An analysis of ACRS during inflationary periods

Article Abstract:

A Monte Carlo simulation is used to examine equity and neutrality elements of the Accelerated Cost Recovery System (ACRS), which became part of US tax law in 1981. ACRS depreciation is demonstrated to be equivalent to general price-level (GPL) depreciation only between inflation rates of nine and 13 percent. The post-1980 statute is shown to be nonneutral during inflationary times, to the extent that businesses alter their production, investment, and financing activities because of inflationary misstatement. ACRS will cause a significant, disproportionate relative capital shift among industries during periods of inflation, suggesting the horizontal inequity of the post-1980 statute. Such a capital shift will be the strongest for capital-intensive businesses that have long-lived assets, such as utilities, transportation, and real estate.

Usage, Accounting and auditing, Inflation (Finance), Monte Carlo method, Monte Carlo methods, Inflation (Economics), Accelerated depreciation

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The effects of information choice and information use on analysts' predictions of municipal bond rating changes

Article Abstract:

The effects of information selection and use on municipal financial analysts' predictions about cities' general obligation bond ratings are reported. Analysts were provided with a menu from which to select data. A statistical bond rating change model was built utilizing the same data. Bond rating changes were predicted by the analysts, utilizing either their self-chosen data or that selected from the statistical model. Previous research had indicated that information selection was the key factor in sub-optimal prediction achievement, but results here suggest that people perform about as well in a validation sample as do statistical models. Reinterpretation of the previous research is provided in consideration of current results.

Analysis, Evaluation, Public finance, Municipal bonds

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