐policy baseline, irrigation water use declines 10 percent nationally, but increases in the Southern Plains. H.R. 2454 may have significant water conservation effects in some regions, but increase competition for water in others. By reducing fertilizer use and dramatically altering land use patterns in parts of the Mississippi Basin, it may also provide unexpected water quality benefits. Unintended water use and quality consequences of climate policies merit further research.

Investment impact of tax loss treatment—empirical insights from a panel of multinationals

We analyze the impact of tax loss treatment on multinational investment. Basically, two effects of tax loss treatment can be expected. First, firms make their investment decisions considering potential future losses. Then, the various types of conceivable loss offset provisions affect investment decisions. Secondly, existing loss carryforwards resulting from losses in the past affect the tax rate elasticity of current investment decisions. Our empirical analysis is based on data of German multinationals. We pay particular attention to industries having a high probability to make losses. Our regression results suggest that a short carryforward time limit lowers investment in particular for firms with a high loss probability. We only find mixed evidence that group loss offsetting provisions foster investment. Concerning the effects of existing losses carried forward, we find a reduced tax rate elasticity of investment for companies shielded by loss carryforwards.

Capital income taxation and risk taking under prospect theory

This research examines capital income taxation for a prospect theory investor under some acceptable in the literature reference levels relative to which are the changes in the level of wealth valued. Depending on the reference level, some results indicate that it is possible for a capital income tax increase not to stimulate risk taking even if the tax code provides attractive full loss offset provisions. However, risk taking can be stimulated when investors compare their reference level with others. Risk taking can increase also if the investor interprets part of the tax as a loss instead as a reduced gain. Then the investor becomes risk seeking and moves away from the discomfort zone of relative losses. This later response to taxation causes private risk taking to increase.

Tax Policies to Improve the Stability of Financial Markets

While tax policies did not cause the recent global financial crisis, they almost certainly contributed to key vulnerabilities in the international financial system. In this paper we review existing tax policies identifying a number of channels by which tax distortions increase an economy’s vulnerability to financial shocks. In particular, we highlight how current tax policies contribute to excessive leverage, reduced transparency and increased complexity due to unproductive financial innovation. Rather than improving financial stability, some recent tax proposals, such as a Tobin tax or other financial sector taxes and levies, may in fact add to the vulnerabilities of the financial sector.We identify a number of policy reforms which would reduce the potential for financial shocks to become crises with severe consequences for individual well-being. These reforms include, reducing corporate debt biases (such as through an allowance for corporate equity), improving loss offset provisions, eliminating transaction based taxes and moving towards accrual based taxation. These reforms would significantly improve risk allocation in the economy, particularly by reducing the bias towards leverage, improving the price revelation of financial products and the stability of financial markets. Many of these issues were also outlined in the recent Australia’s Future Tax System review.

Entrepreneurial Innovations and Taxation

In many countries entrepreneurship is promoted through tax reductions for small businesses and by various government support schemes. We analyze the effects of such policies to subsidize small businesses in a setting where both the risk-return characteristics of the selected innovation project and the mode of commercialization chosen by entrepreneurs (market entry versus sale to an incumbent firm) are endogenous. We show that government programs to support small businesses foster market entry by entrepreneurs but, at the same time, give an incentive to choose low risk projects, due to the existence of limited loss offset provisions. This points to a basic trade-off between the goals of raising competition in technology-intensive markets and the desire of governments to foster risky ‘breakthrough’ innovations.

Entrepreneurial Innovations and Taxation

Stimulating entrepreneurship is high on the policy agenda of many countries. We study the effects of tax policies on entrepreneurs’ choice of riskiness (quality) of an innovation project, and on their mode of commercializing the innovation (market entry versus sale). Limited loss offset provisions in the tax system induce entrepreneurs innovating for entry to choose projects with inefficiently little risk, whereas this imperfection does not arise when innovating for sale. Tax systems which systematically favor market entry of entrepreneurs can thus lead to welfare losses due to inefficient quality choices, despite leading to more competition in the product market.

Screening and Adverse Selection in the Market for Voluntary Emission Reductions

Tradable voluntary emission reductions (VER's), often called offsets, are a policy instrument designed to expand participation in emission cap regulations. In theory, voluntary reductions by unrestricted sources used as a substitute for increases in emissions, or unmet emission reduction obligations, from restricted sources lower the overall cost of achieving an emissions target. In practice, participation in these programs is often restricted using criteria unrelated to cost effectiveness. In this paper, I focus on a particular participation restriction (i.e., screen) commonly discussed in the greenhouse gas (GHG) policy gray literature called additionality. I show when the use of the criterion is inefficient and discuss alternatives for improving the efficiency of offset programs. Under the clean development mechanism: Parties not included in Annex I will benefit from project activities resulting in certified emission reductions; and…Emission reductions resulting from each project activity shall be certified…on the basis of: (a) Voluntary participation approved by each Party involved; (b) Real, measurable, and long-term benefits related to the mitigation of climate change; and (c) Reductions in emissions that are to any that would occur in the absence of the certified project activity. (excerpt, Article 12 of the Kyoto Protocol , emphasis added ) The cost effectiveness of emission cap regulations is clearly improved by allowing verified voluntary emission reductions (VER's), or offsets, from unrestricted sources to be substituted for the emission reductions obligations, or increases, from other sources. The underlying rationale for this statement is that as the number of (heterogeneous) sources considered for emission reductions is increased, so too will the possibility of finding low cost emission reduction sources. Under voluntary emission reduction provisions of emission cap regulations, sources obligated to undertake emission reductions can compensate others to reduce emissions in their stead. VER's created by the lowest cost abatement sources are the greatest source of potential gains from trade; and thus, the most likely sources to respond to the incentives provided by the offset provisions in an emission cap regulations. Conversely, criteria that screen the pool of participants reduce eligibility and increase the cost of achieving an emissions cap. The direct costs of screening further reduce the cost effectiveness of such regulations and leave one wondering, Why do screening criteria exist at all? Article 12 of the Kyoto Protocol is the first instance of the term additional as it is currently used in the environmental economics and climate change policy literatures. The meaning of in these settings is defined in Article 12 to be emission reductions greater than what would have happened in the absence of policy. A detailed rationale for its use and importance to the framers of the Kyoto Protocol is not part of the body of documents that commonly accompany the Protocol (i.e., annex, appendix, or preamble). Popular consensus 1 argues that the requirement of additionality is vital for

Designing Cap and Trade to Account for 'Imperfect' Offsets

The use of offsets can potentially improve a cap-and-trade system by lowering the overall cost of compliance, encourage mitigation from outside of the cap, and function as a bridge strategy, giving the regulated sectors time to innovate new low-carbon technologies and business plans. But offset provisions can be imperfect, and decision makers must appreciate the implications of these flaws and design the national offset program accordingly. This paper discusses three policy options for addressing offset integrity issues that can cause effective aggregate abatement to fall below the optimum level set by a compliance cap, and assesses the efficiency and welfare implications – for offset buyers and suppliers – of these policy options.