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Since those companies with smaller-than-average free floats (as a percent of shares outstanding) will achieve superior performance, theres a strong incentive to shrink the free float.
But the evidence of the UK, for example, is that £375bn of quantitative easing did nothing to stop banks shrinking their balance sheets: banks had a too-powerful incentive to shrink and strengthen themselves after the great crash of 2008; businesses and consumers were too fed up to borrow, even with the stimulus of cheap credit.
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He said there was a guaranteed minimum savings of 5 to 6percentt, depending on individual circumstances, and incentives to shrink bills further.
In recent years, the U.A.W. has been more cooperative with Detroit automakers, working side by side with auto executives to fashion early retirement incentives to shrink the work force and better match Detroit's diminished stature within the industry.
And in August 1996, having promised during his 1992 presidential campaign to "end welfare as we know it", Bill Clinton signed a law that required the states to push welfare recipients into jobs an approach popularly known as "workfare".The law also gave the states incentives to shrink their welfare caseloads, and forced them to limit families to five years or less of federal money.
"A key element of the strategy is that it gives banks strong incentives to shrink or otherwise restructure themselves to reduce the risk they pose to the financial system," Bernanke, who is now at the Brookings Institution, wrote in a blog post.
"A key element of the strategy is that it gives banks strong incentives to shrink or otherwise restructure themselves to reduce the risk they pose to the financial system," Bernanke, who is now at the Brookings Institution, wrote in a blog post.
This makes sense, since Romer and Romer identify exogenous tax changes as those motivated by a desire to shrink government or improve incentives, and it is not obvious why these motivations would favor tax increases.
But if banks are still trying to shrink their balance-sheets, this incentive may be largely irrelevant.
The bloated financial sector needs to shrink, but the easing numbs the incentives to do so and may even encourage punting.
As policy makers consider how to reshape this troubled sector of the economy — and the need to raise taxes to shrink an enormous deficit — getting rid of a poorly designed tax incentive is good place to start.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com