Showing papers on "Earnings before interest and taxes published in 1975"

Falling Profits, Rising Profit Margins, and the Full-Employment Profit Rate

Abstract: SINCE EARLY 1973 the major price aggregates have risen far more than can be explained by the direct effects of rising unit labor costs and higher prices for fossil fuels and other imported commodities. The margin of prices over standard unit labor costs for private nonfarm domestic output widened not only during the last phases of expansion in 1972-73 but even more sharply in the recession that followed. At today's price-cost relationships, full-employment levels of output and associated levels of productivity would generate very large profits. The full-employment profit rate (first cousin to the full-employment surplus) has risen very rapidly during the past two years, accounting for an important part of the inflation and perhaps-like its budgetary cousin-for an important part of the recession. The behavior of two major price indexes-the deflators for private nonfarm domestic output and for the gross product of private nonfinancial corporations-was compared to various measures of unit labor costs. But first, each price index was adjusted to exclude the effect of the relative increase in domestic fossil-fuel prices since the onset of the embargo in October 1973.1 After the adjustment, each deflator excluded, at least concep-

Income Distribution and Taxes in an Inflationary Context

Abstract: The conventional theory of tax incidence is based on the marginal productivity theory of distribution and perfect competition. While some attention has been devoted to incorporating dynamic and non-competitive elements into the theory, most of the recent literature examines the question within the context of a static general equilibrium model (see the survey by Mieszkowski, 1969). In this paper we analyse the effects of taxes on income distribution in an inflationary context. It is often argued that some of the most serious consequences of inflation are its effects on income distribution, and hence it is of interest to examine the question of tax incidence via the inflationary process. This is done by constructing an aggregate model of the wage-price sector in which both wages and prices are determined partly by competitive demand elements and partly by non-competitive cost considerations. Three types of tax are considered, namely a personal income tax, a corporate profit tax and a sales tax. In view of the fact that people do not necessarily try, or are not necessarily able, to pass on their entire tax burdens, we specify the proportions of the various taxes they attempt to pass on as free parameters, which we allow to vary among the different taxes. By looking at distributional questions in this way, we are departing somewhat from the traditional framework, which neverthless could emerge as a polar case.

The weighted average cost of capital: comment

Abstract: IN A RECENT article in this Journal, Prof. Ardittil argued that the weighted average cost of capital could only be properly employed by a firm possessing earnings expectations in the form of a perpetuity. We shall contend that this point is invalid and can be traced to a basic misunderstanding of the concept of income.2 Arditti defined earnings before interest and taxes (EBIT) as X and correctly noted that, in the absence of taxes, the average cost of capital for a perpetuity (c = X/V) could be shown to equal the weighted average cost of capital (w). He erred however when he attempted to demonstrate that this relationship would not hold for a finite stream. In footnote 3 of his article, Arditti considered the constant, finite earnings stream X and presented the following equation (1'):