a model based indicator of the fiscal stance we argue that the conventional approach to assessing the fiscal stance based on econometric tests of the government present value budget constraint pvbc is of limited practical use we propose an alternative measure that focuses on short run fluctuations in the fiscal stance namely a model based indicator that compares a target level of the debt gdp ratio at a given point in the future with a forecast based on the government budget constraint gbc where the forecasts are obtained using a recursively estimated var by log linearising the gbc the index can be decomposed into the various different components of which it is comprised using data from 1970 to 2011 we conduct a detailed time series study of the fiscal stances of four countries the united states the united kingdom germany and greece and we calculate the index for 11 other eu countries for most countries the index shows that their fiscal stances vary from being too loose to too tight almost without exception the index drops sharply from 2007 showing the harmful effect on their fiscal stances of the recent recession

corporate taxation and capital accumulation evidence from sectoral panel data for 14 oecd countries abstract we present new empirical evidence that sector level capital output ratios are strongly influenced by corporate tax incentives as summarised by the tax component of a standard user cost of capital measure we use sectoral panel data for the usa japan australia and eleven eu countries over the period 1982 2007 our panel combines internationally consistent data on capital stocks value added and relative prices from the eu klems database with corporate tax measures from the oxford university centre for business taxation our results for equipment investment are particularly robust and strikingly consistent with the basic economic theory of corporate investment

tax policy uncertainty and corporate investment abstract the anticipatory effects of a corporate tax reform of the tax cut cum base broadening variety are analyzed in a dynamic stochastic adjustment model of firm behavior focusing on the case where the firm is uncertain both about the timing and the contents of the expected reform the value of the firm is solved prior to and after the reform the existence of investment spurts prior to the implementation of the tax reform is established rigorous results are derived under constant returns and the effects of diminishing returns are explained the expectation of a future tax cut causes the firm to accelerate optimal investment while the expectation of a reduction in the tax base the rate of fiscal depreciation has the opposite effect for a firm which updates information timing uncertainty interacts with the expectation effect moreover increased timing uncertainty may accelerate or decelerate investment as an optimal response to an expected tax cut futhermore for reasonable assumptions it is shown that a rate cut cum base broadening tax reform of the type implemented in several oecd countries in the 1980s and 1990s cannot be revenue neutral

rising inequality as a cause of the present crisis the article argues that the economic imbalances that caused the present crisis should be thought of as the outcome of the interaction of the effects of financial deregulation with the macroeconomic effects of rising inequality in this sense rising inequality should be regarded as a root cause of the present crisis i identify four channels by which it has contributed to the crisis first rising inequality creates a downwards pressure on aggregate demand since poorer income groups have high marginal propensities to consume second international financial deregulation has allowed countries to run larger current account deficits and for longer time periods thus in reaction to potentially stagnant demand two growth models have emerged a debt led model and an export led model third in the debt led growth models higher inequality has led to higher household debt as working class families have tried to keep up with social consumption norms despite stagnating or falling real wages fourth rising inequality has increased the propensity to speculate as richer households tend to hold riskier financial assets than other groups the rise of hedge funds and of subprime derivatives in particular has been linked to rise of the super rich

fixed costs of adjustment coordination and industry investment we test whether smooth industry level investment dynamics result from explicit aggregation of asynchronous and possibly lumpy firm level investment we compare the deviations of optimal from actual firm behavior across industries categorized by their ratios of idiosyncratic uncertainty to the sum of idiosyncratic and aggregate uncertainty the deviations are represented by the residuals of a cointegrating regression that is derived from the firm s first order condition under no adjustment costs in support of models with asynchronous firm decisions we find a significant negative relationship across industries between idiosyncratic uncertainty and the persistence of these residuals

theoretical approaches to monetary disinflation abstract during the 1980s many countries adopted tight monetary policies to reduce high inflation rates which were the legacy of the 1970s as inflation threatens to rise at the beginning of this decade this paper provides a survey of the 1980s literature which sought to provide theoretical understandings of how monetary disinflation is achieved four models are presented monetarist neo keynesian new classical and post keynesian each model s explanation of the recession which accompanies the monetary disinflation is outlined as well as possible policy measures to reduce the extent of the recession and to hasten the return to full employment

spatial competition among multi store firms abstract the paper analyzes spatial cournot competition among multi store firms it demonstrates that the complex problem of determining equilibrium store locations for competing multi store firms can be approximated by a simple one in which each firm behaves as a multi store monopolist in choosing its store locations a firm s equilibrium store locations often coincide with its monopoly locations and in general converge to its monopoly locations as the demand grows larger when the firms have an equal number of stores the stores belonging to competing firms agglomerate at discrete points that coincide with each firm s monopoly store locations

ricardian debt taxation equivalence in the kaldor theory of profits and income distribution a well known characteristic of nicholas kaldor s theory of income distribution and of the related cambridge theory of the rate of profits is that any tax imposed on profits is shifted on to wages in analogy but with a reversal of the causation chain with david ricardo s theory of income distribution in which any tax imposed on wages is shifted on to profits the present paper explores the conditions under which the same property holds when government expenditure is financed by a budget deficit and the conclusion is reached that such conditions coincide with those that assure ricardian equivalence between public indebtment and taxation copyright 1989 by oxford university press

technological development in a dual economy alternative policy levers for economic development abstract although technological development is widely recognized as a function of human ingenuity and innovation and seen by many development scientists as an important means for achieving economic development its actual use as a policy lever remains largely underutilized since the process of its implementation is unclear this paper attempts to identify operational instruments for supporting technological development so it can be incorporated easily into the development plans a system dynamics model of a dual economic system incorporating both the behavioral responses of the economic actors to competition and their ability to innovate is developed this model is used as an experimental apparatus to search for appropriate technological development policies to support economic growth and change income distribution policies to promote competition among the monopolistic formal firms while simultaneously providing positive assistance to the competitive informal firms appear to offer promising alternatives to the traditional fiscal policy levers mainly affecting prices and factor costs

the stability pact more than a minor nuisance stability pact more than a minor nuisance the stability and growth pact will lead member countries to aim for cyclically balanced budgets until this steady state is reached europe will continue its efforts at de cit cutting while so doing politicians are less likely to undertake the dif cult labour market reforms that are really needed is further scal retrenchment wise the paper reviews the reasons that have been advanced in favour of a stability pact and nds them wanting the most serious justi cations such as the systemic risk of bank crisis following a government s failure to service its debt can be better dealt with in other ways for example by prudential limits on banks exposure to public debts moreover our analysis reveals that the macroeconomic costs of the stability pact while sizeable are not as dangerous as often believed the costs will be barely visible once the steady state is reached the true macroeconomic costs are front loaded they concern the next few years after a decade already dominated by convergence efforts barry eichengreen and charles wyplosz

capital tax reform and the real economy the effects of the 2003 dividend tax cut this paper tests whether the 2003 dividend tax cut one of the largest reforms ever to a us capital tax rate stimulated corporate investment and increased labor earnings using a quasi experimental design and us corporate tax returns from years 1996 2008 i estimate that the tax cut caused zero change in corporate investment and employee compensation economically the statistical precision challenges leading estimates of the cost of capital elasticity of investment or undermines models in which dividend tax reforms affect the cost of capital either way it may be difficult to implement an alternative dividend tax cut that has substantially larger near term effects jel c72 c78 c91

unfunded liabilities and uncertain fiscal financing we develop a rational expectations framework to study the consequences of alternative means to resolve the unfunded liabilities problem the projected exponential growth in federal social security medicare and medicaid spending with no known plan for financing the transfers resolution requires specifying a probability distribution for how and when monetary and fiscal policies will change as the economy evolves through the 21st century beliefs based on that distribution determine the existence of and the nature of equilibrium we consider policies that in expectation combine reaching a fiscal limit some distorting taxation modest inflation and some reneging on the government s promised transfers in the equilibrium inflation targeting monetary policy and debt targeting tax policy cannot anchor expectations on those target variables expectational effects are always present but need not have large impacts on inflation and interest rates in the short and medium runs in the economy s stationary distribution the capital stock may grow or shrink and substantial probability falls on little or no reneging

is demand for polluting goods manageable an econometric study of car ownership and use in mexico abstract our motivation for estimating a demand system for gasoline and cars is its strategic relevance to policy objectives such as pollution control if demand is responsive to pricing demand reductions for polluting goods will provide an important share of the pollution reductions otherwise cleaner technologies will have to do most of the job we estimate a model of gasoline demand and car ownership in mexico using a panel of annual observations by state key features that we introduce include instrumental variables on differenced data and the treatment of possible dynamics measurement errors in the data and unobserved individual state characteristics we use tests of serial correlation in the a residuals to model the dynamics properly the resulting demand system is quite responsive to pricing even in the short term 0 6 for the own price elasticity of gasoline but we emphasize a medium to long term perspective of 5 10 years as most relevant for policy five to ten year elasticity estimates are in the range of 1 25 to 1 13 applying these elasticity estimates to data on pollution control options for the vehicle fleet in mexico city the costs of reaching a target for pollution reductions would be 45 more expensive if one were not willing to use a demand management instrument such a gasoline tax in the control program

quantity competition in a spatial model the authors analyze a duopoly model where firms first choose locations on a line segment and then choose quantities in the second stage pure strategy quantity equilibria fail to exist for locations close together for low transport costs near agglomeration occurs and the firms choose locations where pure strategy quantity equilibria exist as transport costs rise firms become less direct competitors as they move away from the center of the market coauthors are james f klein eytan sheshinski and steven m slutsky we analyse a duopoly model where firms first choose locations on a line segment and then choose quantities in the second stage pure strategy quantity equilibria fail to exist for locations close together for low transport costs near agglomeration occurs and the firms choose locations where pure strategy quantity equilibria exist as transport costs rise firms become less direct competitors as they move away from the centre of the market coauthors are james f klein eytan sheshinski and stephen m slutsky

fiscal deficits economic growth and government debt in the usa a simple model illustrates interactions between the primary fiscal deficit total deficit minus interest payments economic growth and debt the deficit income ratio responds countercyclically to growth while growth may respond positively a keynes case or negatively ala merkel to the deficit the recent great recession in the usa was atypical in that there was a weak countercyclical fiscal response the increase in government net borrowing was significantly less than the decrease in private borrowing an historically unprecedented asymmetry econometric esti mates verify the historical pattern and further suggest that there is a strong positive effect on growth of a higher primary deficit even when possible increases in the interest rate are taken into account

tax policy and heterogeneous investment behavior abstract we estimate the effect of temporary tax incentives on equipment investment using shifts in accelerated depreciation analyzing data for over 120 000 firms we present three findings first

a generalisation and simplification of the cambridge theorem with budget deficits professor luigi pasinetti s 1989 paper on the cambridge theorem when the government operates steady state budget deficits is generalized to model interest payments on public debt and on indirect tax on capital expenditure it is shown that the cambridge theorem still applies in the two special cases considered by pasinetti an inflation tax or ricardian equivalence can be applied but also more generally when neither are present further the analysis is simplified and made more transparent when the capital expenditure tax rate equals the indirect tax rate on consumption in all cases the burden of taxation falls on wages copyright 1991 by oxford university press

investment ramifications of distortionary tax subsidies abstract this paper examines the investment effects of tax subsidies for which some assets and not others are eligible distortionary tax subsidies concentrate investments in tax favored assets thereby reducing the expected pre tax profitability of investment and reducing payoffs to bondholders in the event of default anticipation of asset substitution encourages lenders to require covenants in debt contracts which only imperfectly address asset substitution and distort investment the result is that borrowing is made more expensive which in turn discourages investment borrowing rates can react so strongly that aggregate investment may rise very little or even fall in response to higher tax subsidies debt issued by u s firms in risk of default after the 2002 introduction of bonus depreciation for u s equipment investment contained many more covenants than in other periods a pattern that reversed when bonus depreciation was discontinued after 2004 furthermore firms at risk of default borrowed less and were more apt to lease capital than were other firms during the bonus depreciation period

foreign direct investment local content requirement and profit taxation we develop a partial equilibrium model of foreign direct investment fdi in which identical foreign firms locate themselves in a host country to compete in an oligopolistic market for a non tradeable commodity the host country assumed to be small in the market for fdi makes use of two instruments viz a profit tax and a local content requirement to compete for fdi in the international market we assume the existence of unemployment in the host country the structure of optimal instruments and their relationship to the number and the relative efficiency levels of the domestic firms are established

tales of fiscal adjustment fiscal adjustments why they can be expansionary this paper examines the evidence on fiscal adjustments in oecd countries from the early 1960s to today the results shed light on the recently observed phenomenon of fiscal tightening that produces non keynesian expansionary effects one interpretation is that a serious fiscal tightening increases demand wealth rises when future tax burdens decline and when interest rates decline credibility is restored and inflation or default risks abate both consumption and investment rise for this effect to produce an expansion the tightening must be sizeable and occur after a period of stress when the budget is quickly deteriorating and public debt is building up another interpretation emphasizes the supply side typically a fiscal consolidation based on tax increases is short lived to be long lasting it must include cuts in public employment transfers and government wages to be politically possible such a policy must be supported by trade unions these measures result in more efficient labour markets and boost the supply side based both on statistical evidence and on a detailed analysis of ten cases of major fiscal adjustment this article provides cautious support to the supply side view without denying a more limited role for the demand side channel alberto alesina and silvia ardagna

the consequences of fiscal stimulus on public debt a historical perspective the current policy agenda of neoclassical macroeconomics as expressed within conservative political circles in the uk and european union is that fiscal contraction is the lever that can bring about recovery from the current economic downturn allegedly the reason is that when business sees that the government balance sheet is improving and public debt declining there will be greater confidence in the country s economic prospects and this increased confidence will lead to higher investment this in turn will lead to growth and the road to economic recovery this study examines the impact of government stance on public debt for 11 oecd countries for which data on the relevant factors are available from 1881 to 2011 contrary to traditional predictions it turns out that over this long historical span fiscal contractions deteriorated rather than improved public debt as a percentage of gdp this implies that fiscal austerity exacerbates the lack of demand and deteriorates rather than enhances the prospects of economic recovery

partial agglomeration or dispersion in spatial cournot competition 1 introductionsince the seminal work of hotelling 1929 a rich and diverse literature on spatial competition has emerged location models can be classified into two types one type is shipping or spatial price discrimination model where sellers bear transport costs the other is shopping or mill pricing model where buyers pay for transport for each type one can have either bertrand type price setting or cournot type quantity setting 1most studies on location theory use shopping mill pricing models with bertrand competition although cournot and bertrand types of non spatial models are equally popular the body of literature on spatial competition that uses cournot type models is relatively small economists have recently considered shipping models with cournot competition hamilton thisse and weskamp 1989 and anderson and neven 1991 carry out pioneering works on location models 2 they use linear city models and show that all firms agglomerate at the central point pal 1998 shows that their result is crucially dependent on the assumption of a linear city he investigates a circular city duopoly model3 and finds that an equidistant location pattern appears in equilibrium that is locational dispersion appears 4 matsushima 2001a extends pal s model to an n firm oligopoly and shows another equilibrium where half of the firms locate at one point and the other half locate at the opposite point partial agglomeration these results indicate the multiplicity of equilibria in spatial cournot models with a circular city the multiplicity of equilibria restricts the applicability of the model because the model does not give us a distinct prediction in this article we take a close look at pal 1998 and matsushima 2001a we try to solve this problem by extending their linear transport cost model to one with nonlinear transport cost 5 we consider a simplified model the numbers of firms and markets and so possible locations are four four firms choose location a b c or d see if each of the four firms chooses a different location we call this outcome pal type if two firms locate at a and the other two locate at c we call this outcome matsushima type we find that the pal type equilibrium is much more robust because i pal type equilibrium always exists as long as transport cost is increasing in distance while matsushima type equilibrium fails to exist when the transport cost function is significantly convex or concave proposition 1 ii if firms choose their locations sequentially the unique equilibrium outcome is pal type under nonlinear transport cost functions proposition 2 and iii the profit of each firm in pal type is never smaller than that in matsushima type and the former is strictly larger if the transport cost function is nonlinear proposition 3 we also compare the welfare implications of pal type and matsushima type models if the transport cost function is linear the two outcomes yield exactly the same profits consumer surplus and total social surplus however this equivalence does not hold if the transport cost function is nonlinear either convex or concave in this case pal type yields greater total social surplus and profit of each firm while matsushima type yields greater consumer surplus these results indicate that the welfare implications are sensitive to whether or not the transport cost function is linear anderson and neven 1991 show that in the linear city model a strong concavity in transport cost changes the equilibrium outcome this result is related to our results but we emphasize that our results are different from theirs first we show that both concavity and convexity of the transport cost function affect the results while in anderson and neven 1991 only strong convexity changes the result second in our propositions 2 and 3 even a slight nonlinearity changes the results

us government deficits and debt amid the great recession what the evidence shows this paper examines three sets of major questions regarding the current u s government s fiscal defi cit and outstanding debt tied to the 2009 economic stimulus program the american recovery and reinvest ment act arra first i consider the claim that high levels of government borrowing drives up interest rates these high rates then produce a heavy burden of government debt as well as heavy inflationary pressures the evidence we review regarding each of these concerns demonstrates that none have emerged as serious matters since the enactment of the arra given this conclusion the paper then questions why the arra did not then succeed in generating a strong economic recovery i first consider the possible impact of ricardian equivalence the position that government stimulus programs by their nature are self defeating after argu ing against this position i advance three reasons for the failure of the arra to achieve a strong recovery 1 the arra relied too heavily on tax cuts as a means of bolstering private spending 2 household wealth de clined dramatically during the recession tied to the collapse of the financial bubble this in turn weakened the willingness of households to increase spending and 3 credit markets were locked up especially for smaller businesses despite the highly expansionary monetary policy stance adopted by the federal reserve building on these findings i then develop a series of policy proposals aimed at promoting both a strong recovery in the short term and at reducing any remaining structural deficit issues in the longer term the short term program focuses on extending loan guarantees especially to small businesses and taxing the excess reserves held by commercial banks the longer term agenda focuses on reducing government costs for health care and the military and on increasing revenue through establishing taxes on financial market transactions

on a simple rule for the optimal inflation rate in second best taxation abstract the optimal inflation rate is analyzed in the framework of dynamic second best with endogenous factor prices it is shown that when the marginal excess burden of taxation is relatively small the optimal inflation rate is approximated by a simple rule the paper also analyzes the robustness of this rule to the specification of the model money as an input in utility or production

trade in financial services capital flows and the value at risk of countries in light of the recent financial crises in the emerging markets the coming into force of the financial services agreement under the gats has been considered a success while the agreement provides for little new liberalization but rather formalizes the status quo it was feared that governments could even backtrack on previous commitments in the belief that more open markets could increase the degree of susceptibility by undermining financial stability strengthening the financial system s ability to evaluate and manage risk has therefore been identified as a precondition for more ambitious liberalization efforts in the future dobson and jacquet 1998 encouragingly in some countries banks have begun to implement value at risk approaches as a tool to assess their balance sheet vulnerability as this paper argues such an approach could also play a useful role in determining the extent of market risk on the macroeconomic level with potentially important implications regarding trade in financial services capital account convertibility and international crisis management

spatial competition and spatial price discrimination the analysis of spatial competition under conditions of free entry which derives its major impetus from the seminal work of losch 1954 has been conducted in general on the assumption that the competitive firm will adopt an f o b pricing scheme see for example capozza and van order 1978 and holahan 1978 greenhut 1956 does consider some of the implications of discriminatory pricing within competitive markets but his analysis adopts an essentially short run view and provides little rationale for the choice of such a pricing policy by competitive firms this is in contrast with developments in the analysis of spatial monopoly the early work of singer 1937 and hoover 1937 and subsequent developments by for example greenhut 1956 beckmann 1976 beckmann and ingene 1976 greenhut and greenhut 1977 holahan 1975 and norman 1977 indicate that the spatial monopolist should adopt a discriminatory spatial pricing policy where spatial price discrimination is taken conventionally to mean that delivered prices do not follow an f o b scheme but that all concumers equidistant from a particular supplier pay the same price it is rarely however that the results generated by the analysis of spatial monopoly are reconsidered in the analysis of spatial competition in particular although we know that spatial price discrimination will in general increase a monopolist s profit the assumption that profit maximising spatially competitive firms will adopt f o b pricing schemes has rarely been questioned and has not been questioned within the loschian competitive framework greenhut and ohta 1975a chapter 8 and chapter 8 appendix i are notable exceptions but in both cases they depart from the loschian scheme the first objective of this paper is therefore to show that when loschian competitive firms are allowed the option of discriminatory pricing i e are free of institutional constraints which require f o b pricing they will be forced to exercise that option in order to maintain normal profits secondly we shall show that if competitive conditions change the form of price discrimination will also change and that under certain competitive conditions the degree of discrimination will increase with the degree of competition leading eventually to uniform pricing thirdly we compare two competitive cases with multi plant monopoly and derive the spatial analogue of the conventional spaceless monopoly perfect competition comparison the monopolist s plants will be larger in area and total output than each competitive firm but will supply less per consumer at a higher average price welfare comparisons are less clear cut in that they are dependent upon the type of competition we assume we show however that welfare maximisation requires marginal cost pricing where marginal cost includes transport costs and so requires f o b pricing if there are economies of scale to production it follows that welfare maximisation will require production subsidy

investment tax incentives prices and the supply of capital goods using data on the prices of capital goods this paper shows that much of the benefit of investment tax incentives does not go to investing firms but rather to capital suppliers through higher prices the reduction in the cost of capital from a 10 percent investment tax credit increases equipment prices 3 5 7 0 percent this lasts several years and is largest for assets with large order backlogs low import competition or with a large fraction of buyers able to use investment subsidies capital goods workers wages rise too instrumental variables estimates of the short run supply elasticity are around 1 and can explain the traditionally small estimates of investment demand elasticities in absolute value the demand elasticity implied here exceeds 1

a guide to public sector debt and deficits government deficits reinterpreted willem h buiter public sector debt and deficits are a matter of concern to governments throughout the world after presenting data on the public debt and deficits in the uk and abroad this paper considers four key issues first does an increase in the budget deficit today make an increase in inflation in the future more likely in economies like the uk the answer is no because the scope for raising revenue by money creation is limited compared to raising taxes second how does one evaluate the consistency of a given spending and tax programme a number of measures are presented which indicate the adjustment that must be made to spending and tax plans if the government is to remain solvent third it is often argued that an increase in budget deficits will merely crowd out private spending the paper shows that the truth of this proposition depends critically on the state of the economy the time horizon and whether the increased deficit is temporary or permanent finally the question of deriving a suitable measure of fiscal stance is considered developing an index of fiscal impact requires a suitable economic model and a number of different measures are considered and criticized conventional deficit measures whether actual cyclically corrected or inflation corrected are a poor indicator of the government s true fiscal stance

inflation tax rules and investment some econometric evidence this paper presents econometric evidence on the effect of tax incentives on business investment in the united states in the period from 1953 through1978 the analysis emphasizes that the interaction of inflation and existing tax rules has contributed substantially to the decline of business investment since the late 1960 s because the investment process is far too complex for any simple econometric model to be convincing i have estimated three quite different models of investment behavior the strength of the empirical evidence rests on the fact that all three specifications support the same conclusion more generally the analysis and evidence show that theoretical models of macroeconomic equilibrium should specify explicitly the role of distortionary taxes especially taxes on capital income the failure to include such tax rules can have dramatic and misleading effects on the qualitative as well as the quantitative properties of macroeconomic theories this paper was presented as the fisher shultz lecture at the fourth world congress of the econometric society 29 august 1980 in aix en province this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this abstract was borrowed from another version of this item

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

cournot competition yields spatial agglomeration most theoretical models of spatial competition show a strong tendency toward spatial dispersion of firms yet common observations suggest that firms tend to agglomerate in this paper the authors show that competition between cournot type oligopolists that discriminate over space leads to spatial agglomeration one implication is that firms do not necessarily earn supernormal profits at the free entry equilibrium copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

on the strategic importance of prices versus quantities in this article i investigate three single shot models of differentiated products oligopoly in each model firms choose both output and price the demand cost and spillover demand specifications are quite general and there are three main results first with simultaneous choice there is no pure strategy noncooperative equilibrium second with output chosen first and announced to all firms before the choice of price equilibrium sometimes exists and when it does it is the same as in a quantity only model third with price chosen and announced first equilibrium always exists and is the same as in a price only model

modeling private investment in egypt abstract this paper presents an empirical model of private investment that takes into account certain features of a developing economy such as the oligopolistic structure of markets putty clay technology the inelastic supply of non traded capital goods and financial repression the model is tested on egyptian data using error correction and cointegration the results for egypt indicate that at the macroeconomic level private investment depends on mark ups internal financing demand and the cost of investment goods defined not as the interest rate but as the outcome of the interaction of supply and demand in the market for capital goods the effects of government policy on private investment are mixed with some evidence of crowding out in credit markets and of crowding in as a result of government investment in infrastructure

partial privatization in mixed duopoly abstract we investigate a quantity setting duopoly involving a private firm and a privatized firm jointly owned by the public and private sectors the private firm maximizes profits while the privatized firm takes both profits and social welfare into consideration we consider how many shares the government should hold in the privatized firm we find that neither full privatization the government does not hold any shares nor full nationalization the government holds all of the shares is optimal under moderate conditions

dynamic factor demands and the effects of energy price shocks a dynamic model is used to understand how sharp changes in energy prices affect investment behavior employment and energy use the authors discuss the theory behind their model selection model specifications estimation methods and data list parameter estimates and elasticities for the selected model and describe the simulations they conclude that 1 the data strongly reject the hypothesis of constant returns to scale within their specification of aggregate production 2 the data indicate adjustment costs on labor are small and 3 their results help reconcile some of the conflicting estimates of energy demand elasticities appearing in recent literature 23 references 3 figures 3 tables

growth distribution stability and government budget surplus the extended cambridge equation revisited in the late 80 s pasinetti showed that the essential feature of the cambridge equation is preserved in his model of growth and income distribution with balanced or unbalanced budget he did not work out both the share of incomes and the conditions of stability and was not formally concerned with a permanent budget surplus the present paper deals with the case of a closed economy in which besides direct taxation indirect taxation on government s own expenditures is explicitly considered and the government saves permanently at a given rate the extended cambridge equation and the share of profits are obtained it is also shown that the stability result requires additional assumptions boundary conditions are introduced and the long run local stability result is attained thus corroborating the generality and robustness of pasinetti s original insight

the rise in unemployment a multi country study one of the most remarkable features of recent economic history has been the remorseless rise in unemployment throughout the industrialized countries however while the trend to higher unemployment is universal the experience of individual countries also differs widely the increase is especially marked within the european community where unemployment rates rival those reached in the interwar years by contrast in the scandinavian countries and japan unemployment is lower and has risen very much less experience in the united states lies somewhere between these extremes and in the last few years unemployment there has fallen sharply

spatial price discrimination with heterogeneous products product heterogeneity is introduced into the context of spatial price discrimination many of the strong properties of the standard homogeneous goods case which are attained as a limit case here are shown to be no longer valid in particular the social optimum is no longer sustainable as a market equilibrium unless products are either identical or else very different

tax reform and adjustment costs the impact on investment and market value this paper provides an effective tax rate measure that is valid in the presence of adjustment costs and anticipated tax changes and a measure of the impact of tax changes on market value that may be decomposed into the effects on discounted pure profits and normal returns to capital changes in the value of capital may in turn be decomposed further into changes in the marginal value of new capital and changes in the relative value of new and existing capital these new measures are used to evaluate tax changes similar to those introduced by the recent u s tax reform copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

taxation corporate financial policy and the cost of capital the cost of capital plays an important role in the allocation of resources among competing uses in a decentralized market system the purpose of this paper is to organize and present what is known and what is hypothesized about the effects of taxation on the incentive to invest via the cost of capital taking full account of important issues that arise independently from the question of taxation included in the analysis is a discussion of empirical findings about the interaction of inflation and taxation in influencing the incentive to invest and a treatment of taxation and uncertainty this abstract was borrowed from another version of this item

bohn s test of fiscal sustainability of the american state governments the dramatic fall in state revenues during the great recession and the resultant large budget deficits accentuated concerns about state fiscal sustainability i employ a model based approach proposed by bohn 1998 to test for sustainability in this approach a positive and significant reaction of the ratio of primary surplus ratio s to lagged debt constitutes a sufficient condition for sustainability based on a panel of 48 contiguous states 1961 2008 and several model specifications i find robust evidence in favor of sustainability further analysis suggests that the adjustment of the components of s to debt is asymmetric with the revenue side bearing a heavier burden than the spending side the response of s is also found to be asymmetric with respect to the level of debt finally the magnitude of the response is larger in states with a higher degree of fiscal stringency in general and own revenue and no deficit carryover provisions in particular

tax policy and business fixed investment in the united states abstract this paper derives and estimates models of nonresidential investment behavior in which current and future tax conditions directly affect the incentive to invest the estimates suggest that taxes have played an independent role in affecting postwar u s investment behavior particularly for investment in machinery and equipment in addition the paper develops a method for assessing the impact of tax policy on the volatility of investment when such policy is endogenous illustrative calculations using this technique based on the paper s empirical estimates suggest that tax policy has not served to stabilize investment in equipment or nonresidential structures during the sample period

investment tax incentives and frequent tax reforms despite the frequency of tax changes and their potential importance to investors almost all of the analysis of tax based investment incentives assumes investors never anticipate any tax changes we depart from this approach by analyzing the historical pattern of u s corporate investment incentives over the period 1953 86 incorporating the feature of investor awareness that the tax code may change our analysis incorporates a predictive equation for future tax variables into a model of optimal investment subject to adjustment costs and uncertainty we find that expectations of future tax changes significantly affect the incentive to invest only if adjustment costs are low in this case the incentive to invest in 1986 was strong as investors are estimated to have anticipated the coming reduction in investment incentives this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

product differentiation in spatial cournot markets abstract we introduce to the spatial cournot markets model the inverse demand function of deneckere economics letters 11 1983 37 that allows product differentiation the circular model s outcome alters depending on if goods are complements or substitutes while the linear model results in central agglomeration

capital accumulation labour market institutions and unemployment in the medium run according to the mainstream view labour market institutions lmis are the key determinants of unemployment in the medium run the actual empirical explanatory power of measures for labour market institutions however has recently been called into question the keynesian view holds periods of high real interest rates and insufficient capital accumulation responsible for unemployment empirical work in this tradition has paid little attention to the role of lmis this paper contributes to the debate by highlighting the role of autonomous changes in capital accumulation as a macroeconomic shock in the empirical analysis medium term unemployment is explained by capital accumulation lmis and a number of macroeconomic shocks in a panel analysis covering 20 oecd countries the economic effects of changes in lmi variations in capital accumulation and other macro shocks are compared capital accumulation and the real interest rate are found to have statistically significant effects that are robust to the inclusion of control variables and show larger effects than lmi

does cournot competition yield spatial agglomeration abstract locations and quantities are chosen sequentially in spatial markets strikingly different location patterns emerge depending on the shape of the market in a circular city firms locate equidistant from each other in a linear city firms agglomerate at the center

consumer benefiting exclusive territories i investigate the effect of exclusive territories which are typical vertical controls imposed by upstream firms using shipping spatial models i consider an industry that consists of many independent local markets an upstream monopolist restricts competition between downstream firms using exclusive territories i find that exclusive territories reduce the prices of final products in all local markets in quantity setting competition in price setting competition they raise prices in half the local markets reduce them in other markets and also reduce the total consumer surplus jel classification l42 r32 a propos de territoires exclusifs qui profitent aux consommateurs l auteur analyse les effets de la regle des territoires exclusifs qui est souvent imposee comme controle vertical par les entreprises en amont a l aide de modeles spatiaux de livraison on considere le cas d une industrie composee de plusieurs marches locaux independants un monopoleur en amont reduit la concurrence entre entreprises en aval en imposant la regle des territoires exclusifs on decouvre que cette regle reduit les prix du produit final dans tous les marches locaux s il y a concurrence par les quantites s il y a concurrence par les prix la regle accroit les prix dans la moitie des marches locaux les reduit dans les autres et reduit aussi le surplus au consommateur

helping minor firms reduces welfare the effect on national welfare of uneven technical progress and eli mination of a firm is analyzed under the existence of a cournot oligopolistic sector an increase in the share of an inefficient firm owing to its innovations results in a shift of production from more efficient firms to the inefficient firm causing a less efficie nt allocation of production it may decrease welfare even though the innovation itself is beneficial conversely policies keeping ineffic ient firms from innovations or eliminating them may increase welfare though they make the market structure more oligopolistic copyright 1988 by royal economic society

user cost elasticity of capital revisited researchers still lack consensus about the size of the user cost elasticity of capital the divergence in prior estimates may have arisen because one of the two strands of research has neglected cointegration among capital its user costs and sales using german firm level panel data i show that estimating a distributed lag model prevalent in prior literature leads to low estimates of the user cost elasticity properly accounting for cointegration in an error correction model yields a much larger point estimate of the price elasticity of capital close to 1 non random sample attrition is found to be relatively unimportant

public debt and the pasinetti paradox the main purpose of this paper is to show that the cambridge theorem holds independently of ricardian equivalence if the net rate of profits is properly defined

cournot competition and spatial agglomeration revisited abstract in a letter previously published in this journal pal economics letters 60 1998 49 show that firms locate equidistant from each other in a circular city however we show that the following location pattern is also an equilibrium outcome firms agglomerate at two points in a circular city

temporary investment tax incentives theory with evidence from bonus depreciation even modest reductions in the after tax cost of capital purchases provide strong incentives for increased investment indeed for tax subsidies that are temporary and for capital goods that are very long lived the incentive to invest when the after tax price is temporarily low is essentially infinite firms that would have purchased new capital equipment in the future instead make their purchases during the period of the subsidy for tax increases the effects are the opposite firms that would have normally invested now delay until the tax rate returns to normal we present a model of the equilibrium effects of temporary investment tax incentives the model reveals a simple relationship between the shadow price of investment goods and the size of a temporary investment tax incentive specifically for sufficiently long lived capital goods goods with very low rates of economic depreciation and for sufficiently short lived investment tax subsidies the shadow value of capital should be nearly unchanged and thus the pre tax shadow price of capital goods should fully reflect the magnitude of the tax subsidy this result holds regardless of the elasticity of investment supply and regardless of the underlying demand for capital instead it relies only on the firm s ability to arbitrage predictable movements in the after tax price of long lived capital over time two conclusions immediately follow first observ ing price increases following a temporary tax incentive is not evidence that investment supply is relatively inelastic a temporary investment tax subsidy can substantially affect investment even if it bids up the price of investment sharply second because economic theory dictates that the shadow price of investment moves one for one with a temporary tax subsidy the elasticity of supply can be inferred from quantity data alone recent changes in us tax law allow us to use the model and its implications to estimate struc tural parameters that govern the supply of investment the 2002 and 2003 tax bills provided temporarily accelerated tax depreciation called bonus depreciation for certain types of qualified capital goods under the 2002 bill firms could immediately deduct 30 percent of investment purchases and then depreciate the remaining 70 percent under standard depreciation schedules

anticompetitive vertical integration by a dominant firm backward vertical integration by a dominant firm into an upstream competitive industry causes both input and output prices to rise the dominant firm s advantage may or may not offset the negative effect of higher prices on social welfare whether it does depends on a simple indicator derived from input and output market shares and the degree of prior vertical integration a vertical merger is similar to a hypothetical horizontal merger suggesting that vertical merger policy for this industry should be similar to horizontal merger policy the dominant firm model yields an observable sufficient indicator of welfare improving vertical mergers copyright 1998 by american economic association

mixed oligopoly and spatial agglomeration abstract we investigate a mixed market where a state owned welfare maximizing public firm competes against profit maximizing private firms we use a circular city model with quantity setting competition in contrast to a pure market case discussed by pal 1998a spatial agglomeration of private firms always appears in equilibrium all private firms locate at the same point and the public firm locates at the opposite side we also find that this equilibrium pattern of the location is second best provided that output of each private firm cannot be controlled by the social planner jel classification h42 l13 oligopole mixte et agglomeration spatiale les auteurs examinent un marche mixte ou une entreprise publique possedee par l etat et cherchant a maximiser le niveau de bien etre est en concurrence avec des entreprises privees qui cherchent a maximiser leurs profits on utilise un modele de cite circulaire ou la concurrence se fait en choisissant la quantite produite en contraste avec le cas du marche parfait discute par pal 1998a l agglomeration spatiale des entreprises privees parait etre en equilibre toutes les entreprises privees se localisent au meme point et l entreprise publique se localise du cote oppose il appert que ce pattern d equilibre de localisation est un equilibre de second ordre compte tenu du fait que la production de chaque entreprise privee ne peut etre controlee par le planificateur social

the great austerity war what caused the us deficit crisis and who should pay to fix it rapidly rising deficits at both the federal and state and local government levels along with long term financing problems in the social security and medicare programs have triggered a one sided austerity focused class war in the us similar class conflicts have broken out around the globe a coalition of the richest and most economically powerful segments of society and conservative politicians who represent their interests has demanded that deficits be eliminated by public sector austerity severe cuts at all levels of government in spending that either supports the poor and the middle class or funds crucial public investment these demands constitute a deliberate attempt to destroy the new deal project begun in the 1930s whose goal was to subject capitalism to democratic control the right wing coalition seeks to replace that project with a modernized version of the free market capitalism of the 1920s in this paper i argue that our deficit crisis is the result of a shift from the new deal based economic model of the early post war period to today s neoliberal free market model a shift initiated under ronald reagan and continued under the presidents who succeeded him the new model has generated slow growth rising inequality and rising deficits rising deficits in turn created demands for austerity after tracing the long term evolution of our current deficit crisis i show that this crisis can be resolved by raising taxes on upper income households and large corporations cutting war spending and adopting a canadian or european style health care system there is no need to accept austerity calls for austerity should be seen as what they are an attack by the rich and powerful against the basic interests of the american people