the effective tax rate and the pretax rate of return abstract this paper presents new estimates of the taxes paid on nonfinancial corporate capital on the pretax rate of return to capital and on the effective tax rate the basic time series show that both the pretax rate of return and the effective tax rate have varied substantially in the past quarter century an explicit analysis indicates that after adjusting for different aspects of the business cycle pretax profitability was between one and 1 5 percentage points lower in the 1970s than in the 1960s the rate of profitability in the 1960s was also about one half of a percentage point greater than the profitability in the 7 years of the 1950s after the korean war changes in productivity growth in inflation in relative unit labor costs and in other variables are all associated with changes in profitability none of these variables however can explain the differences in profitability between the 1950s 1960s and 1970s looking at broad decade averages the effective tax rate and the pretax rate of return move in opposite directions lower pretax profits occuring when the tax rate is high there thus appears to have been no tendency for pretax profits to vary in a way that offsets differences in effective tax rates

the relation between tax rates and pre tax returns direct evidence from the 1981 and 1986 tax rate reductions abstract this study documents one effect of the theory of implicit taxes providing evidence that a change in the tax rate results in a change in pre tax returns yield spreads of pairs of treasury bills maturing in the last week of december and the first week of january are examined year ends not affected by rate changes show a significant positive yield spread between these pairs of bills reflecting an upward sloping yield curve however for year ends coinciding with the tax rate reductions of 1981 and 1986 there is a significant negative yield spread between these pairs of bills

alliance governance and technological performance some evidence from biotechnology alliances pursuing alliance opportunities are fraught with difficulties due to information asymmetry between the potential partners as well as technological and or market uncertainties in this article i empirically test how social ties between alliance partners alliance governance and individual firm characteristics impact alliance performance since alliances are by definition relationships between two or more independent firms defining and measuring alliance performance is difficult as the partner firms may have different objectives in entering the alliance therefore analyzing alliance performance at different stages of the alliance process using intermediate indicators of success can provide help to better understand the determinants of alliance performance as well as how these determinants may change over time

supply side interventions and redistribution we evaluate the eect on welfare of shifting the burden of capi tal income taxes to labor taxes in a dynamic equilibrium model with heterogeneous agents and constant tax rates we calibrate and simu late the economy we nd that lowering capital taxes has two eects i it increases e ciency in terms of aggregate production and ii it redistributes wealth in favor of those agents with a low wage wealth ratio when the parameters of the model are calibrated to match the distribution of income in terms of the wage wealth ratio the redis tributive eect dominates and agents with a high wage wealth ratio would experience a large loss in utility if capital income taxes were eliminated

the control of technology alliances an empirical analysis of the biotechnology industry we examine the determinants of control rights in biotechnology alliances through three case studies and a quantitative analysis aghion and tirole 1994 argue that control rights will be assigned so as to maximize the value of the final output as long as the r d firm has sufficient financial resources consistent with this framework the allocation of control rights to the r d firm increases with the firm s financial resources the empirical evidence regarding the relationship between control rights and the stage of the project at the time the alliance is signed is more ambiguous

the incidence and allocation effects of a tax on corporate distributions abstract to study the effects of double taxation first at the corporation level then at the shareholder level this paper analyzes a model with a tax on all corporate distributions to equity owners and no other taxes contrary to the common view the tax is shown to have no subtitution effect and in particular no effect on the corporate choice between debt and equity via retained earnings finance the analysis opens to question certain arguments commonly used to support integration of corporation and individual income taxes via dividend relief

debt and taxes in the theory of public finance if a specified amount of government spending must be financed how should that finance be divided between taxes and government borrowing in the case of a temporary increase in government spending it has been argued that debt finance is optimal because the small increments in all future tax rates to finance interest payments involves a smaller excess burden than the single large tax rate increase that would be required to avoid an initial increase in the national debt this argument ignores the excess burden of debt finance that results if the initial capital stock is smaller than optimal e g because of taxes or capital income the first section of the present paper shows how the debt finance advantage of a small increase in tax rates can be explicitly balanced against the disadvantage of the excess burden that arises from additional debt the analysis shows that with plausible parameter values the excess burden of debt finance is likely to outweigh the advantage of avoiding a large single tax change and therefore that financing a temporary increase in government spending by an immediate tax increase is likely to be preferable to debt financing the second section examines the appropriate response to a permanent increase in government spending and shows that such spending cannot be financed by a permanent increase in government debt moreover whenever the golden rule level of capital intensity is an optimality condition independent of the level of government spending any increase in government spending should be matched by an equal increase in tax revenue this abstract was borrowed from another version of this item

regional policy incentives and the relative costs of capital in assisted areas in britain and germany bennett r j and krebs g 1989 regional policy incentives and the relative costs of capital in assisted areas in britain and germany reg studies 23 201 218 regional policies of various forms have been employed in most european countries both as means of stimulating investment in problem regions and as an attempt to limit the pace of industrial contraction this paper evaluates the resulting incentives to capital in britain and germany and compares the stimulus provided by the different packages of incentives over time and between the two countries it is demonstrated that pre tax real rates of return and fiscal wedges between pre and post tax real rates of return are affected very markedly by the incentive packages in britain fiscal wedges of 3 derive from regional policy up to the late 1970s but decline to 1 6 in the mid 1980s in germany fiscal wedges increase from 3 to 3 5 over the same period on a standardized basis of comparison thus declines in the significance of regional po

why does household investment lead business investment over the business cycle household investment leads nonresidential business fixed investment over the u s business cycle because real business cycle theory has not been able to account for this observation it represents a potent challenge to the view that transitory productivity disturbances are the main source of aggregate fluctuations this paper reconciles rbc theory with the investment dynamics by extending the traditional home production model to make household capital complementary to business capital and labor in market production empirical evidence suggesting that household capital is a complementary input in market production is also presented

contractibility and the design of research agreements we analyze how contractibility affects contract design a major concern when designing research agreements is that researchers may use their funding to subsidize other projects we show that when research activities are not contractible an option contract is optimal the financing firm obtains the option to terminate the agreement and in case of termination broad property rights the threat of termination deters researchers from cross subsidization and the cost of exercising the termination option deters the financing firm from opportunistic termination we test this prediction using 580 biotechnology research agreements contracts with termination options are more common when research is non contractible

an empirical analysis of intergovernmental tax interaction the case of business income taxes in canada both federal and provincial governments in canada levy corporate taxes on busi nesses in their jurisdictions which potentially gives rise to horizontal and vertical tax exter nalities within the federation using a simple model of interdependent tax choices we estimate tax setting functions for the federal government ontario quebec and an aggregate of the remaining eight provinces we find evidence of significant vertical and horizontal tax inter actions provincial tax rates respond negatively to the federal tax rate while at least some provinces increase their tax rates in response to increases in the tax rates of other provinces

is the united states really underinvesting in agricultural research that the level of public investment in u s agricultural research is too low is widely accepted this paper argues that there are two important limitations to the evidence assembled in support of the underinvestment hypothesis a many authors have compared the social rate of return to public investments with the private rate of return to private investments b costs of public expenditures on agricultural research have been underestimated by a failure to account for the marginal excess burden of the tax collection system taking these two factors into account evidence in support of the underinvestment hypothesis is weakened considerably

the impact of the corporate income tax evidence from state organizational form data abstract by taxing the income of corporate firms at a different rate than non corporate firms taxes can play an important role in a firm s choice of organizational form the sensitivity of the organizational form decision to tax rates provides a key indicator of the distortion created by the corporate income tax this paper uses new cross sectional data on organizational form choices across states compiled in the census of retail trade to estimate this sensitivity the results document a significant impact of the relative taxation of corporate to personal income on the share of real economic activity that is done by corporations and that the impact is many times larger than has been found in the previous empirical literature based on time series data the results show little impact however on the actual operations of firms such as their labor intensity wages and the like they do indicate that firms are able to exploit the progressivity of the corporate income tax system by dividing into numerous firms

does the tax system favor investment in high tech or smoke stack industries in this paper we examine whether differential use of depreciable assets gives rise to differential tax treatment of high technology industries relative to other industries we calculate the total effective tax rate on a marginal investment in each of 34 assets and weighting by the use of these assets we calculate total effective tax rates for 73 industries we find considerable variation within the high tech sector and within the more traditional sector but for the case of a taxable firm with a given debt equity ratio we do not find any systematic differences between overall rates in the two sectors

measuring the energy savings from home improvement investments evidence from monthly billing data an important factor driving energy policy over the past two decades has been the energy paradox the perception that consumers apply unreasonably high hurdle rates to energy saving investments we explore one possible explanation for this apparent puzzle that realized returns fall short of the returns promised by engineers and product manufacturers using a unique data set we find that the realized return to attic insulation is statistically significant but the median estimate 9 7 is almost identical to a discount rate for this investment implied by a capm analysis we conclude that the case for the energy paradox is weaker than has previously been believed

imperfect annuity markets unintended bequests and the optimal age structure of social security benefits the social security program now provides a constant real benefit throughout each retirees lifetime this paper examines whether total welfare would rise if benefits were lower in early retirement years when most individuals have some saving with which to finance consumption and higher in later years when the uncertainty of survival and the absence of actuarially fair private annuities makes the availability of social security benefits more important the analysis shows that there is a potentially important difference between the structure of benefits that would be preferred by the current population of workers and retirees and the structure of benefits that would maximize the steady state level of social welfare this difference reflects the role of unintended bequests the provision of higher benefits to older retirees reduces individually optimal savings and therefore the level of unintended bequests while those bequests may have no value to the retirees they are clearly of value to the young workers who will receive those bequests more generally the system of level benefits raises the steady state level of the capital stock and of total real income the present paper provides an explicit analysis of a case in which the current workers want benefits to increase with age while the social security system that maximizes steady state welfare would provide higher benefits to young retirees than to the very old this abstract was borrowed from another version of this item

household production and the excess sensitivity of consumption to current income empirical research on the permanent income hypothesis pih has found that consumption growth is excessively sensitive to predictable changes in income this finding is interpreted as strong evidence against the pih we propose an explanation for apparent excess sensitivity that is based on a quantitative equilibrium model of household production in which permanent income consumers respond to shifts in sectoral wages and prices by substituting work effort and consumption across home and market sectors although the pih is true this mechanism generates apparent excess sensitivity because market consumption responds to predictable income growth

do taxes affect corporate debt policy evidence from us corporate tax return data abstract this paper uses u s statistics of income soi corporate income tax returns balance sheet data on all corporations to estimate the effects of changes in corporate tax rates on the debt policies of firms of different sizes small firms face very different tax rates than larger firms and relative tax rates have also changed frequently over time providing substantial information to identify tax effects the results suggest that taxes have had a strong and statistically significant effect on debt levels for example cutting the corporate tax rate by ten percentage points e g from 46 to 36 holding personal tax rates fixed is forecast to reduce the fraction of assets financed with debt by around 3 5 since small firms normally rely much more heavily on debt finance yet face much lower tax incentives to use debt the estimated effect of taxes would be strongly biased downwards without controls for firm size

new evidence that taxes affect the valuation of dividends this paper uses british data to examine the effects of dividend taxes on investors relative valuation of dividends and capital gains british data offer great potential to illuminate the dividends and taxes question since there have been two radical changes and several minor reforms in british dividend tax policy during the last 30 years studying the relationship between dividends and stock price movements during different tax regimes offers an ideal controlled experiment for assessing the effects of taxes on investors valuation of dividends using daily data on a small sample of firms and monthly data on a much broader sample we find clear evidence that taxes affect the equilibrium relationship between dividend yields and market returns these findings suggest that taxes are important determinants of security market equilibrium and deepen the puzzle of why firms pay dividends financial economists have long been puzzled by corporate dividend behavior many individual investors should value a dollar of corporate dividends less than a dollar of corporate retentions because the former gives rise to greater tax liabilities corporations however face equal costs of paying out dividends and retaining earnings miller and modigliani 31 demonstrated that in the absence of taxes dividend policy should have no effect on share valuation if dividends are tax penalized however a value maximizing firm should pay no dividends widespread dividend payments to taxable investors are therefore surprising in 1981 dividend tax revenues in the united states were estimated to exceed 20 billion dollars indeed some have interpreted the large volume of dividends paid as evidence against the rational behavior postulates typically used by economists the dividend question has stimulated a large theoretical and empirical literature concerned with the qluestion of investors valuation of dividends in particular the question of how taxes affect the market valuation of dividends has generated considerable controversy numerous studies including auerbach 2 litzenberger and ramaswamy 24 26 morgan 34 and rosenberg and marathe

a normative analysis of public capital a normative analysis of short term public capital investment is carried out using cost benefit analysis this cost benefit approach explicitly incorporates the durability of capital into the computation and thus include an aspect of public capital omitted from previous studies which focus on productivity estimation methods used else where have been improved by properly handling several concerns that have been raised in addition this behavioural model yields many structural equations suitable for estimation which results in highly efficient parameter estimates although a small elasticity is found for public capital the benefit is greater than the cost

multiple wage bargaining systems in the single european currency area little attention in the emu literature has been paid to the interaction between central bank monetary rules and systems of collective wage bargaining analytically and empirically coordinated wage bargaining systems respond with real wage restraint to non accommodating monetary policy since wage determination is dominated by collective bargaining in all the emu member states and wage coordination within the member states has grown since 1980 this is a topic of potential importance in particular the replacement of the bundesbank directly targeting german inflation by an ecb targeting european inflation has removed a major institutional support of wage restraint in germany the consequences of this for emu are worked out under two scenarios that inflation expectations will be generated by ecb monetary policy and that they will reflect german inflation outcomes possible institutional developments are discussed including government union bargains the bundesbank has also played a major role in maintaining fiscal rectitude by targeting excess fiscal deficits in germany again its replacement by the ecb targeting if at all european rather than german fiscal policy loosens fiscal constraints for underlying structural reasons therefore it is possible that germany and other emu countries will move to a period of fiscal activism with wage restraint and low inflation purchased through social contract negotiations

the effect of large government deficits on interest rates and equity returns with the current economic expansion in the united states now beginning its third year the persistence of federal government budget deficits on a historically unprecedented scale has clearly become the chief distinguishing characteristic of this business cycle both economically and politically the budget for the 1978 fiscal year submitted to congress by president reagan acknowledges that after a small improvement in 1984 the 1985 deficit will exceed even the record 208 billion mark posted in the immediate post recession environment of 1983 more important the president s new budget indi cates that even with a strong economy and even after 50 billion of proposed spending cuts the 1985 deficit will show no improvement over 1984

taxes organizational form and the deadweight loss of the corporate income tax abstract by changing the relative gain to incorporation corporate taxation can play an important role in a firm s choice of organizational form general equilibrium models have shown that substantial shifting of organizational form in response to tax rates implies a large deadweight loss of taxation this paper estimates the impact of taxes on organizational form using data from 1900 1939 the results indicate that the effect of taxes is significant but small a corporate rate increase of 0 10 raises the non corporate share of capital 0 002 0 03 the implied deadweight loss of the corporate income tax is around 5 10 of revenue

the indexation of interest depreciation and capital gains and tax reform in the united states abstract the treasury s 1984 tax plan suggests features of a comprehensive income tax including the indexation of interest depreciation and capital gains the 1985 president s proposal retains some of these indexing provisions but the tax reform act of 1986 does not this paper looks at the incentives under these tax regimes to make marginal investments in the corporate sector noncorporate sector and owner occupied housing it finds that inflation in the old system caused effective tax rates to rise for some assets and fall for others under the treasury or president s proposals the interference of inflation is virtually eliminated also the effects of inflation are substantially reduced by the 1986 act because mismeasured depreciation and interest deductions are taken at much lower rates

fiscal policies capital formation and capitalism abstract this lecture examines the effect of tax policy and social security retirement benefits on capital accumulation and economic welfare the paper begins by examining how capital income taxes reduce the real return to savers and then discusses the welfare loss of capital income taxation relative to the alternatives of taxing consumption and labor income the analysis shows that capital income taxes impose a very substantial deadweight loss even if they do not alter private saving the first section of the paper also discusses the theory and empirical literature on the effect of capital income taxes on national saving the second part of the lecture deals with social security retirement benefits in 1994 the aged members of the u s population will receive cash and medical benefits that cost the government 530 billion or 16 000 per person over age 65 the likely impact of these benefits on private saving and the empirical evidence on this subject are then reviewed the second part of the paper concludes by discussing the welfare loss of unfunded social security benefits and the possibilities for alternative arrangements a final section discusses the implications of international capital flows for this analysis as capital flows become more important particularly in europe the response of government policy may be to compete for foreign capital inflows and to tax domestic savers more heavily this would lead to a smaller total volume of capital the sharp decline in the net national saving rate from more than 8 percent of gdp in the united states in the 1970s to only 4 5 percent in the 1980s and from more than 14 percent of gdp in europe in the 1970s to 9 9 percent in the 1980s may not only create lower real incomes and slower growth but may weaken capitalism itself in the united states a decade of slow growth has increased protectionist tendencies in international trade and led to a new interest in industrial policies that expand the role of government in guiding the direction of technology and of private investment in these ways the government policies that discourage saving might make the schumpeterian vision of a shift from private capitalism to a government dominated economy more likely

explaining the swollen middle why most transactions are a mix of market and hierarchy why are firms sometimes more efficient than markets at organizing transactions why are most transactions arrayed neither at the pure market nor at the pure hierarchy end of the continuum but rather in the swollen middle incorporating features of both market and hierarchy why don t firms make greater use of price incentives this paper addresses these three questions by developing a model of the choice of institution one key building block is the distinction between organizing methods hierarchy and the price system and institutions firms and markets hierarchy and the price system are two distinct methods for organizing transactions each with particular costs and benefits markets and firms are institutions which use one or both of these methods although markets predominantly use prices and firms rely principally on hierarchy there is not a one to one correspondence between prices and markets or between hierarchy and firms indeed the paper argues that it is generally more efficient to use a mix of both methods than to specialize in either the paper focuses on the enforcement properties of prices and hierarchy hierarchy controls individuals directly by constraining their behavior by imposing behavior constraints while prices do it indirectly by measuring their outputs through price constraints under hierarchy individuals receive a salary to do as told while self employed individuals governed by the price system are rewarded on the basis of their output each system has its own biases using prices maximizes effort minimizes shirking but incites individuals to inflate the price and or reduce the quality of their output it encourages cheating relying on hierarchy results in the opposite bias under hierarchy individuals are not paid in function of their output but instead are rewarded for following directives they have thus strong incentives to minimize effort to shirk unless properly supervised but being paid a fixed sum to follow orders they have few incentives to cheat hence the price system experiences low shirking but potentially high cheating costs while hierarchy faces low cheating but high shirking costs organizing costs are the sum of shirking and cheating costs any given transaction will be organized by the mix of price and hierarchy i e by the mix of price and behavior constraints that minimizes organizing costs a transaction will be organized within a firm if the reduction in cheating costs achieved by replacing price constraints by behavior constraints exceeds the resulting increase in shirking costs and by the market in the opposite case the paper shows that cheating and shirking costs increase more than proportionately as one concentrates in either pure price or behavior constraints hence using a mix of both methods generally minimizes the sum of cheating and shirking costs this explains why most transactions exhibit features of both markets and hierarchy the paper shows clearly the tradeoff involved between price and behavior constraints it explains the costs and benefits of using two types of price incentives in firms piecework and profit centers and predicts when they will be used

intertemporal optimizing models of trade and current account balance a survey abstract this study surveys the intertemporal optimizing models of trade and current account balance that were developed calibrated and empirically tested since they came into vogue in the 1980s the implications of these models often differ from those of static and dynamic conventional non optimizing models the literature on optimizing models has not only grown reasonably fast but has also witnessed significant advances in methodology and these models have culminated into a distinct strand of new open economy macroeconomics the studies conducted until the late 1980s have used deterministic perfect foresight models while several studies conducted since the 1990s relax the perfect foresight and certainty equivalence assumptions and develop stochastic dynamic general equilibrium models to account for uncertainty confronting the optimizing agents the future research needs to explore the possibility of tracing any preferred specification of household preferences model the effect of time varying discount factor on household utility function and intertemporal budget constraint examine the role of costs in international trade place a parallel emphasis on the empirical verifications of theoretical propositions examine the relative performance of optimizing vis a vis non optimizing models and rationalize the extreme propositions of perfect and imperfect capital mobility in the wake of moderately open capital accounts

learning and protection of proprietary assets in strategic alliances building relational capital one of the main reasons that firms participate in alliances is to learn know how and capabilities from their alliance partners at the same time firms want to protect themselves from the opportunistic behavior of their partner to retain their own core proprietary assets most research has generally viewed the achievement of these objectives as mutually exclusive in contrast we provide empirical evidence using large sample survey data to show that when firms build relational capital in conjunction with an integrative approach to managing conflict they are able to achieve both objectives simultaneously relational capital based on mutual trust and interaction at the individual level between alliance partners creates a basis for learning and know how transfer across the exchange interface at the same time it curbs opportunistic behavior of alliance partners thus preventing the leakage of critical know how between them copyright 2000 john wiley sons ltd

network location and learning the influence of network resources and firm capabilities on alliance formation this paper presents a dynamic firm level study of the role of network resources in determining alliance formation such resources inhere not so much within the firm but reside in the interfirm networks in which firms are placed data from extensive fieldwork show that by influencing the extent to which firms have access to information about potential partners such resources are an important catalyst for new alliances especially because alliances entail considerable hazards this study also assesses the importance of firms capabilities with alliance formation and material resources as determinants of their alliance decisions i test this dynamic framework and its hypotheses about the role of time varying network resources and firm capabilities with comprehensive longitudinal multi industry data on the formation of strategic alliances by a panel of firms between 1970 and 1989 the results confirm field observations that accumulated network resources arising from firm participation in the network of accumulated prior alliances are influential in firms decisions to enter into new alliances this study highlights the importance of network resources that firms derive from their embeddedness in networks for explaining their strategic behavior copyright 1999 john wiley sons ltd

tax distortions to the choice of organizational form income from corporate and noncorporate firms is treated very differently under the tax law in theory given existing tax law the noncorporate sector should consist of very profitable firms owned by low tax bracket investors and firms with tax losses owned by high tax bracket investors but the degree to which firms change their form of organization in response to taxes and the resulting excess burden depends as well on nontax factors given the role of taxes we estimate what size the nontax advantage to incorporating must take in each industry so that the forecasted choices for organizational form aggregated over investors in different tax brackets are consistent with the aggregate evidence while the estimated nontax costs are large in some industries noncorporate activity tends to be concentrated where the costs are small leading to little excess burden from the tax distortion to organizational form

the ineffectiveness of effective tax rates on business investment a critique of feldstein s fisher schultz lecture abstract in his fisher schultz lecture martin feldstein 1982 examined the effects of non neutral tax rules on business investment by estimating three econometric models and he concluded that the rising rate of inflation has because of the structure of existing u s tax rules substantially discouraged investment in the past 15 years in a detailed examination of feldstein s effective tax rate model and a less extensive review of his other formulations neoclassical and return over cost we advance a number of important and independent criticisms and find that these three models fail to support feldstein s conclusion that taxes have exerted a significantly depressing effect on net investment during the recent inflation episode

overoptimism and the performance of entrepreneurial firms recent theoretical and empirical research on cognitive bias in decision making suggests that overoptimism critically influences entrepreneurs decisions to establish and sustain new ventures we investigate whether such cognitive bias influences entrepreneurial venture performance using data on commercialization efforts for university inventions in contrast to prior studies our results suggest that entrepreneurial overoptimism does not appear to be the determining factor in the decision to found a firm we do find that entrepreneurs continue unsuccessful development efforts for longer periods of time than do established firms which is consistent with entrepreneurial overoptimism in the development of technologies with uncertain market prospects this latter finding is also consistent with rationality based models of decision making behavior however we find that the economic returns associated with many of the technologies in our sample are realized after the start up has been acquired by an established firm suggesting that start ups may serve as a transitional organizational form in the market for technology commercialization

marginal effective tax rates for capital in the canadian mining industry the authors model a firm that explores develops and extracts a depletable asset taking into account various features of canadian corporate and ontario and quebec mining tax law they derive the user cost of capital and effective tax rate for investments undertaken by a mining firm calculations based on 1985 tax law show that there is considerable dispersion in effective tax rates most being negative especially for processing assets the authors conclude that these taxes have been very poor collectors of mining rents compared to a neutral cash flow tax coauthors are neil bruce ken mckenzie and jack mintz

a simple model of endogenous tax reform abstract this paper presents a model of optimal taxation that is useful for understanding governments incentives to switch from wage to consumption taxation the key ingredient is the fact that governments cannot precommit policy although under precommitment governments would tax only wages there is an ex post incentive to switch to the consumption tax as savings grow numerical examples for a nested ces utility function find that for reasonable parameter values equilibrium features a switch to consumption taxation in particular the model produces this tax reform when parameterized as in auerbach and kotlikoff s 1987 study

optimal taxation in a growth model with public consumption and home production in a neoclassical growth model with public consumption we show the following pareto optimal tax rules the government should tax leisure and private consumption at the same rate and subsidize net investment at the same rate it taxes net capital income also it should tax capital income more heavily than labor income in an extension for home production the additional rule is to tax investment for home production at the same rate of the tax on private market consumption these tax and subsidy rates should be constant over time except the initial tax rate on capital income

intermediate inputs and sectoral comovement in the business cycle abstract the post war us business cycle is characterized by positive comovement of employment and output across sectors it has been argued that multi sector growth models are inconsistent with this observation when changes in relative productivities are the main source of fluctuations we suggest that the input output structure of an economy in particular the pervasive use of intermediate inputs can induce positive comovement in sectoral employment and output following changes in relative productivities we calibrate a model of the us economy for the durable and nondurable goods producing sectors and show that sectoral employment and output move together if intermediate inputs are used in production the model is also consistent with the observation that the relative price of nondurable goods is procyclical

an examination of opportunistic action within research alliances evidence from the biotechnology industry abstract like a photographer trying to take a perfect picture an entrepreneur trying to increase the odds of survival must learn very quickly that focus is everything and what demands an entrepreneur s immediate focus is the development of new products entrepreneurial ventures depend on the rapid creation of new products to gain access to early cash flows create legitimacy grab early market share and increase their odds of survival schoonhoven eisenhardt and lymman 1990 however the increasing costs and complexity of new product development are making it difficult for entrepreneurial ventures to contain the assets needed for successful r d within their boundaries forcing them to reach beyond their borders to access resources barley et al 1992 document the use of more than 900 contractual research agreements within the biotechnology industry alone recent research has also found a positive relationship between the use of alliances in the r d process and the rate of new product development deeds and hill 1996 shan walker and kogut 1994 this particular study focuses on the use of relational contracts in the r d process and extends the prior work on relational contracts to create an explanatory model of the deterrents to opportunism within a relational contract the article begins with a discussion of the traditional modes of deterring opportunism and of modes of deterring opportunism based on the development of a strong cross boundary relationship from this discussion hypotheses are derived that relate certain characteristics of the alliance frequency of communication strength of contractual deterrents hostage investments age of the relationship etc to the level of opportunism within the relationship these hypotheses are then tested on a sample of 109 research alliances in the biotechnology industry we found significant evidence that a strong relationship between the partners serves as a much more effective deterrent to opportunistic action than the creation of hostage investments or contingent claims contracts in particular the results for frequency of communication and the background of the firm highlight the importance of the top management team s understanding and involvement in the management of research alliances the strong results for background congruence indicates the importance of shared expectations and understandings between the partners the strong empirical results for the hypothesized u shaped relationship between age and opportunism provide support for the existence of both a honeymoon period in the relationship and a liability of adolescence among research alliances the data also suggest that the honeymoon period for an alliance will last about 4 6 years we also find that the honeymoon period for alliances that are of little importance to the future of the firm is only 4 1 years and in our sample of alliances that were important to the future of the firm the honeymoon period extended from 4 6 years to 6 1 years

home production meets time to build an innovation in this paper is to introduce a time to build technology for the production of market capital into a model with home production our main finding is that the two anomalies that have plagued all household production models the positive correlation between business and household investment and household investment s leading business investment over the business cycle are resolved when time to build is added

the productivity slowdown and the savings shortfall a challenge to the permanent income hypothesis i introduction the permanent income hypothesis has been extensively tested over the years most of these tests reject the permanent income hypothesis at conventional significance levels but the implied deviations are small in economic terms in this paper i argue that the savings shortfall that followed the post 1973 productivity slowdown constitutes a large deviation from the permanent income hypothesis according to the permanent income hypothesis current consumption depends upon preferences interest rates and expected future income in the united states the productivity growth rate sharply declined after 1973 and economic agents forecasted that the lower growth rate would persist the permanent income hypothesis generally predicts that a productivity slowdown by lowering future expected income will stimulate saving the slower growth rate reduces the ratio of permanent income to current income and thereby reduces the ratio of consumption to current income unless the intertemporal elasticity of substitution is high however the u s national saving rate instead fell to a postwar low after the productivity slowdown the permanent income hypothesis therefore appears to be inconsistent with recent economic experience carroll and summers 1991 327 328 briefly noted that these events pose a challenge to the permanent income hypothesis in this paper i extend their analysis along four dimensions first i calculate the savings response predicted by the permanent income hypothesis in an economy with declining returns to capital abandoning their assumption of a fixed rate of return second i consider the case in which consumers only gradually recognize the extent and duration of the slowdown third i examine published forecasts to demonstrate that the slowdown caused a fall in expected not merely realized growth rates which is necessary for the predicted savings increase fourth i consider the effects of other variables on saving during this period the paper is organized as follows in section ii i examine the permanent income hypothesis s prediction of the savings response to a productivity slowdown by solving a linearized infinite horizon specification of the permanent income hypothesis in a closed economy with concave production technology unless the intertemporal elasticity of substitution is high the permanent income hypothesis predicts rapid capital accumulation in response to the slowdown in section iii i document the post 1973 decline in productivity growth the downward revision in economic forecasts and the decline in national saving and capital accumulation i argue that other recent economic events cannot explain the saving decline and discuss the implications of these events for the permanent income hypothesis i briefly conclude in section iv ii effects of a productivity slowdown under the permanent income hypothesis in this section i show that the permanent income hypothesis predicts that a productivity slowdown increases saving unless the intertemporal elasticity of substitution is high specification of the permanent income hypothesis i use the model of ramsey 1928 and blanchard and fischer 1989 38 47 there is one good which can be consumed or costlessly transformed into capital labor supply is exogenous and factors are paid their marginal products the economy is closed relaxing this assumption increases the predicted savings effects of a slowdown the production function for gross output y is cobb douglas mathematical expression omitted where k is the capital stock z is the level of productivity l is labor supply and alpha is a constant between zero and one i refer to lz as the amount of effective labor gross output grows at rate 2 d y sub t dt y sub t alpha g sub t alpha n sub t 1 alpha d k sub t dt k sub t where g

oligopoly structure and the incidence of cigarette excise taxes abstract a model of oligopoly price behavior and tax incidence for the u s cigarette industry for the period 1955 1990 is presented a cost function is estimated and shows manufacture to be subject to increasing returns to scale the mean price elasticity of demand is 0 71 the model indicates that competition among manufacturers has been decreasing since 1980 a simulation shows that an increase in the federal excise tax causes a greater increase in price and a greater decrease in consumption than does the same increase in the average of state and local tax rates

the welfare cost of factor taxation in a perfect foresight model this paper examines the marginal efficiency cost of various factor taxes in a dynamic general equilibrium model the au thor solves for the excess burden of anticipated and unanticipated t emporary and permanent tax policies using a range of estimates for taste and technology parameters he finds excess burdens larger than those indicated by previous studies that use static models these exc ess burdens are sensitive to parameter values and timing however th e rankings of alternative tax policies turn out to be insensitive to structural parameter values copyright 1987 by university of chicago press

how much do taxes discourage incorporation the double taxation of corporate income should discourage firms from incorporating we investigate the extent to which the aggregate allocation of assets and taxable income in the united states between corporate and noncorporate firms responds to the size of this tax distortion during the period 1959 1986 in theory profitable firms should shift out of the corporate sector when the tax distortion is large and conversely for firms with tax losses our empirical results provide strong support for these forecasts and imply that the resulting excess burden equals 16 percent of business tax revenue one of the most basic distortions created by the double taxation of corporate income in the united states is the disincentive to incorporate even in most countries with integrated or partially integrated tax systems there are differential taxes across organizational forms however obvious this distortion may be most articles investigating the distortions created by the corporate tax have taken as exogenous a firm s choice whether or not to incorporate assuming for example that some industries are inherently corporate while others are inherently noncorporate a variety of nontax factors described below can certainly influence a firm s choice of organizational form causing some to favor incorporating and others not but are these nontax factors so dominant that taxes do not in practice influence a firm s choice of organizational form as gravelle and kotlikoff 1989 1993 emphasize tax induced changes in firms choices of organizational form in principle can create large excess burdens the size of these excess burdens in practice depends on the extent to which firms respond to these tax incentives in this article we calculate how the tax distortion discouraging firms from incorporating has varied over time then estimate the extent to which the allocation of assets and taxable income between corporate and noncorporate

the effects of tax based saving incentives on government revenue and national saving this paper shows that previous analyses of ira type plans that seek to encourage household saving have miscalculated their effect on tax revenue and therefore on national saving by ignoring their favorable impact on corporate tax payments recognizing the important effects of ira plans on corporate tax revenue changes previous conclusions about the revenue loss in a fundamental way the revenue loss associated with iras either is much smaller than has generally been estimated or is actually a revenue gain

the impact of royalty contract revision in a multistage strategic r d alliance this paper investigates the impact of royalty revision on incentives and profits in a two stage research and development r d stage and marketing stage alliance with a marketer and an innovator the marketer offers royalty contracts to the innovator we find that the potential for royalty revision leads to more severe distortions in the optimal initial royalty contracts offered by the marketer we show that if the innovator plays a significant role in the marketing stage the marketer should offer a low royalty rate initially and then revise the royalty rate up later otherwise she should do the opposite we identify two major effects of royalty revision first royalty revision provides the marketer with a flexibility to dynamically adjust royalty rates across the two stages of the alliance to better align the innovator s incentives this incentive realigning effect improves the marketer s profit second royalty revision makes it harder for the marketer to obtain private information from the innovator because the innovator worries that the marketer will take advantage of the information to revise the initial contract to a more favorable one to herself later this information revealing effect hurts the marketer s profit we characterize in what kind of alliances marketers would benefit the most from royalty revision so that managers should clearly establish the expectation for royalty revision and in what kind of alliances markerters would not benefit from royalty revision so that managers should commit not to revise the initial royalty contract with royalty contracts that are contingent on the r d outcome of the r d stage we find that contingent contract structure could be either substitutable by fully capturing the incentive re aligning effect or complementary by weakening the information revealing effect to royalty revision depending on whether the innovator plays a significant role in the marketing stage managers may need to use a contingent contract if possible either to replace or with royalty revision accordingly to improve profits this paper was accepted by kamalini ramdas entrepreneurship and innovation