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Abstract:
As legal scholarship has come to rely more on economic analysis, the foundational questions of economics have become important questions for legal analysis as well. One of the key foundational elements of modern economics is the assumption of the rational utility maximizing individual. While this assumption has often been questioned, until recently, it was not possible to actually examine the brain mechanisms that individuals use to process the economic problems they face. As a result of the increasing abilities to explore the brain as individuals engage in economic activity, this article calls for a new approach to the study of law which incorporates the findings from the emerging area of neuroeconomics. We call this approach law and neuroeconomics. We argue that this research can help us understand what is occurring in the brains of the individuals and knowledge gained thereby can greatly aid both in understanding the process of creation and development of law as well as its effects on human behavior. The article discusses this research and begins the analysis of applying these findings the study of law.

Law & Finance, Property, Corporate Law, Land Use

Abstract:
The assumption of rationality is both one of the most important and most controversial assumptions of modern economics. This article discusses what current experimental economic as well as neuroscience research tells us about the relationship between rationality and the mechanisms of human decision-making. The article explores the meaning of rationality, with a discussion of the distinction between traditional constructivist rationality and more ecological concepts of rationality. The article argues that ecological notions of rationality more accurately describe both human neural mechanisms as well as a wider variety of human behavior than do constructivist notions of rationality.

Rationality, Law and economics

Abstract:
Much has been written about how law as an institution has developed to solve many problems that human societies face. Inherent in all of these explanations are models of how humans make decisions. This article discusses what current neuroscience research tells us about the mechanisms of human decision-making of particular relevance to law. This research indicates that humans are both more capable of solving many problems than standard economic models predict, but also limited in ways those models ignore. This article discusses how law is both shaped by our cognitive processes and also shapes them. The article considers some of the implications of this research for improving our understanding of how our current legal regimes operate and how the law can be structured to take advantage of our neural mechanisms to improve social welfare.

Corporate Law, Criminal Law & Procedure

Abstract:
The requirement that gains be "realized" before they are subject to income tax is one of the most fundamental doctrines in tax law as well as being one of the most controversial. The common assumption in the academic literature is that this requirement leads to significant inefficiencies and inequities. This article argues that requiring a realization event is generally the best way to measure taxable income because it is consistent with how individuals actually perceive income. This perspective helps us to understand the development of the realization doctrine as well as suggest ways in which the current tax system can be improved, such as exempting some of the amounts reinvested in mutual funds from income taxation.

Tax, tax law & policy

Abstract:
The requirement that gains be realized before they are subject to income tax is one of the most fundamental doctrines in tax law as well as being one of the most controversial. The common assumption in the academic literature is that this requirement leads to significant inefficiencies and inequities. This article argues that requiring a realization event is generally the best way to measure taxable income because it is consistent with how individuals actually perceive income. This perspective helps us to understand the development of the realization doctrine as well as suggest ways in which the current tax system can be improved, such as exempting some of the amounts reinvested in mutual funds from income taxation.

Tax, tax law & policy

Abstract:
In order to assess the efficiency of a tax, we should examine its effect on the behavior of individuals. In general, the less a tax affects behavior, the more efficient it is thought to be. The standard example of a non-distorting tax is a lump-sum tax, which does not change with the behavior of the taxpayer. However, this article demonstrates that behavioral distortions can and do arise from a change in even a lump-sum tax. The only truly non-distortionary tax would be one based on utility itself. Utility, which has been used as a norm for distributional analysis, is also the ideal base for efficiency analysis. In fact, any reasonable attempt to describe a minimally distortive basis of taxation will significantly resemble the notion of a tax on utility. Therefore, utility itself is the best basis for evaluation of the efficiency of a tax. Such a tax has many additional features which make it more useful for analytical purposes than lump sum taxes.

taxation, efficiency, utility

Abstract:
One of the most controversial aspects of the U.S. income tax system is the double taxation of corporate income. Such income is taxed both when it is earned by the corporation and when it is distributed to the shareholders. Most other kinds of income are taxed only once. It is generally thought that treating corporate income less advantageously than other income distorts investment incentives and reduces economic productivity. This article draws upon the fundamental insight that a properly structured income tax encourages investment in risky assets to argue that a second layer of tax on corporate income can be a very efficient way of raising revenue and can possibly improve economic productivity. The article also shows how this insight helps to justify the difference in tax treatment between debt and equity which is generally thought indefensible. It also analyzes how the U.S. income tax could be restructured to take advantage of this phenomenon.

Abstract:
Traditional analysis of tax policy has generally used either the Expected Utility Model or the closely related Subjective Expected Utility Theory to describe how individuals behave under risk and uncertainty. However, the accuracy of this theory has been under attack for a number of decades. This article begins the process of incorporating one of the major lines of criticism of expected utility theories, i.e. that individuals don't necessary calculate precise probabilities of events and are averse to ambiguous risks, into the analysis of tax policy. It discusses how this analysis explains certain 'paradoxes' such as the 'Home Bias' problem. It concludes that these findings argue for lower rates of taxation on entrepreneurial income and for lower rates of tax on portfolio income derived from investment in foreign countries.

Abstract:
This article examines the current system of taxation of income earned by US residents (both corporations and individuals) in
foreign countries. It finds that adopting a system whereby this income was exempt from US income tax would increase economic
efficiency.

Abstract:
Because the tax law makes many distinctions not based on fundamental economic differences, taxpayers can exploit these inconsistencies to create opportunities for tax arbitrage. This article argues that any interpretative system which requires consistency in the application of rules where the system itself is based on fundamental inconsistencies will always allow for arbitrage. This result applies equally to purposive interpretations of the tax law as well as to more formal or literal systems of interpretation. That is, the problem of tax arbitrage is concomitant with the existence of non-economic principles of tax law embedded in a system that interprets these rules in a consistent manner. While this idea has been applied to questions of whether a tax system can impede the ability of the economy to reach equilibrium, it has not been applied to the legal analysis of tax shelters themselves. The result of this line of reasoning is that tax shelters are the inevitable result of any tax system with inherent inconsistencies which attempts to bring an artificial consistency to these non-economic based distinctions. The article goes on to argue that one of the methods by which tax shelters are addressed by the courts is the use of inconsistent methods of applying the law to these transactions.

tax shelter, economic substance, tax arbitrage, Dutch book, taxation - federal income

Abstract:
This article argues that the relationship between the timing of tax payments and the decision of how much tax will be paid may have a greater impact on the level of tax compliance than would be predicted under standard exponential discounting models. To the extent that taxpayers exhibit hyperbolic or quasi-hyperbolic time discounting, compliance may be improved by separating the time at which tax returns are filed from the time in which it is paid or in which previously paid tax is refunded.

tax compliance, neuroeconomics, intertemporal substitution

Abstract:
The article argues that the corporate alternative minimum tax ("AMT") should be repealed. The article notes that recent events involving Enron, Worldcom, Global Crossing, and Qwest have demonstrated that Congress' justification for enacting the corporate AMT in 1986 has been undercut because book income, like taxable income, can also be subject to wholesale manipulation. The article argues that the corporate AMT raises minimal revenue, distorts investment incentives, and imposes substantial compliance costs. In addition, the article argues that the corporate AMT does not increase efficiency or equity and does not prevent corporate tax shelters. In lieu of the corporate AMT, the article proposes reducing tax preferences and requiring greater public disclosure of the tax information of public companies.