[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/ntj/journl/v64y2011i2p731-51.html
   My bibliography  Save this article

U.S. DEFENSE CONTRACTS DURING the TAX EXPENDITURE BATTLES of the 1980s

Author

Listed:
  • Susan J. Guthrie
  • Hines, James R. Jr.
Abstract
This paper considers the impact of the tax treatment of military contractors on the cost and timing of U.S. military procurement. Prior to the early 1980s, taxpayers were permitted to defer tax obligations on profits earned from long-term contracts. Legislation passed in 1982, 1986, and 1987 required that at least 70 percent of the profits earned on long-term contracts be taxed as accrued, thereby significantly reducing the tax benefits associated with long term contracting. Comparing contracts that were ineligible for these tax benefits with those that were eligible, it appears that between 1981–1989 the duration of U.S. Department of Defense contracts shortened by an average of between one and two months, or somewhere between 10 and 23 percent of average contract length. This pattern implies that the tax benefits associated with long term contracts promoted artificial contract lengthening in the 1980s, and suggests that the Department of Defense ignores the federal income tax consequences of its procurement actions, thereby indirectly rewarding contractors who benefit from tax expenditures.

Suggested Citation

  • Susan J. Guthrie & Hines, James R. Jr., 2011. "U.S. DEFENSE CONTRACTS DURING the TAX EXPENDITURE BATTLES of the 1980s," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 731-751, June.
    • Handle: RePEc:ntj:journl:v:64:y:2011:i:2:p:731-51
    DOI: 10.17310/ntj.2011.2S.11
    as

    Download full text from publisher

    File URL: https://doi.org/10.17310/ntj.2011.2S.11
    Download Restriction: Access is restricted to subscribers and members of the National Tax Association.
    File URL: https://doi.org/10.17310/ntj.2011.2S.11
    Download Restriction: Access is restricted to subscribers and members of the National Tax Association.
    File URL: https://libkey.io/10.17310/ntj.2011.2S.11?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lichtenberg, Frank R., 1989. "How elastic is the government's demand for weapons?," Journal of Public Economics, Elsevier, vol. 40(1), pages 57-78, October.
    2. Susan J. Guthrie & Hines, James R. Jr., 2011. "U.S. DEFENSE CONTRACTS DURING the TAX EXPENDITURE BATTLES of the 1980s," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 731-751, June.
    3. Rogerson, William P, 1990. "Quality vs. Quantity in Military Procurement," American Economic Review, American Economic Association, vol. 80(1), pages 83-92, March.
    4. Keith Hartley & Todd Sandler (ed.), 2007. "Handbook of Defense Economics," Handbook of Defense Economics, Elsevier, edition 1, volume 2, number 1.
    5. Dharmapala, Dhammika, 1999. "Comparing tax expenditures and direct subsidies: the role of legislative committee structure," Journal of Public Economics, Elsevier, vol. 72(3), pages 421-454, June.
    6. Hines, James Jr., 1994. "Credit and deferral as international investment incentives," Journal of Public Economics, Elsevier, vol. 55(2), pages 323-347, October.
    7. Naegelen, Florence & Mougeot, Michel, 1998. "Discriminatory public procurement policy and cost reduction incentives," Journal of Public Economics, Elsevier, vol. 67(3), pages 349-367, March.
    8. Hines, James R, Jr, 1996. "Altered States: Taxes and the Location of Foreign Direct Investment in America," American Economic Review, American Economic Association, vol. 86(5), pages 1076-1094, December.
    9. Hartley, Keith, 2007. "The Arms Industry, Procurement and Industrial Policies," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 2, chapter 33, pages 1139-1176, Elsevier.
    10. Rogerson, William P., 1995. "Incentive models of the defense procurement process," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 12, pages 309-346, Elsevier.
    11. Rogerson, William P, 1989. "Profit Regulation of Defense Contractors and Prizes for Innovation," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1284-1305, December.
    12. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    13. Sandler,Todd & Hartley,Keith, 1995. "The Economics of Defense," Cambridge Books, Cambridge University Press, number 9780521447287, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Susan J. Guthrie & Hines, James R. Jr., 2011. "U.S. DEFENSE CONTRACTS DURING the TAX EXPENDITURE BATTLES of the 1980s," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 731-751, June.
    2. Carril, Rodrigo & Duggan, Mark, 2020. "The impact of industry consolidation on government procurement: Evidence from Department of Defense contracting," Journal of Public Economics, Elsevier, vol. 184(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yongmin Chen & Ron Smith, 2001. "Equilibrium Cost Overruns," Annals of Economics and Finance, Society for AEF, vol. 2(2), pages 401-414, November.
    2. Economou, Emmanouel/Marios/Lazaros & Metaxas, Theodore, 2011. "EU and US security policy from the cold war era to the 21st century: the institutional evolution of cfsp and the factors that determine the American military supremacy," MPRA Paper 41003, University Library of Munich, Germany, revised 2011.
    3. Marcus Matthias Keupp, 2021. "Effectiveness of Military Performance," Springer Books, in: Defense Economics, chapter 0, pages 67-91, Springer.
    4. Renaud Bellais & Martial Foucault & Jean-Michel Oudot, 2014. "Économie de la défense," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01052607, HAL.
    5. Bernhard Klingen, 2011. "A Public Choice Perspective on Defense and Alliance Policy," Chapters, in: Christopher J. Coyne & Rachel L. Mathers (ed.), The Handbook on the Political Economy of War, chapter 17, Edward Elgar Publishing.
    6. Coyne,Christopher J., 2020. "Defense, Peace, and War Economics," Cambridge Books, Cambridge University Press, number 9781108724036, September.
    7. Desai, Mihir A. & Hines, James R. Jr., 2002. "Expectations and Expatriations: Tracing the Causes and Consequences of Corporate Inversions," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(3), pages 409-440, September.
    8. Marius BRÜLHART & Federico TRIONFETTI, 2000. "Public Expenditure and International Specialisation," Cahiers de Recherches Economiques du Département d'économie 00.23, Université de Lausanne, Faculté des HEC, Département d’économie.
    9. Bayer, Péter & Herings, P. Jean-Jacques & Peeters, Ronald, 2021. "Farsighted manipulation and exploitation in networks," Journal of Economic Theory, Elsevier, vol. 196(C).
    10. Réjane Hugounenq & Jacques Le Cacheux & Thierry Madiès, 1999. "Diversité des fiscalités européennes et risques de concurrence fiscale," Revue de l'OFCE, Programme National Persée, vol. 70(1), pages 63-109.
    11. Mehrdad Vahabi, 2011. "The Economics of Destructive Power," Chapters, in: Derek L. Braddon & Keith Hartley (ed.), Handbook on the Economics of Conflict, chapter 5, Edward Elgar Publishing.
    12. Stergios Skaperdas, 2011. "The costs of organized violence: a review of the evidence," Economics of Governance, Springer, vol. 12(1), pages 1-23, March.
    13. Péter Bayer & György Kozics & Nóra Gabriella Szőke, 2020. "Best-Response Dynamics in Directed Network Games," CEU Working Papers 2020_1, Department of Economics, Central European University.
    14. Evenett, Simon J. & Hoekman, Bernard M., 2005. "Government procurement: market access, transparency, and multilateral trade rules," European Journal of Political Economy, Elsevier, vol. 21(1), pages 163-183, March.
    15. Barbosa, Klenio & Boyer, Pierre C., 2021. "Discrimination in Dynamic Procurement Design with Learning-by-doing," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    16. Fanny Coulomb & Keith Hartley & Michael Intriligator, 2008. "Pacifism in Economic Analysis," Post-Print hal-02051640, HAL.
    17. Hwang, Sung-Ha, 2012. "Technology of military conflict, military spending, and war," Journal of Public Economics, Elsevier, vol. 96(1), pages 226-236.
    18. Vahabi,Mehrdad, 2019. "The Political Economy of Predation," Cambridge Books, Cambridge University Press, number 9781107591370.
    19. Anderton,Charles H. & Carter,John R., 2009. "Principles of Conflict Economics," Cambridge Books, Cambridge University Press, number 9780521875578, December.
    20. Gian Luigi Albano & Berardino Cesi & Alberto Iozzi, 2023. "Teaching an old dog a new trick: Reserve price and unverifiable quality in repeated procurement," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(2), pages 377-399, April.

    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ntj:journl:v:64:y:2011:i:2:p:731-51. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: The University of Chicago Press (email available below). General contact details of provider: https://www.ntanet.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.