Yes! There are some items that legitimately give rise to permanent differences between a company’s financial reporting income and its IRS income tax reporting income. These differences are not due to a company cheating on its taxes. Instead, these are due to policy decisions by the US federal government to incentivize certain behaviors by corporations. […]
Frictionless Transactions Are an Economics Textbook Myth
It is assumed in mainstream economic theory and economic modeling that transactions between economic entities are frictionless. Everyone knows that this isn’t true, but it’s broadly assumed that these transaction costs, which are a wedge between buyer and seller, are not significant to really matter. That assumption is problematic. Transaction costs are not everything, but […]
Transaction Costs and SG&A Expenses
Selling, General or Administrative Expenses One way to see how economic transaction costs are internalized within a company is in the SG&A Expense lines of a company’s income statement. All of the selling and administrative expenses are internalized transaction costs, and so is the insurance expense within the general expenses category. This is not the […]
SG&A refers to Selling, General or Administrative expenses. This is an accounting term that refers to a line on the Income Statement. From an economist’s perspective, these are essentially all transaction costs except for General Expenses other than insurance. Selling Expenses Selling expenses are a company’s costs incurred to interact with its customers. These include: […]
