Self-Employed Taxes: Helping You Know Your Responsibilities
1. Estimated Tax Payments: If you are a sole proprietor, a partnership, or a shareholder in a Sub-chapter S corporation, you are considered self-employed. Since you don’t have an employer deducting taxes from your pay throughout the year, you are responsible for making advance payments of your estimated federal income tax. Estimated tax payments are due quarterly – on April 15, June 15, September 15, and January 15 – and are filed on a Form 1040-ES. At the end of the tax year, you will file a final Form 1040 with a Schedule C, which itemizes your business expenses for the whole year.
To avoid underpayment penalties – which are substantial – individuals whose adjusted gross incomes were under $150,000 need to have paid at least 100 percent of their prior year’s tax bill. People whose incomes were over $150,000 need to have paid 110 percent of the amount they owed in the prior year.
It’s in your interest to make your estimated tax payments during the year. This system also keeps you from owing a large sum of money all at once, which can be overwhelming. If your state of residence has income taxes, as most do, you will have to make estimated tax payments throughout the year for state taxes as well.
2. Self-Employment Tax: Your estimated tax payments will also include the federal self-employment tax – Social Security and Medicare. If you were employed by someone else, your employer would pay half of your Social Security and Medicare and the other half would come out of your paycheck. Self-employed people must pay the full amount themselves; however, 50 percent of the self employment tax is deductible on the 1040 form.
What if you are a salaried employee and you operate a home-based business as a sideline? In this case, you’ll be filing both the usual Form 1040 and a Schedule C for your home business deductions; you may also have to pay additional self-employment tax. No matter how little your sideline income is, you should be aware that it is subject to tax – although by taking advantage of the home-office deduction, you may find you owe little or no taxes.
3. Employment Taxes: Home-based workers who employ others must comply with many additional tax requirements. IRS Circular E, Employer’s Tax Guide, covers the federal regulations, and your state tax agency can inform you of state requirements for employers with regard to income, state unemployment, and workers’ compensation taxes.
If you employ your children or grandchildren, their earnings are deductible. Family businesses do not need to pay Social Security or unemployment taxes on minor children, and the children pay no income taxes on the first $3,000 of earned income. To substantiate this claim, keep time records of their work (the records will be more believable to the IRS if a non-relative keeps them), note the work done, and pay family at the rate you would pay a non-family member for the same work.
4. State and Local Taxes: Depending on where you live, you will face a variety of state and local tax requirements. All but nine states (Alaska, Wyoming, Nevada, Florida, Tennessee, South Dakota, New Hampshire, Texas, and Washington) have state personal-income taxes. But even those may have taxes on business. For example, Florida levies an income tax on corporations. Some cities, like Kansas City, have earnings taxes apart from the state income tax; others have unusual taxes on business. New York, for example, taxes unincorporated businesses.
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Make Money with PROFIT MIRACLE! Earn Income with “Push-Button” Ease!
PROFIT MIRACLE
TO WORK ONLINE
————————————————— With the ongoing recession, you lost the comfort zone feeling which you always maintain in relation to your job. If you have a sizable amount of savings, you might become an entrepreneur or create your own business. Working online are words not included in most past edition dictionaries and it is only until recently that the words have become familiar to our sight and hearing. It paints a bleak picture of what will happen to your means of livelihood in the near future. Today, people talk a lot about the global crisis and its adverse effects in your economic life. Cybernet has come to the rescue by providing opportunities in easing economic crisis.
WHAT DOES WORKING ONLINE MEAN?
————————————————— To work online, you are to have a computer and an internet connection.
WHAT ARE THE ADVANTAGES IN ONLINE EMPLOYMENT?
————————————————— > No experience is required with most online jobs. In many instances, you will be provided with training or with easy step-by-step instructions on what your job will entail. > For those coming from developing countries, working at home payments are tax-free since the dollars you earned are changed into the currency of your country. > The online employment work can be easy and quick. If you are efficient and can keep deadlines in submitting your assignments, you are guaranteed continuous work from home. > Your work at home salary is paid on the 15th and 30th of the month via PayPal or other reliable money services. The amount of which will depend upon the work you are doing or based on the standard paid for online jobs.
WHICH ONLINE JOBS ARE AVAILABLE?
————————————————— > Virtual assistant – You will provide professional, administrative, social and creative assistance to clients from your home. Usually, you will be working for a broker or consultancy firm. Requirement is at least 5 years experience in administrative work. > Data entry – You have to be affiliated with a reputable website to get your source of work. Once you become a member, you are provided a list and you can choose the company you want. > Online advertising – You will be posting the company’s ads, banners and short texts online. No prior skills are needed as you will be provided with a step-by-step video guide. > Tutorial online – You will be working for an internet based outlet. You will be tutoring students of all ages in several subject areas. Working hours are flexible depending upon the student’s schedule. Only requirements is a college education and teaching experience.
HOW CAN YOU TELL IF THIS HOME JOB IS A SCAM OR LEGITIMATE?
————————————————— Hang on to your money, do not send any for home directories or start up kits for work at home jobs. Legitimate work from home jobs also maintain a permanent website. Check the online employer’s references on the internet and check for any mentions of scams related to this employer and outlets you should avoid. Avoid all work from home listings that offer wealth, instant financial success, get rich quick lines and promises a high income within a short period of time, these impossibilities cannot be for real.
————————————————— Learning more information about starting a online business will guarantee your success. By starting your own business, you can create an additional stream of income which is completely automated. Many success stories come from people doing online business. Starting an online business can be easy to begin and you can do it even if you have a full time job.
FAST FACTS ABOUT RUNNING AN ONLINE BUSINESS:
————————————————— Persistence, consistency, taking the initiative to try new methods, and the willingness to give wholehearted efforts. Expectation to achieve wealth fast, laziness, procrastination, over-anxiety, frustration and fear of failure. These positive attitudes are your bridges to success. These negative attitudes are your path towards failure. As the business is automated the money works for you, not you working for the money.
WHAT ARE THE DISADVANTAGES OF WORKING ONLINE?
————————————————— You could then use your free time to go out and socialize with your friends and visit places. You will to an extent, forget your personal hygiene when working from home. Word of advice, before starting your work at home assignments look after your physical appearance first. Observe your personal hygiene at all times when working from home.
TIPS FOR MARKETING AFFILIATES
————————————————— One of the best opportunities using your computer to build extra income is through affiliate marketing. Affiliate marketing is a procedure in which a business rewards one or more affiliates for each visitor or customer that buys a product. Affiliate marketing is an innovative way of earning and doing business easily. Affiliate marketing is similar to a referral scheme.
HERE, YOU WILL REFER ONLINE SURFERS TO A SELECTION OF PRODUCTS OR SERVICES AND IN RETURN, YOU ARE REWARDED WITH YOUR AFFILIATE COMMISSION. YOU WILL FOLLOW THIS PROCEDURE
————————————————— > An affiliate program is the software platform which brings an affiliate (people working to earn money) together with the merchant (a company who is looking to sell products online). > A potential new customer looks at the affiliate’s website. An action, such as clicking, results in the viewer entering the website. > The affiliate agrees to promote a merchant’s goods on a website.
TIPS:FOLLOW THESE SIMPLE GUIDELINES FOR SUCCESSFUL MARKETING ONLINE. ————————————————— Get a top-level domain (TLD), use a name and some cheap but reliable hosting. Do not quit or give up if your first try is a failure. Content sites are sites that provide all the information about the product. Report them to the authorized website. Work at perfecting your system, be persistent and dedicated to make it work. There is no specific best merchant program, you have to determine the one which is most suitable for you. You can make your network the best by the tools provided to you. Use a lot of banners in your website to attract attention to the product.
————————————————— Advertisements from Google and Yahoo are free, so you start earning without paying additional expenses. Your own automated search engine can meet the demands of this exploding niche.
AFFILIATE MARKETING VERSUS INTERNET MARKETING. ————————————————— Affiliate marketing uses less stereo-typed methods, such as publishing reviews of products and services offered by partners. Affiliate marketing and internet marketing are similar but not identical.
PROS AND CONS OF AFFILIATE MARKETING:
————————————————— Positively, payments are given for performance level and you do not need any marketing experience for a great amount of success depends upon your marketing technique.
ALL ABOUT PROFIT MIRACLE
————————————————— By using Profit Miracle, you are able to save time and effort in researching for the products yourself. Profit Miracle is not very hard to pick up and learn and it is not using simple unneeded products. Using Profit Miracle, you will have a product that points which products are money-making niches and from here, you can read about the product. You are required to have a computer and an internet connection. Profit Miracle contains a generator which provides unique articles from using your inputted keywords.
BENEFITS IN USING THE PROFIT MIRACLE SYSTEM. THERE ARE MANY ADVANTAGES YOU CAN GAIN, ONCE YOU ACTIVATE THE PROFIT MIRACLE SYSTEM:
————————————————— > You simply relax and watch the money come flowing in or you can go on vacation and still see the money in your account when you get back > The articles will attract readers who in turn will get them into the traffic to visit your website with its affiliate link. > In this kind of work, you only search for the things you like. > It requires no effort and you do not even need to lift one finger once the system is in place.
WHERE DID THE SYSTEM GET ITS NAME, PROFIT MIRACLE?
————————————————— The creator discovered that many of them strive to improve the system so it gave better results. The Profit Miracle system will then execute and set it for you. The more the Profit Miracle machine is used, the more traffic is generated from the search engines and big websites. Now it is fully controllable in terms of generating profits and handling traffic, thus the codename Profit Miracle. Profit Miracle is income generated by traffic resulting from one article. More research was conducted to perfect the Profit Miracle automation system. In the Profit Miracle system, you just choose and then activate.
THIS BRAND NEW TECHNOLOGY MAKES USE OF THREE STEPS:
————————————————— > Choose a campaign to work with. > Press the “create” article button. > Submit your article and wait for the traffic.
Using Profit Miracle, you just press a button and watch the cash pour into your bank account. The Profit Miracle system is recession proof and it is rather recession reversing. Profit Miracle helps people come out of their recession-mentality.
DAILY PROFIT MIRACLE SALES SNAPSHOTS:
> Monday May 25 =2,549.
> Thursday May 28 =1,467.
> Saturday May 30 =5,159.
> Friday, June 5 =5,308.
> Thursday June 4 =2,534.
> Wednesday May 27 =2,533.
> Monday, June 1 =4,289.
> Tuesday May 26 =22,756.
CREATE A GOOD NICHE. ————————————————— > Test whether niche matches with product, to test, market it. Do this by giving a few incentives like offering free mini seminars or giving a copy of your newsletter, > Determine what you want to sell, stress on the process, what technique you plan to use and note the things you want to do and skills needed in each of them, your niche is based on your interest and experience. > List all those you want to do business with, be specific, identify geographic location, range-type of business, customers you wish to target, and others. > Evaluate to determine if it is a good niche. If it fails in one of the criteria, scrape it off.
HOW DOES PROFIT MIRACLE WORK. ————————————————— Profit Miracle does this faster because it can immediately find several niches by automatically using the control panel. Profit Miracle, the newly introduced money making system, insures a market with huge traffic, low competition and heavy profits. Profit miracle takes care of the traffic and provides the articles to be submitted. As you log into the Profit Miracle system, you will be copying the campaign that you want to use and next, promote that product. Profit Miracle further explains how you can promote the products without any extra cost and using minimal efforts. There is an estimate of 70% of members who are fairly new in the affiliate marketing field.
TAKE NOTE OF THE DIFFERENCES IN ITS SALES EFFECTS:
————————————————— > What is happening to your business is not a dream but a reality. Your dreams have come true in modern day and age by combining technology and internet traffic and it’s made very simple for you. > This is the famous propeller effect that Profit Miracle exhibits for the users. The income just shoots up and you literally cannot stop it from making money even if you try. For example, your income from Monday to Friday just goes up and up.
WHAT DOES PROFIT MIRACLE GIVE YOU?
————————————————— > This system offers actual and real profiting campaigns which are in high demand and high traffic niches. > It identifies which service can double your ROI in a short matter of time. > It points out which outlets do not work so you can eliminate it and save your efforts. > It gives you a unique article generator which performs research for you. > Create ads using new techniques so all you do is press a button and you will never need to write an ad again. > It economizes your time in making research.
BENEFITS DERIVED FROM THE PROFIT MIRACLE SYSTEM:
————————————————— > If you are not satisfied, you are given a 60 days money-back guarantee. > Just by following 9 easy steps, you discover top secret ways to make money contained in their online videos. > You are using traffic methods that are totally automated. > When you become an expert, you will make money online more efficiently. > You make money online faster but with less learning and expenses.
CODE NAME: “A MIRACLE”, IT CONTAINS THE FOLLOWING:
————————————————— > Revealing strategy videos. > Profit Miracle EBook. > And more
GOOD PROFIT MIRACLE ASPECTS:
————————————————— You will have tons of niches to select from and you only pay ONCE! The money back guarantee insures the quality of their system. The videos are easy to follow and directly stated. The Profit Miracle is beneficial for experienced internet marketers but is like a patient teacher for newbies.
THE PROFIT MIRACLE VIDEO COLLECTION HAS:
————————————————— > Profit Miracle Campaigns. > Article submission. > SEO Vortex (New). > And more
The Profit Miracle system is true to its name, it is a miracle, indeed, for aside from all its money making benefits, it reverses failure into success. If you are this type of person, then the Profit Miracle system is for you. What could be a better way to earn online with a successful online business than Profit Miracle? Utilizing Profit Miracle and various forms of media online and putting in 2 to 3 hours a day can spell out the difference between your success or failure.
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Singapore Income Tax vs. Malaysia Income Tax Guide
A key determinant for setting up a business in a given jurisdiction is the income tax regime in force. In today’s economic environment companies are choosing to set up operations or even transfer their businesses to locations where there are considerable tax benefits. Most businesses are specifically concerned with tax matters that have a direct bearing on their business operations such as corporate tax rates, tax incentives, tax treatment of foreign sourced income and indirect tax rates. In this article, we compare the income tax system of Singapore and Malaysia.
To support entrepreneurship and to help foster growth of SMEs, a newly incorporated company that satisfies the qualifying conditions will enjoy full tax exemption on the first S$100,000 of taxable income for each of the first three tax filing years. Malaysia resident companies on the other hand are subject to a corporate income tax rate of 25%. SMEs with a paid-up capital of RM 2.5 million or less are subject to a corporate income tax rate of 20% for the first RM 500,000 of taxable income and 25% on the remaining taxable income.
In Singapore, income taxes are levied on a territorial principle i.e. companies are taxed on Singapore sourced income. The income sourced overseas and retained outside the country is not taxable. Foreign sourced income (branch profits, dividends, service income, etc.) will be taxed only when it is remitted into Singapore, unless the income was already subjected to taxes in a jurisdiction with headline tax rates of at least 15%. Furthermore, as part of the tax changes announced in the 2009 Budget, there is an expansion of scope in the exemption of foreign sourced income. All foreign sourced income earned or accrued outside Singapore on or before 21 January 2009 will be exempted from tax, if the company remits the foreign sourced income to Singapore during 22 Jan 2009 to 21 Jan 2010.
Malaysia also follows a territorial system of taxation whereby companies are taxed on Malaysia sourced income. Resident companies are exempted from income tax on foreign-sourced income remitted into Malaysia, except companies in the banking, insurance, air or sea transport industries which are taxed on a worldwide basis. Both Singapore and Malaysia follow a single-tier corporate income tax system, which means there is no double-taxation for stakeholders. Singapore provides various industry-specific and investment related income tax incentives for the following business sectors: financial services industry, fund management industry, global trading sector, shipping and maritime industry, event management industry, e-commerce industry, insurance industry and the processing services sector. A tax treaty between two countries is generally an agreement that specifies how the income earned will be taxed by the authorities of each country when a company is involved in doing business in both countries.
Indirect tax such as VAT or GST is an area of concern for most businesses, as it increases the selling price of goods and services. Although the principles of indirect taxation are very similar all over the world, there are certain significant differences between the VAT or GST rates of various jurisdictions. Goods and Services Tax (GST) is a consumption tax that is levied on the supply of goods and services in Singapore and the import of goods into Singapore. A GST registered company must collect GST tax from its customers for the goods and services rendered by the company and then pay the tax collected to tax authorities. Singapore resident companies must register for GST when the annual turnover is above or expected to be above 1 million SGD. The GST rate in Singapore stands at 7%. Malaysia currently imposes a service tax and sales tax on certain prescribed goods and services.
A service tax applies to certain prescribed goods and services in Malaysia including food, drinks and tobacco; health services; provision of accommodation and most professional and consultancy services. The rate of service tax is currently fixed at 5%. Given Singapore’s emergence as the best place to business and its attractive income tax rates, more international businesses choose Singapore as their preferred destination for business set-up and expansion.
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Stock market development an important role to play in economic development. Shahbaz and his friends (2008) argue that stock market development is an important bike for economic growth because there is a long term relationship between stock market development and economic growth. Stock market development has direct implications in corporate finance and economic development.
Gerald (2006) says that stock market development is important because financial intermediation process supported by the mobilization of investment for household and foreign savings for investment by companies. It ensures that these resources to productive use are allocated and risk spreading and the provision of liquidity, so that companies can use the new capacity to operate efficiently. A growing number of literature has reiterated the importance of the financial system to economic growth.
The financial markets, especially equity markets have grown in in developed and developing countries the last two decades. Claessens, et al (2004), states that several factors have assisted in their growth, particularly important for improved macroeconomic fundamentals, as more monetary stability and higher economic growth. General economic and capital markets, specific reforms, including privatization of state enterprises, the liberalization of financial markets and a better institutional framework for capital markets investors have encouraged further development.
Similarly, Mishkin (2001) states that a well-developed financial system promotes investment by identifying and funding profitable business opportunities, mobilizing Savings, allocating resources efficiently and helps to diversify risks and facilitate the exchange of goods and services
From the perspective Sharpe, et al (1999), Stock Exchange is a mechanism by which the transaction takes place on financial assets with life of more than a year. Financial assets can take various forms ranging from the long-term government bonds to common shares of different companies. Exchange is a very important part of the capital, where the shares Trading of shares of different companies in two different forms can take the stock exchange are traded. When the issuing firm's shares sold to investors, the transaction took place, said in the primary market, but if already shares issued by companies to investors, the transaction should have been traded in the secondary market.
The stock markets are very important because they play a significant role in the economy by channeling investments where it is needed and can be the best (and Fergusson Liberman, 1998 submitted). The stock market is like the channel by which the public savings channeled to industry and operate business enterprises. Mobilizing their resources for investment is certainly off a necessary condition for economic, but quality of their assignment to various investment projects is an important factor for growth. This is exactly what an efficient stock market for the economy (and Berthelemy Varoudakis, 1996) does.
Earlier studies emphasized the role of the banking sector in the economic growth of the nation. In the last ten years pushed the global equity markets, Emerging Markets, and made a large amount of this boom (Demirguc-Kunt and Levine (1996a). Recent research has begun on the links between stock markets and to concentrate on economic development. New theoretical work shows how stock market development could boost long-term economic growth and new empirical evidence supports this view. Demirguc-Kunt and Levine (1996a), Singh (1997) and Levine and Zervos (1998) note that equity market development is an important role to play in the forecast future economic growth.
In underdeveloped as Nepal, the development and growth of the stock markets have been widespread in recent times. Despite the size and nature of the illiquid stock market could their continued existence and development have important implications for the economy. For example, Pardy (1992) found that even in less developed countries in capital markets are able to mobilize domestic savings and the ability to distribute resources more efficiently. Sun shares markets can play a role in inducing economic growth in less developed country like Nepal by channeling investments if they needed from the public. Mobilization these resources in different areas certainly helps in economic development and growth. Stock market development has a role in the global development Economics and Finance because of their impact they have worked in corporate finance and economic activity adopted. The role of the financial system is considered the key will contribute to economic growth (Neupane, et. al. 2006).
Paudel (2005) states that the stock markets, which allow for their liquidity, companies to acquire much needed capital quickly in order to facilitate the allocation of capital, investment and growth. Exchange activity is so quick to play a important role in supporting the level of economic activity in most economies determine.
Tuladhar (1996) states that financial markets are a catalyst in the development of the economy. The study added that the advanced economies have sophisticated financial institutions. In the past ten years, many developing countries have established capital markets, as they moved toward more liberal economic policies. These emerging economies have extraordinary growth with very high volatility, which have attracted many investors, represented in those markets.
This study will attempt to dig the empirical evidence in the context of underdeveloped nations on the role of stock market development on economic growth. 1.2. Statement of the problem:
In the past two decades, the link between financial intermediation and economic growth is a topic of considerable interest among scientists, politicians and economists to around the world. There have been attempts to empirically assess the role of stock markets and economic growth. The relationship between stock market and the economy grows in a variety of methods and results. There are two controversies in the predictions.
Adjasi and Biekpe (2005) found a significant positive impact of stock market development on economic growth in countries such as upper-middle-income economies classified. In the same way that worked Chen et al (2004) that the relationship between stock prices and output growth and the rate of stock returns is a leading indicator of overall economic growth Arestic et al. (2001) Time series to five industrial countries also indicate that the stock markets play a role in the growth. Various studies such as Spears, (1991), Levine and Zervos, (1998); Atje and Jovanovic (1993); Comincioli, (1996), Levine and Zervos, (1998), Filer et al, (1999), and Tuncer Alovsat, (2001). Levine and Zervos (1995), Demirguc-Kunt (1994) has argued. Stock markets to foster economic growth .. With well-functional financial sector or banking sector, stock markets can make a big push for economic development (Rousseau & Wachtel, 2000; Beck & Levine, 2003) give. Bahadur and Neupane (2006) concluded that the stock market fluctuations, the future growth of an economy and causality is predicted found in real variables.
There are also alternative views on the role stock markets play economic growth. Apart from the view that equity markets may have no real impact on growth, there are theoretical constructs, which show that the stock market may even hurt economic growth. For instance, Stiglitz (1985, 1994), Shleifer and Vishny (1986), Bencivenga and Smith (1991) and Bhide (1993) note that the stock markets can actually hurt economic growth. They argue that because of their liquidity, stock markets could hurt growth, since lower savings rates may by external effects of capital accumulation. Diffuse ownership may also have negative consequences on corporate governance, and always the performance of the companies mentioned, it hinders the growth of equity markets.
In spite of alternative views in future empirical work largely show a certain positive correlation between stock markets and growth. These studies largely in developed countries only on the base. Few studies have been carried out in connection with the Nepal Stock Exchange, the studies show no clear conclusion in regard to their effects on the economy. Yadhav (2002) found that companies with higher investment, higher savings and higher Investment. Although his study is significant in other cases it is of lesser importance. Similarly, Wagle (2002) led the study on the trends of saving, investment and capital formation in Nepal, but his studies do not provide a specific connection between savings, investment and capital formation with the stock market development. Similarly Sindhurakar (2004) has carried out a study on the relationship between the stock market and economic growth without analysis of econometric models.
The study specifically with the following topics:
1st What is the relationship between Gross Domestic Product (GDP) and government investment, government spending, foreign aid, Savings and foreign direct investment
2nd Is there a relationship between the market capitalization to gross domestic product (GDP)?
3rd What is the effect the degree of concentration on economic growth of a country?
4th What is the importance of liquidity for economic growth? What is their impact on capital market?
5th Is there a co-integration between the stock index development and economic growth?
6th Is there a Granger-causality between the stock and the Development of economic growth?
7th Is the model valid in Zerovos Levine and underdeveloped country like Nepal?
8th Can the small group of investors to manipulate a Nepalese capital market easily?
9th How to develop the government in the position to the stock market in the coming days?
A group of studies argues that stock market does not help in the economic development of a country, while the other group argues that in the economic development contributes. Empirical studies of the relationship between the development of the financial sector in general and stock markets and growth, in particular, have been relatively limited. Various Empirical studies have suggested a possible link between stock market development and economic growth, but are far from final.
1.3. The aim of the investigation
The main objective of this study is the impact of stock market development in the economic to examine the development and growth of the nation in the context of Nepal. The specific objectives of the study are as follows.
1st To carry out the empirical Analysis of the stock market by examining the relationship between stock markets and economic growth.
2nd To further analyze the link on the set of different Variables of the economic indicators and stock market indicators.
3rd To investigate the importance of liquidity for economic growth.
4th To analyze the effects of solid concentration ratio on economic growth.
5th To check the validity of the model of Levine and Zervo study of stock market in a developing country like Nepal.
6th To determine and analyze the co-integration and causality between the stock market Development Index and economic growth.
Chapter 2 Review of Literature
2.1 Review of empirical work
This section deals with review of major empirical work on the stock market development and economic growth from 1873 to 2008. Several important studies and its findings are presented in tabular form in chorological order. The Literature review is carried out in three sections. The first section focuses on the review conducted of the empirical work before the 1990s, with its main findings. Similarly, the second section deals with the review of studies conducted during the 1990s and finally third section dealing with the review of studies in 2000.
2.1.1 review of the empirical work of the 1990 Years ago
During the nineteenth and twentieth century, Bagehot (1873) and Schumpeter (1912) had concentrated on the constructive support of the financial sector for economic growth. In the study, the direction of causality between the higher growth in Financial year, sector and country's economic growth rate was not clear (Robinson, 1952, and Locus, 1988). As part of a large number of empirical evidence, have significant studies about modeling and understanding the strong positive correlation between real and financial performance. Much of this research, the "functional" Approach to the analysis of such relationships followed.
Table: 2.1
Review of empirical works from 1873 to 1986
Study
Area
Major findings
Bagehot (1873)
A description of the money market with monetary monopoly.
Constructive support the financial sector to economic growth.
Schumpeter (1912)
The theory of economic development.
Technological Innovation is the force underlying long-term economic growth.
Robinson (1952)
The generalization of the General Theory, at the rate of Interest and other essays.
It is a two-way causal relationship between financial development and economic performance.
Goldsmith (1969)
Association between the levels of financial development with economic growth.
A significant correlation between the amount of financial development and economic growth.
The "Financial Growth" hypothesis postulates the "supply-leading" context between financial and economic developments. It is argued that the existence of financial sector and financial mediation in the channeling of limited resources from surplus units to deficit units efficient allocation of resources would provide the rest of the leading industries in their growth. In fact, argued A number of studies, that the development of the financial sector, the economic development (Schumpeter encouraged, 1912). The study argues that technological innovation the power of the underlying long-term economic growth.
Robinson (1952), on the other hand, concluded that the economic growth the demand according to different types of financial services that provides the financial system reacts. Goldsmith (1969) reported a significant association between the level of financial Development (as a financial intermediary assets divided by GDP defined) and economic growth. The study, however, recognized that there is no possibility of the creation of trust for the direction of the causal mechanisms.
The earlier studies on international stock markets on the identification of compounds Focus on short-term benefits of international diversification of the portfolio. The study by Levy and Sarnat (1970) and Solnik (1974) investigated the short-term correlations of returns on national markets and dismissed the existence of major markets have high possibilities to diversify risk internationally.
McKinnon (1973) provided the evidence that financial liberalization allows the deepening of the financial market reflects an increased use of credit and insurance industry of savers and investors and enable the monetization of the economy, the efficient flow of resources between people and institutions over time. This promotes the Savings and reduces pressure on the capital accumulation and to improve productive efficiency in the allocation of investment through the transfer of capital from less productive Sectors.
Another group of studies examining financial ties between concentrated equity markets, either by bivariate or multivariate co-integration methodology. Taylor and Tonks (1989) were the first, bivariate co-integration in the UK and U.S. markets are to test the significance of the abolition of foreign exchange controls in 1979. In addition, the empirical evidence is inconclusive, while a strong empirical causal relationship between the banking system, listing Development and economic performance was hardly established. Financial development is regarded as a means to economic growth through various channels. An important role of financial intermediaries to the liquidity of individual investors (Diamond and Dybvig 1983) provide. Similarly, study Stiglitz and Weiss (1981) and Cho (1986) states that revenues do not increase, since the interest rate that the borrower increases.
Table: 2.2
Review of empirical works from 1881 to 1986
Study
Area
Major findings
Shiller (1981)
Do stock prices move too much Be Justified by Subsequent Changes in Dividends?
Performance can not simply be justified by changes in fundamentals.
Stiglitz and Weiss (1981)
Credit rationing in markets with imperfect information
Because of the stagnant bank returns, increased interest rates do not increase his return.
Diamond and Dybvig (1983)
A simple example, Federal Reserve Bank of Richmond.
An important role of the mediator is to the liquidity of individual investors.
Lucas (1988)
On the mechanics of economic development.
Not clear understanding of the causality between financial sector and economic growth.
Taylor and Tonks (1989)
The internationalization of equity markets and the abolition of UK exchange control
There are multivariate co-integration on the UK and U.S. market.
Romans (1986)
Increasing returns and long-term growth
Increase in productivity leads to economic growth.
Cho (1986)
Inefficient Liberalization the financial markets in the absence of well-functioning equity markets.
Shipping costs not to increase as interest rates.
On the theoretical level, the study of stock markets and growth momentum conferred with analysis for the optimal design of financial contracts under asymmetric information in dynamic general equilibrium models. The study by Bernanke and Gertler, 1989 concluded that the development of the financial system to financial contract that the problems of Moral hazard solution were conducted. The study concluded that if the companies are in need of external financing in a cost minimization problem they need through the Issuance of various forms of financial contracts to solve in different circumstances.
2.1.2 Review of empirical Work during the 1990s
Exchanges are expected to increase the amount of savings channeled to the business sector. Some insights can be found in the work of Greenwood and Jovanovic (1990). In addition, the study concluded that the stock markets play an important role in the allocation of capital to the enterprise sector, which in turn stimulates the real economic activity. Many countries are facing financial pressures, especially in developing countries, where bank loans are subject to some restrictions that are favorable groups of companies and investors personality. This limitation can also constraints in the credit markets (and Mirakhor Villanueva, 1990).
Table: 2.3
Review of the empirical Work 1990-1991
Study
Area
Major findings
Mirakhor, and Villanueva (1990)
Market integration and investment barriers in emerging equity markets.
There are stringent conditions to the credit markets.
Greenwood and Jovanovic (1990)
Financial development, growth, and the distribution of income.
Financial markets and financial institutions affect to capital accumulation.
Vishny (1990)
The stock market and investment.
Stock Exchange at an aggregate level not the future predict investment.
Levine (1991)
Stock markets, growth and tax policy.
Strong positive correlation between Stock market liquidity, improving productivity and capital accumulation.
Bencivenga and Smith (1991)
Credit and insurance industry and endogenous growth.
Financial resources can affect savings decisions by reducing liquidity costs.
The Ability of financial intermediaries to offer profitable investment savers increases trust and take additional savings. The efficient operation of financial results to growth of production and generate additional demand for deposits and financial services (Greenwood and Jovanovic, 1990). Financial institutions, agents can save decisions by reducing liquidity costs and provides greater opportunities for diversifying risks (Bencivenga and Smith, 1991) interfere. Diversification of the portfolio on the stock exchange can, an additional effect by promoting growth of specialization in production (Saint-Paul, 1992) have.
In addition, some studies concluded that the stock markets could be the corporate governance through the alleviation of the principal-agent problem between the owners and managers (To make Jensen and Murphy, 1990). In contrast, other studies pointed out that stock market development could have a negative impact by facilitating hostile takeovers counterproductive (Vishny, 1990). In addition, some claim these threats could deter takeover easily Manager, the long-term investment and thus to inefficient resource allocation (Singh and Weiss, 1998) result. In addition, some claim that stock markets will benefit by being incentives more effective than The banks in the information gathering and dissemination, and could therefore increase the quality of investments and thus stimulate the growth (Holmstrom and Tirole, 1994). On the contrary, Some others believe that the banks consider stock markets are in, they could monitor the investment of business and management at lower costs. They claim that will be distributed in reality due to stock ownership and relatively small individual investors, they have neither the ability nor the incentives for the costly but necessary information collect data needed to achieve an efficient resource allocation (Bhide, 1993; Singh, 1993).
In contrast to the traditional view, there is Evidence that support the hypothesis that there exist long-term correlation between stock market development and economic growth. But in the literature review this hypothesis is rare for the developing countries. However Pardy (1992) in his seminal book argues that in less developed countries, capital markets able to mobilize domestic savings and allocate funds more efficiently. Spears (1991) reported that in the early stages of development, loan and insurance industry induced economic growth. Demirguc-Kunt (1994) has argued that to promote the equity markets in economic growth.
A number of subsequent studies was the growth regression framework in which the average growth rate of per capita output in the individual countries to a number of variables for regressed initial conditions and country characteristics and measures of financial market development (King and Levine, 1993a). The study further analyzed the relationship between the development of the financial sector and real GDP growth per capita, the rate of physical capital accumulation, and increases efficiency in the period 1960-89. The study was the development the financial sector by the financial depth ratio (ratio of liquid liabilities to GDP), the level of the banks, the ratio of loans to non-financial private Firms are credit cards issued and the ratio of loans issued to private firms to GDP. The study showed that higher financial development are positively related faster growth rates are associated and that the level of financial development is a good indicator of future growth prospects.
Robert Barro (1990) reported that in the case of the U.S. stock market variables and stock returns, can largely explain the subsequent aggregate investment. On the contrary, proposed Morck et al (1990) that in the U.S., the stock market at an aggregate level, not much of a predictor for future investments. In the meantime, a study by Galeotti and Schiantarelli (1994), based on quarterly aggregate data from the non-financial corporate sector in the U.S. showed that significantly affects investment decisions by stock price fluctuations, regardless of whether the change by fads or changes the fundamentals. On the other hand, at the enterprise level showed in general studies, that there is a very limited effect of the stock-on-investment (Abel and Blanchard, 1986; Morck, Shleifer and Vishny, 1990, Blanchard, Rhee and Summers, 1993).
Table: 2.4
Review of empirical works from 1992 to 1993
Study
Area
Major findings
St. Paul (1992)
The financial markets and economic development.
Stock markets have additional growth effect.
Pardy (1992)
Institutional reform in emerging securities markets.
In less developed countries capial maket are able to mobilize domestic savings.
King and Levene (1993)
Finance and Growth
Rate of physical capital accumulation has increased efficiency over the period from 1960 to 1989.
Atje and Jovanovic (1993)
Stock market and development
Significant correlation between stock markets and economic growth.
Pagano (1993)
Financial Markets and growth.
Financial growth can affect the rate of economic growth through a change in productivity growth and the efficiency of capital markets.
Bhide (1993)
The hidden costs of stock market liquidity.
Liquid market, the shareholders can monitor the managers incentives.
Atje and Jovanovic (1993) concluded that there is a large effect of the stock markets on economic growth, but no relationship to the lending of banks on economic growth. Alternatively, argues Harris (1997), that are the Atje Jovanovic and results are not supported by empirical results. Harris analyzed Data for forty-nine countries over the period 1980-91 for the growth of GDP per unit of effective labor, investment as a percentage of GDP, growth of the total employed labor force and the total value of the shares on the stock market as a percentage of GDP traded. The study reported that the level of the stock market has little Meaningful activity in the sample of developing countries and the weak explanatory power for the sample of developed countries. The study by Stiglitz (1994), provided evidence that, if the stock prices of publicly available information to help investors, then, provides better investment decisions. Better investment decisions of investors means better distribution of resources between the company and as a result of a higher rate of economic growth. In efficient capital markets, prices have already all available Information to reflect, and this reduces the need for expensive and laborious attempts to obtain additional information.
Table: 2.5
Review of the empirical work for 1995 AD
Study
Area
Major findings
Bencivenga, Smith and Starr (1995)
Transaction costs, technological choice and endogenous growth.
Theoretical Predictions of strong links between stock markets liquidity and rapid growth.
Bencivenga et al. (1995)
Transaction costs, technological Selection and endogenous growth
Enhanced stock market liquidity reduces the disincentives for investment in the long duration and higher return projects, since investors easily sell its stake in the project.
Longin and Solnik (1995)
Is the correlation in international equity returns constant: 1960-199 0?
By applying sophisticated techniques, they found evidence of significant correlations between stock markets around the world.
Hamao et al. (1990), Koch and Koch (1991), Roll (1992), Longin and Solnik (1995), more sophisticated econometric techniques used to measure the cross-country correlations and found evidence of a significant relationship between stock markets around the world. Some other studies on the development of links between emerging markets focus Capital markets. Studies such as Harvey (1995), especially Bekaert and Harvey (1995) investigated a previous period and the conditional mean and variance of returns by a Period of testing a factor Asset Pricing Model. The study showed that the expected returns in a country by its covariance with the returns the country are affected. The study will also found that when the market was then integrated only perfect covariance counted, while if the market was completely segmented then the variance of the relevant Measure of market risk. Bekaert and Harvey (1995) uses a conditional regime-switching model to account for periods when national markets are segmented from the international capital markets have been and if it was later incorporated into the sample.
Table: 2.6
Review of the empirical work for 1996 AD
Study
Area
Major findings
Demetriades and Hussein (1996)
Is the financial development to economic growth?
It is bidirectionality and reverse causality between financial development and economic development.
Diamond (1996)
Credit and insurance industry as delegated monitoring: A simple example, Federal Reserve Bank of Richmond
Financial intermediaries to encourage high productivity firms reduce information asymmetries and costs.
Levine and Zervos (1996)
Stock market development and long term growth.
Equity market activity positively correlated with measures of real activity.
Benchivenga, Smith and Starr (1996)
Equity markets, transaction costs and capital accumulation.
Positive role of liquidity provided by the stock exchanges on real fixed investment.
There are not many empirical research investigates causal relationships between stock markets and economic growth. A study mentioned here, is part of Levine and Zervos (1996). The study used Regression analysis to the data collected from 41 countries for the years 1976 to 1993 to see the relationship between financial deepening and economic growth. One of the deepening of financial markets has been used in the analysis, measured the level of development of the stock exchange by a composite index, the liquidity diversification and indicators. The economic growth of selected indicator, on the other hand, the real growth rate of GDP per capita. Levine and Zervos reported a very strong positive correlation between stock market development and economic growth. The most interesting aspect of this study was the decrease in the statistical significance of other variables, financial deepening after the market development index has been included in regression equation. The study found the evidence that stock market developments influence than other financial indicators, Deepening is the growth of the economy.
Traditional growth theorists believed that there was no correlation between stock market development and economic growth because of the presence of level effect is not the rate effect. Singh (1997) claims that the stock markets are not necessary institutions for achieving high levels of economic Development. The study on the rapid growth of equity markets concentrated in the process of liberalization in developing countries in the 1980s and 1990s, arguing that the liberalization of financial markets (which the financial system more vulnerable) is not likely to improve long-term growth. Singh and Wei (1999) is regarded as a stock agent economic development because of their vulnerability to market failures, which often manifests itself in the volatile nature of stock markets in many developing damage. The traditional method to model for the assessment of stock prices and the wealth effect provided a hypothetical explanation for the stock prices as an indicator of the performance (Comincioli, 1996). For wealth effect, however, changes in stock prices, the variation in the real economy.
Although empirical tests of the relationship between the not financial development and economic development are consistent, the bulk of the evidence supports a relationship between financial development and the economic development. Demetriades and Hussein (1996) found the evidence of both bidirectional and reverse causality with unit root tests, Co-integration tests and vector Auto-regression tests of causality. The study found that financial development causes economic growth causes financial development and economic growth in some Cases, the causality in both directions. As independent variables, the study has the ratio of deposit liabilities of the bank's nominal GDP and the ratio use of bank assets to the private sector to nominal GDP. The dependent variable is real GDP per capita in local currency terms. Rajan and Zingales (in 1998) predicts the average annual real growth of value added in industry in the United Stated over the period 1980-90. used as predictors of the study the share of investment with debt and the ratio of investment to net fixed assets financed and equipment. Industries have been further divided into young and old firms. This process helped them to differentiate between industries that were more or less dependent on external financing. The study wanted to test whether financially dependent industries perform better in countries that have more developed financial sector. As measures of financial development in each country forty-one. The study uses the ratio of domestic credit plus stock market capitalization to GDP, the ratio of domestic credit to the private sector to GDP ratio, and an index of accounting transparency. It was found that the financial development of the economic development made possible by the provision of cheap funds to the growing Industries.
Table 2.7
Review of the empirical work of 1997-1999 AD
Study
Area
Major findings
Harris (1997)
Stock markets and development
Level of activity stock market has little significance in the developing country sample and weak explanatory power for the developed countries sample.
Singh (1997) and Weis (1999)
The liberalization of financial markets, stock markets and economic Development.
Stock market is an agent of economic development because of their vulnerability to harm of market failure.
Raguraman and Zingales (1998)
Financial dependence and growth.
Financial developmet facilitate economic development through the provision of cheap funds grows Industries.
Levine and Zervos (1998)
Stock exchanges, banks and economic growth.
Strong and statistically significant relationship between the stock and GDP.
Luitel and Khan (1999)
A quantitative reassessment of the finance-growth nexus.
Financial development is very supportive to economic development.
The development of the theory of endogenous growth in recent years to define the opportunity and offered to explain the link between financial development and economic growth. The study by Pagano (1993) and Levine (1997) stated that the financial development was the Rate of economic growth affected by change in productivity growth and the efficiency of capital markets. It also affects the accumulation of capital by the impact on the saving rate or by changing the share of savings.
Benchivenga et al (1996) emphasized that positive role of liquidity through stock markets, the size of the new real-asset investment provided by common stock financing. Investors are easily persuaded to invest in common stock, if there is little doubt in on their market exchanges. Some conflicting opinions exist about the impact of liquidity on the volume of savings and argued that the desire for a higher level of liquidity is effective against the propensity to save (and Benchivenga Smith, 1991), (Japelli and Pagano 1994), such arguments are not well supported by empirical evidence. The second important contribution of the stock exchanges, the economic growth through global risk diversification opportunities. Saint-Paul (1992), Deveraux and Smith (1994) and Obstfeld (1994) argue, quite reasonably, that the opportunities for risk reduction through global diversification with high-risk high-yield domestic and international Projects to make viable and therefore savings allocated between investment options more efficiently. Whether global diversification could be the rate of domestic savings (Deveraux & Smith, 1994) seemed to reduce a weak argument, because it has not been convincing.
Levine and Zervos (1998) were analyzed by Stock market liquidity (turnover of shares and value), size (market capitalization), volatility (twelve month rolling standard deviation), integration with world markets (CAPM and APT intercept terms) and bank lending to the private (bank credit to the private sector to GDP) as a predictor of economic growth, capital accumulation, Improve productivity and savings rates of growth for forty-seven countries 1976-93. The study shows a positive relationship between stock market and banking development and economic growth, capital accumulation and growth. The authors conclude that the price increase in markets offer an easy way to ownership of the means of production, allocation of resources, which in turn facilitates the rapid accumulation of capital, which facilitates trade economic growth.
Under the new growth theory, surprisingly few empirical studies on the relationship between stock market and economic growth are present. The study is an important one mentioned by Levine and Zervos (1998) to ask under the first, if stock markets are merely burgeoning casinos or a key to economic growth and to examine this question empirically, see a positive and significant correlation between stock market development and growth in the long term. The work of the Luintel and Khan (1999), has supported this view, among other things.
2.1.3 Review of the Literature in 2000
Empirical work in the past two decades, primarily focused on the role of financial service development in stimulating economic growth, without considering the stock market. Evolution of the stock market has an impact on the operation of credit and thus on economic development. This means that stock is always important, especially in a series of emerging economies and their role should not be ignored (and Senhadji Khan, 2000).
Beck et al (2000) analyzes the relationship between the development the financial sector and economic growth, the growth of total factor productivity, physical capital accumulation rates
and private saving rates. The study reported that there is a large positive effect of financial intermediaries and total factor productivity and economic growth, but a lesser effect on long-term economic growth and the growth of total factor productivity.
Würgler (2000) analyzes the relationship between financial markets and capital allocation sixty five countries in 1963-95. The study found that countries to shift to a more developed financial markets, capital growing industries and away from declining Industries. The efficiency of the financial system is inversely proportional to the state property in the economy and directly linked to the availability of information for businesses and legal protection for minority shareholders in connection with.
Table 2.8
Review the empirical works from 2000 to 2004 AD
Study
Area
Major findings
Beck, Levene and Loayza (2000)
Finance and sources of growth.
There is a large positive effect of financial intermediaries and total factor productivity growth.
Würgler (2000)
The financial markets and the allocation of capital.
The efficiency of the financial system is inverse to the availability associated information for businesses and legal protection for minority shareholders.
Arestis et al. (2001)
Financial development and economic growth.
Both stock exchanges and banks may be able to help with economic development.
Bell and Rausseau (2001)
A case Finance lend industrialization
Financial development in India's crucial role in the promotion of economic efficiency.
Mishkin (2001) and Caporale et al (2004)
Finance, savings, capital and risk management.
Financing productive projects mobilization domestic savings, capital allocation and diversification of risk, facilitate the exchange of goods and services.
Tuncer and Alovsat (2001) examined stock market-growth nexus and showed positive correlation between casual stock market development and economic activities. Chen et al (2004) elaborated that the relationship between stock prices and output growth and the rate of stock returns is a leading indicator of economic growth. The study of Phylaktis and Ravazzolo (2001) measured financial links by analyzing the covariance of excess returns on national stock markets of emerging economies. A major advantage of this Framework is that by studying the co-movement of future returns aggregated over a longer horizon instead of the expected co-movement from one period Yields a small but persistent movements in expected returns and accurately detect and measure the degree of integration of financial markets can return to camp as a period regression models.
The study of (Arestis, Demetriades and Luintel, 2001) states that in countries such as Germany, volatility of the stock market has significant negative impact on growth. Another point is worth noting that studies have taken on a cross-country framework in general left out of China because of the absence of data. Needless to say that, given the growing role of China in the global economy, China is important to understand, in its own right. The study uses a vector autoregressive Model to study the relationship between stock market development measures and economic growth for developed economies, controlling for the development the banking sector. The study notes that the stock market and economic growth can be both able to stimulate growth, the impact of the banking system is stronger. With well-functional financial sector or banking sector, stock markets can give a big boost to economic development (Rousseau and Wachtel, 2000, Beck and Levine, 2003).
Mishkin (2001) and Caporale et al (2004) provided evidence that an organized and stimulating stock market managed Investment opportunities through the recognition and financing of productive projects, the economic activity lead to mobilization of domestic savings, capital allocation help skills, to diversify risks, and facilitate the exchange of goods and services. Undoubtedly, equity markets should economic growth by increasing the liquidity of the assets, the increase in global and domestic risk diversification possible to promote wise investment decisions, and the influence of corporate Governance, that is, the solution of institutional problems by increasing the interest of shareholders value (Vector, 2005).
Bell and Rousseau (2001) examined the relationship between individual macroeconomic indicators and measures of financial development in India and found that the financial sector was instrumental in the promotion of economic performance. Nourzad (2002) analyzes the impact of financial development on productive efficiency with the help of eight Measures of financial development for countries at different stages of economic development. The study analyzed three types of panels: data from the annual Data for 29 countries 1966-90 and annual data for eighteen countries of 1970-90, and five-year average data for 28 countries 1970-90. The author notes that productive efficiency is greater in countries that have more developed financial sector.
Table 2.9
Review of empirical works from 2005 to 2007 AD
Study
Area
Major Findings
Shrestha (2005)
Stock market and economic development.
Gross domestic stock market influence.
Vinhas de Souza (2005)
The liberalization of financial markets and economy: the experience of the new EU Member States.
Capital market reform programs approved new government laws are regulatory framework for capital markets thrive.
Siliver and Duong (2006)
The role of stock market for real activity: evidence for Europe.
Stock market has certain predictive content for real economic growth.
Yartey and Adjasi (2007)
Stock market development in Sub-Saharan Africa: Critical issues and challenges
African stock market before challenge of integration and need better technical and institutional development to address the problem of low liquidity.
Efficient stock markets provided guidelines to keep appropriate monetary policy through the issuance and repurchase of government securities in the most liquid market as an important step towards liberalization of financial markets. Similarly, well-organized and active stock markets could modify the pattern of demand for money, and would help liquidity, Finally, increases economic growth (Caporale et al, 2004). Similarly Siliverstovs and Duong (2006) showed that the accounts for the expectations by the indicator of economic sentiment, the stock market has shown some predictive content for real economic activity has.
Paudel (2005) recognized that the stock markets, which allow for their cash to achieve company, providing much needed capital quickly, hence facilitating Capital allocation, investment and growth. Adjasi and Biekpe (2005) found a significant positive effect of stock market development on economic growth in countries such as top rated middle-income economies. Bahadur and Neupane (2006 closed) that the stock market fluctuations in the prediction of the future growth of an economy contributes.
2.1.4 Concluding Remarks
From the above, it can be seen that the effect of capital markets on economic growth has been a controversial topic. Some studies showed a statistically significant effect of stock market development on economic growth while others do not. Some positive effects of the liquidity of the stock reported on economic growth, while some do not. For validation carried out a view or the other Nepalese context, no study so far by the most recent data, taking into account Deminigue-Kunt Levene and stock market development Index. This study will therefore test the above hypothesis about the stock market development and economic growth in undeveloped country, Nepal.
Chapter 3: Research Methodology
3.1 Research Design
For the analysis of the relationship between stock market development and descriptive economic growth, co-relational and time series research design employed. For the purpose of the design and specification, the descriptive research Design should be used. For the purpose of the study includes analysis of the time period of ten years. This study will be made at the macro level to it from all areas, including Commercial banks, manufacturing and processing organization, hospitality, retail, insurance exists, finance companies and banks, development and so on.
3.2 Nature and sources of data
This study will be on both primary and secondary database. Most of the data in terms of economic growth and stock market development will be collected from the annual reports and official organization concerned. The required information is filled out by the Ministry of Finance will, Department of Industry, Commerce and Supplies, Economic Survey published by the Nepal government, quarterly Economic Bulletin of Nepal Rastra Bank (NRB), National Security Planning Commission and Board of Nepal (Sebon published), the World Bank's report will be considered.
A field survey on Questionnaire and interview basis is also carried out to gather the opinions of different respondents in three groups. The selected respondents for the survey is stock investors, General public and students who have not invested in stocks to get the information in terms of economic performance and stock market development.
3.3 Selection of companies
The study is based on aggregated values in connection with such aggregate values of the Economy, the determinants of macroeconomic indicators and total value of market activities that are determinants of stock market development will be selected.
3.4 Methods of Analysis
Analysis is the systematic and careful examination of the facts available so that certain conclusions can be drawn from it. The largest part of the study is based on the examination of the association of stock market and economic growth.
3.4.1 Econometric Model
This study is strong on Levine and Zervos study of stock market development and long-term growth. However, its study on the cross-country regression, but this study considers time series analysis and single regression equation applied to the collected data.
Study to determine the relationship between casual stock market development and economic growth then determine how to search over time and finally the relationship between the stock market development and economic performance. Levine and Zervos (1996) is proposed to evaluate the following equation, if there is a correlation between stock market development and long-run growth.
GDPt = aX + t + t bSTOCK μt (1)
Where GDP is gross domestic product growth rate and Growtht XT is a set of control variables, that is connected to the GDP. These variables include government expenditure (EXPN), public Investment (INV), official development assistance (AID), foreign direct investment (FDI). In the same way, it stops stock market index. It includes Market capitalization ratio (Mcap) Liquidity ratio (liquidt) and concentration ratio (Conct). A and B are unknown parameters to be estimated and Mt is an error term. We can consider the following equations in detail.
Government expenditure is as controlled variables, as selected in the underdeveloped country, plays key role Government economic growth for driving the various productive activities. It can affect positively or negatively on economic growth. Public investment are chosen as a control variable, because if public investment policy is right (direction: for example, in the direction of infrastructure development), it can significantly Impact on economic growth, as public health investment can target, education, etc., all contribute to increase total factor productivity. Official development assistance is inadequate because in the developing economies is selected development is an "oxygen-pipe" for developing nation. Foreign direct investment is made, because it is the private investment activities such as domestic investment is very low, because it compared so that it is ignored here.
The liquidity level variable represents the turnover ratio than the value of total shares traded measured, divided by market capitalization (high turnover then high liquidity). Liquidity allows investors to easily buy and sell securities. As Levine and Zervos (1996) put it, can affect stock markets, economic activity through its liquidity, as investors are reluctant to take control of their storage for long Time without. Market capitalization ratio, which divides the value of listed shares by the GDP, is considered an indicator used for the stock market development. This Ratio measures the stock market size, the ability to mobilize capital, and helps the diversity of risk. Concentration ratio is the four firm concentration ratios, which is measured by market capitalization of the four largest stocks across market capitalization. If only a few companies dominate the market, they can manipulate the Price formation. Thus a high concentration ratio is not desirable. Countries with a highly concentrated markets have the markets, the underdeveloped are. It will be presumed to be negatively correlated with market concentration and market size and liquidity.
3.4.2 Correlation Analysis
Correlation analysis is needed to read to find out whether the selected variables in the series have no relation or not. If there was no correlation there is no causality, then this test is necessary.
A mathematical formula for measuring the correlation of Pearson developed as follows.
(3)
Where r is the correlation coefficient, Xt and Yt are two variables to calculate the correlation. The correlation is a measure of the relationship between two or more variables. The measurement scales ranging from -1.00 to 1.00. The value of -1.00 represents a perfect negative correlation, while a value of 1.00 is a perfect positive correlation . A value of 0.00 or close to Zero is the lack of correlation.
3.4.3 Time Series Analysis of Data
For data analysis purpose, the following time series analysis is. They are as follows.
3.4.3.1 Unit Root Tests:
According to Nelson and Plosser (1982), Chowdhury (1994), there exists unit Roots in most macroeconomic time series. While dealing with time series, it is necessary to analyze whether the series stationary or not. Since regression of non-stationary Series on other non-stationary time series leads to what is known, spurious regression caused inconsistency of parameter estimates (Engle and Yoo, 1987). The hypothesis is that random shocks are behind in economy long-term effect (Engle & Granger, 1987). The most popular of these tests, the Augmented Dickey-Fuller (ADF) test and the Phillips-Perron (PP) tests. ADF test will be considered for this study because ADF tests use a parametric autoregressive structure to capture the serial correlation.
3.4.3.2 Co-Integration Test
The finding that many macro time series contains a unit root may have spurred the development of the theory of non-stationary time series analysis. Engle and Granger (1987) noted that a linear combination of two or more non-stationary Series is stationary. If such a stationary linear combination exists, the non-stationary time series, said his co-integrated. The stationary linear combination is the co-integration equation and can be interpreted as a long-term equilibrium relationship between variables. The goal of the collaboration is the integration test to determine whether a group is integrated by non-stationary time series co-operation or not. Eviews5 statistical software implements VAR-based co-integration tests using the methodology developed by Johansen (1991, 1995a).
There are two different methods to test for co-integration, Engle and Granger (1987) and Johansen (1988). Jung and Seldon (1995) that the Johansen co-integration test is more valid because there is no need for prior knowledge of the co-integration vectors in cases when they unknown. This study is not the co-integration vectors, it is better to test the Johansen (1988) use. The method uses Johansen vector autoregression (VAR) for the To test co-integration. The Johansen (1988) Test Method for the existence of co-integration relationships become standard in the econometrics literature because of its superiority over other alternatives.
3.4.3.3 Granger-causality between economic growth and Stock Market Development
The measurement of the correlation (Similarities in the strength and direction between two graphs) between variables such as GDP STOCK and would like to Granger (1969) is not sufficient to have a comprehensive understanding to construct the relationship between two time series. The reason is that some correlations may be spurious and not appropriate as it could be a third variable that can not be considered for. For example, there is a correlation between teacher salaries in the UK and the consumption of alcohol in the UK. Another Example is that ice cream sales correlate shark attacks on swimmers (Portlethen, 1996). In both examples, it would be highly unlikely that any of the other causes, but that there are other hidden variables as well. There is a correlation but no causal relationship.
With the help of the Granger-causality approach the question if the variable X (in a time series), causes variable Y (in a different time series) to see a researcher, as the value of the Y by past values of Y. can be explained and then delayed by the addition will values of X explanation of the relationship (5.0 Eviews statistical software add)
This means mean in practice that if a variable is the Granger causes another variable in a certain direction, or both, manipulation would be to affect the others. To produce incorrect results, the process of finding Granger-causality is also out to seek other relationships between the time series, and such relationships in correlation and co-integration (Sahlin and Sjogren, 2008). So this study is not only find the correlation, co-integration and causality, but also to a more developed relations between the time series. This is combined to an answer, if there is a relationship between the variables produce. Therefore, this study carried out in the relationship between word statistical software is used as a generic term for the combined correlation, Co-integration and causality time series. must be estimated for the calculation purposes of the following equations.
3.4.4.4 Other statistical tools Considered
For our presentation and analysis of data from other statistical tools be. You are mean, median, standard deviation, maximum and minimum, T-test, F-test and standard error of estimate (see).
Chapter 4: At the conclusion of the research project
There are many studies that the relationship between growth and equity markets, either cross country or Panel methods have been studied. However, their empirical approach typically suffers from serious econometric weakness. Traditional growth theorists believed that there was no correlation between stock market development and economic growth. Singh (1997) argues that stock markets are not necessary institutions for achieving high levels of economic Development. Some recent studies have found that the stock markets to play an important role in the allocation of capital, that in the corporate sector in turn has a real economic Stimulate activity. Study of Caporale (2004), Vector (2005), Mishkin (2001) and some other studies, that a state organizes and manages stock market stimulates economic activities. Most of these studies have a positive impact on economic growth has been reported. A group of study argues that stock markets do not to help in the economic development of a nation, while the other group argues that there is help in economic development.
With Contrast this view, attempts to study the possible link between stock market development and economic growth are related to Nepal. The variables for the study selected to be gross domestic product (GDP), government investment (INV), government expenditure (EXPN) Foreign Aid (AID), Foreign Direct Investment (FDI), market capitalization Ratio (MCAP), concentration ratio (CONC) and liquidity (LIQDT).
Bibliography
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Adjasi, Charles KD and Nicholas B. Biekpe (2005), "Stock Market Development and Economic Growth: The Case of the selected African countries. "Working Paper, African Development Bank.
Arestis, Philip, Demetriades, Panicos O, and Luintel, Kul B. (2001), "Financial Development and Economic Growth: The role of stock markets." Journal of Money, credit, and Banking, Vol 33, No. 1, pp. 16-41.
Atje, Raymond and Jovanovic, Boyan (April 1993), "Stock Markets and Development." European Economic Review, Vol. 37 No. 2 / 3, pp. 632-40.
Bagehot, Walter (1873), a description of the money market with Monopoly currency, Homewood, Lombard Street, 1962 Edition.
Barro, Robert (1990), "The Stock Market and Investment." Review of Financial Studies, Volume 3, No. 1, pp. 115-131.
Bastola, P. (2003), Effects of Stock Market in development, unpublished MA thesis, Faculty of Management, Tribhuvan University.
Beck, Thorsten, Ross Levine and Norman Loayza (2000), "Finance and the sources of growth." Journal of Financial Economics, Vol. 58, pp. 261-300.
Beck, T. and R. Levine (2003), "Stock Markets, Banks and Growth Pact: Panel evidence." Journal of Banking and Finance.
Bekaert, G. Harvey, CR (1995), "time-varying world market integration." Journal of Finance, Vol. 50, pp. 403-444.
C. Bell and PL Rousseau (2001), "Post-Independence India: A Case of Finance Lend industrialization. "Journal of Development Economics Vol 65, pp. 153-175.
Bencivenga, VR and B. Smith (1991), "credit intermediation and endogenous growth. "Review of Economic Studies, Vol 58, pp. 195-209.
Bencivenga, VR, Smith, B. and Starr, RM (1996), "Equity markets, transaction costs and capital accumulation: an illustration." The World Bank Economic Review, Vol 10, No. 2, pp. 241-265.
Bernanke, B. and M. Gertler (1989), "Agency Costs, Net Worth, Business and labor turnover." American Economic Review, Vol. 79, pp. 14-31.
Bhide, Amar (August 1993), "The Hidden Costs of Stock Market Liquidity" Journal of Financial Economics, Vol. 34, No. 2, pp. 31-51.
Blanchard, Olivier, Rhee, Changyong and Summers, Lawrence (1993), "The Stock Market, Profit and Investment." Quarterly Journal of Economics, Vol. 108, pp. 115-36.
Packed with “Big Picture” tax scenarios and “What-If?” case variations, SOUTH-WESTERN FEDERAL TAXATION 2011: INDIVIDUAL INCOME TAXES remains the most effective book for helping you master detailed tax concepts and the ever-changing tax legislation. Renowned for its accessible, comprehensive, and time-tested presentation, this book provides thorough coverage while highlighting materials of critical…
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How to claim tax forgiveness for military personnel
If a member of the United States’ Armed Forces dies in a combat zone from wounds, injury or disease, then his/her tax liability is forgiven.
The forgiveness applies to the year when death occurred and previous tax year ending before the member began service in a combat zone in active service. In addition to this, any taxes which are unpaid for the years ending before the member began service in a combat zone will also be forgiven. If any of these taxes are paid after the date of death, they will be refunded.
If a member of United States’ armed forces dies serving outside the combat zone, but was in direct support of military operations in that zone, then the rules of forgiveness are also applicable to him or her.
If an individual dies from wounds or injurious incurred as a member of the United States Armed Forces in a terrorist or a military action, his or her tax liability is forgiven. For example, John died in 2008 of wounds incurred in a terrorist attack in 2007. Income tax liability is forgiven for the tax years 2006, 2007 and 2008.
How to claim the forgiveness or refund
Usually Form 1040X is used to claim the refund.
If the tax liability of the descendent is forgiven, the personal representative should take the following steps:
He should file Form 1040 if a tax and return has not been filed for the year. Form 1040X should be filed if a tax return has been already filed. Form 1040X should be filed for each year. He should identify the return properly by writing correct description on the line for total tax. Example ‘Kosovo Operation – KIA’
He should also include an attachment showing computation of the tax liability of the descendent before any amount is forgiven and the amount that is to be forgiven. A certification from the Department of Defense or the Department of State must be attached. Form 1310, which is a statement of person claiming refund due to a deceased taxpayer, should also be attached.
If the certification is received a but there is not enough tax information to file a claim in the given deadline for refund, then file Form 1040X along with Form 1310.
There is a deadline for filing such claim. The period for filing a refund claim is generally three years from the time of filing the return or two years from the time of payment of the tax, whichever is later.
These returns and claims must be filed at one of the following addresses
If you use the U.S. postal service, then file at – Internal Revenue Service, PO box 4053, Woburn, MA 01888.
If you use a private delivery service, then file these tax returns and claims at – Internal Revenue Service, stop 661, Andover, MA 05501.
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The IRS web site has helpful information and forms you can download. Now is the time to finish your tax returns, since time is running out. You have many tax return options, which you can get money back for telephone, direct deposit refunds, home heating, and more.
The government is offer returns on long-distance or bundled telephone services, since recently, they found the many payers have overpaid taxes. You may have credit available if you paid excise taxes on your telephone services.
You will find help information at the web sites online. At the IRS web site, you will find helpful guides to perhaps taking advantage of residential energy improvement. You may qualify for credits.
In addition, you may qualify for credits for IRA deduction expanded, which if you had the retired plan coverage you may have the option to deduct up to $5000 on your taxes.
Elective salary deferrals are credits that you may apply for if you had a max amount as stipulated by the IRS.
Standard mileage rates are another tax return you may be eligible for. This is your rates for business and you used a vehicle. You may have 44 ½ cents per dollar you spent on your gas mileage available under this IRS policy.
Be sure to visit the IRS web sites to learn more about your options. You want to take advantage of any tax returns available to you.
Alternative motor vehicle is another option that you may have to receive credits. You may have options to deduct clean-fuel motor vehicle, or refueling your property. The IRS may offer you deductibles or returns on EIC or earned income credit. If you had a child, living with you in 2006 and “earned less than $36, 348″ you may qualify for child tax credits.
Tax for child income is another option that could give you deductibles or tax returns. You want to view form 8615. This form will provide you specifics. You may be eligible to take hold of a $1700 return per child in your home.
Foreign earned income tax worksheet is another claim that you may want to review. IRA distributions for charity programs may give you some deductible items that you can use to save money on your taxes.
Take time to visit the IRS web page to learn more about your returns and deductibles. Renewable energy bonds or Gulf credit bonds are available also. Be sure to review EIC, combat pay, disaster funds, etc are all available through the IRS web sites.
Now is the time to get your taxes done since time is running out. Be sure to visit the IRS web site to download the tax forms you need to complete your taxes.
How Can I Deduct Rental Car Costs On My Income Tax?
One of the popular questions asked related to tax is “Can I deduct rental car costs on my income tax?”. Many countries impose massive taxes on rental cars. Rental car companies are becoming more infuriated with the increasing taxes imposed on their clients.
Unfortunately, it is not easy to avoid these taxes, according to the Coalition Against Discriminatory Car Rental Excise Taxes. In 43 of the United States of America, there are a total of 114 different local and state excise taxes for leasing and or renting cars. In the 1990s, there were only fourteen such taxes. The CADCRET was formed in order to track and fight the proliferation of taxes.
Residents of Maine blocked a new state tax-reform law that proposed a 10-12,5% increase in car rentals. The petition managed to put the increase on hold for a while at least. This is a great relief for business travelers in particular as well as rental car companies and corporate travel departments.
Some cities charge as much as 20% in car-rental taxes and cost Fortune 100 companies upwards of $5 million per year.
Taxes are imposed in order for cities to close gaps within their budgets. This has not made the car rental companies excited at all. They do not want to be associated with tax collection and they have to charge higher prices to accommodate the taxes. Subconsciously clients blame the care and truck rental companies for this. 36 months ago 8 rental brands and the National Business Travel Association formed a group to lobby against the taxes. They also took it upon themselves to provide education for consumers.
In New Jersey there is tax reform passed that permits municipalities to impose 5 % excise tax when people rent cars. As it is car renters already pay a whopping $5 daily in the form of sales tax and state tax.
Don’t rent a car in Wisconsin as you will be expected to pay $18 every time you rent a vehicle. The money from this tax is supposedly used to assist in the funding of a mass- transit project. This would translate to a tax increase of in excess of seventy percent in Milwaukee, Kenosha and Racine.
The lobbyist group also reports that in Michigan there is pending legislation that will, if passed increase taxes by a further $2.50 per transaction.
In order to find funding for rail projects in Florida. The people responsible for the law are fighting to increase the taxes by a further $2.00. This would mean the tax increases by 50!
The general consensus of these people who make the laws is that this tax is necessary and understandable. These sentiments receive fierce opposition for the coalition.
The recession has hit the states in America in a big way and the deficits in state coffers is horrendous to say the least.
It appears there is misappropriation of funds as when a project is complete then the money is used elsewhere. This explains some of the reasons that car renters are asking, “can I deduct car rental costs on my income tax?”
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We ignore our Property Tax But Hire Professionals to handle our Income Tax Every Year
How many U.S. last month, I drove my accountant and attended to prepare and file a federal tax return. Many thoughts raced through my head as I pass my new
Happiness found, new clothes, a well-deserved night or possibly pay the credit card. Although all of them sounded appealing, like many of us, I pay my tax for my property tax. This is a common way for many, using our tax return to pay our property tax.
This vicious circle has played every spring since I became a homeowner. It was only last year that I all about the planning and preparation that went into my federal taxes only just look at my property tax and write A question or check without a second thought.
After much use of available tax deductions and credits many may find that the level of
Federal taxes pay less than the height of their annual property tax.
If we examine our local property tax the same concepts apply as federal tax, but we observe rare. For example, most communities allow tax deductions and credits is due to the amount of property tax. Many states give you a lower Rate only to the owner of the dwelling as your principal residence, where a veteran or if you are over 65 years old, a few are mentioned.
During these credits and deductions are taking important to note the more important question is, what your local government has valued at home. This can often have the greatest impact for the taxpayers. Known as your assessed value, which is what is used to your local tax rates, to multiply the amount of property tax you owe for the year will come. This may be one of the aspects to be overlooked homeowners, especially in recent times in this current housing
Meltdown.
It is first important to know what your local appraisers for a property description of your house you often occur as an error. Check the square footage, number of bedrooms, and other information on your property record card is correct. Most auditors never look at your home, but employ the mass appraisal systems and rely themselves to public record information to evaluate your homes value.
Why We instruct our local tax office to tell us our homes Value? According to the Tax Foundation over 60% of homes in America are over assessed. More than half of us are paying too much property tax. All areas allow taxpayers their annual assessment while less controversy than 5% correction measures. Maybe the IRS should be aware of our take on local tax authorities and some assumptions on each annual income, I would think a few more than 5% would suggest they do not agree with the figure.
The bottom line is we must take note of our own property taxes just as closely as we have our federal income tax filings. In this current real estate market, where a 10% reduction Home value of $ 500 in tax savings could be located it on to every taxpayer to assess their own assessment.
The website target = "_blank"> LowTaxRate.com is a free resource for taxpayers better understand their property tax, tax assessments and offers help for inflated tax assessments Dispute. It is important that we all make certain we are paying our fair share of tax revenues.
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income taxes paid by income Income earned by a offshore corporation but deposited into personal US bank account. Need to pay taxes to IRS?
Lets say I have an offshore corporation that made $100 through its website in 2007 which was deposited into a personal US bank account. Then $50 of the funds deposited into the US account was transferred into the offshore business account to pay off business expenses so that there is $0 in the offshore account after spending the $50 that was transferred and there is $50 still left in the US personal account. Would I need to pay personal income tax on the $50 that is left after the transfer or on the full $100 that was initially deposited? Can the US personal account be considered a holding account for the offshore corporation so that I do not have to pay any taxes to the US and only taxes to the offshore govt if I end up transferring teh full $100 to the offshore account? The funds were deposited by clients into a PayPal account for services rendered to the client.
You need to pay taxes on all $100 because you brought all of it onshore into the United States. As soon as you bring it onshore it is considered income even though you sent half of that money back offshore without using it.
It would be better to pay directly out of your offshore account next time and only bring the balance remaining onshore.
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