toward a broadened theory of preference formation and the diffusion of innovations cases from zinder province niger republic the standard model for the diffusion of innovations in consumer behavior does not adequately account for the incorporation of novel items of non local origin into the material culture inventory of hausa speaking peasants in niger a synthetic culturally relative model composed of elements drawn from the standard diffusion paradigm from world systems theory and from economic and symbolic anthropology provides a more satisfactory account of these processes analysis shows that novel goods provide a medium through which alternative paradigms of consumer behavior and reality contend among the hausa a premarket model a western market mediated model and an islamic ethnonationalist model compete for consumer affiliation

in kind transfers self selection and optimal tax policy abstract this paper examines the role of public provision of goods as a redistributive mechanism when tax policies are designed optimally on the basis of the information available to the government we characterize pareto efficient allocations that are attainable through the tax policy and derive the conditions under which public provision will enhance welfare above the maximum that can be achieved through a mix of a general income tax and commodity taxes price subsidies first when there are two produced goods we prove that public provision is always pareto improving the improvement is achieved through changing individuals actual consumption levels second with no restrictions on the number of goods we derive a sufficient condition for public provision to be pareto improving this is achieved by weakening self selection constraints so that welfare improving tax changes are made possible suitable examples include provision of day care basic health care and rights to a minimum old age pension

friedman rule in a model with endogenous growth and cash in advance constraint this paper introduces money into an overlapping generations model with endogenous growth the model due to docquier et al 2007 exhibits a positive intergenerational externality which precludes its laissez fair equilibrium to be optimal even if the government can control the level of physical capital and set it to satisfy the modified golden rule the main message of the paper is that as long as the modified golden rule is attained friedman rule is optimal the result holds regardless of the ability of the government to internalize the externality and control the level of human capital other results include i violation of friedman rule for a different second best environment wherein human capital accumulation is controlled but not physical capital accumulation ii existence of a negative relationship between money growth rate and the economy s endogenous growth rate and iii non uniqueness of friedman rule

the friedman rule in an overlapping generations model with nonlinear taxation and income misreporting this paper models a two period overlapping generations economy with money populated with individuals of different skills they face a nonlinear income tax schedule and can engage in tax evasion money serves two purposes the traditional one modeled through a money in the utility function it also facilitates tax evasion the main message of the paper is that income tax evasion in this framework leads to the violation of the friedman rule the paper also shows that even in the absence of tax evasion when optimality requires differential commodity taxation complementarity of real cash balances and labor supply does not guarantee the optimality of the friedman rule as a boundary solution an additional assumption is required

taxation with costly administration the concept of a tax technology is used here as providing a unified framework for analyzing both administrative activity by tax authorities and tax resisting activity by taxpayers this framework provides a simple formalization of adam smith s four components of tax costs administration substitution active noncompliance and passive compliance the model is used to derive policy implications concerning the proper measurement of the cost of public funds and concerning the criterion for optimal administration

money and endogenous growth the ramsey romer model of endogenous growth is extended to allow for holdings of real money balances and government debt as well as capital and for non interconnected generations of households tax financed increases in government consumption and debt depress growth prospects and boost inflation as long as a positive birth rate ensures that future taxes are shouldered by future yet unborn generations debt financed increases in government consumption depress growth and boost inflation even more money financed increases in government consumption depress growth less but increase inflation by more giving subsidies through an increase in monetary growth is non neutral since this increases real growth and thus inflation increases by a lesser amount than monetary growth bond financed increases in monetary growth lead to a larger increase in real growth and a smaller increase in inflation if there are cost adjustment for investment cuts in monetary growth and increases in government debt and government consumption induce an increase in the real interest rate copyright 1994 by ohio state university press

the behaviour of u k export prices of manufactured goods 1970 1983 this paper examines the importance of expectations in the determination of u k export prices export prices are found to depend upon expectations of total domestic unit costs and foreign prices the non linear restrictions implied by the forward looking model are found to hold and it performs adequately relative to a backward looking error feedback model the law of one price is rejected and the evidence is consistent with imperfect competition in export markets

the optimal inflation tax when money reduces transactions costs abstract it has been argued that if money acts as an intermediate good the optimal inflation tax is zero this paper reexamines such a claim in the context of a model in which money reduces transactions costs it is shown that modeling money as an intermediate good does not necessarily imply that the optimal inflation tax is zero the optimality of a zero inflation tax depends on the properties of the transactions costs technology in particular if the transactions costs technology does not exhibit constant returns to scale it is optimal to resort to the inflation tax

the friedman rule old and new abstract in overlapping generations models money growth creates intergenerational wealth effects and leads to the breakdown of the friedman rule the rule can be restored via lump sum tax and transfers that neutralize these wealth transfers additionally and in contrast to money in the utility function models the friedman rule is not the unique first best solution in cash in advance constraint models of money a continuum of combinations of money growth rates and consumption taxes implement the first best allocation this paper traces through the intellectual origins of the first old result which was recently restated in bhattacharya et al 2005 monetary policy fiscal policy and the inflation tax equivalence results macroeconomic dynamics 7 647 669 and formally demonstrates the second new result

tax evasion and the optimum general income tax abstract this paper incorporates tax evasion into an optimum general income tax problem with endogenous labor supply it posits a two group model with high and low wage individuals to investigate the properties of optimal audit and tax structures the following main results are obtained first high wage persons are never audited while low wage persons are audited with a probability strictly less than one secondly high wage persons should face a zero marginal tax rate thirdly low wage individuals who have been audited and found innocent should pay a lower tax than those who are not audited fourthly there are two possible tax regimes low wage persons face a positive marginal tax rate under one regime and a zero rate under the other fifthly even if honesty cannot be rewarded the other results of the paper continue to hold

pareto efficient income taxation under costly monitoring abstract this paper studies the problem of pareto efficient fiscal policies when labour supply is elastic and the government has no a priori information on income earned the model is a two class economy with an official and an unofficial labour market official income is taxed non linearly while unofficial income is only observable after a costly audit upon which it is taxed at an exogenous penalty rate after characterisation of the pareto efficient audit and tax policies it is verified how these policies react to a higher government revenue requirement an increase in the penalty rate a stronger ambition to redistribute in the two last scenarios the effect on the marginal tax and the audit rate is shown to decompose into a government revenue effect and a substitution effect a numerical example shows that the substitution effects are of minor importance suggesting that first intuition about the best way for a government to cope with increased evasion opportunities substituting auditing effort for high marginal tax rates sketches only part of the picture

a quantitative analysis of inflation as a tax on the underground economy abstract inflation rates are more dispersed and are persistently higher in developing countries this paper quantifies the importance of the public finance motive for inflation in the presence of a tax evading sector the underground economy the approach is motivated by the observation that the underground economy is especially large in poor countries the analysis builds on a general equilibrium monetary model with two production sectors where income in one of the sectors cannot be taxed a benevolent government finances its budget using an optimal combination of the income tax rate and the inflation rate the model is first calibrated to the u s economy and is then used for a cross country simulation the resulting relationships between the size of an underground economy inflation rate income tax rate and the share of seigniorage in the government revenue rationalize the cross country data quantitatively well

tax evasion and the marginal cost of public funds tax evasion and deadweight loss have similar implications for the rules of public finance the optimal mix of taxes can be derived from the minimization of the sum of aggregate deadweight loss and aggregate cost of tax evasion similarly the marginal cost of public funds includes allowances for marginal deadweight loss and marginal cost of tax evasion per dollar of public revenue acquired

is the friedman rule optimal when money is an intermediate good in contrast to the recent literature on the optimal inflation tax we show that in models where money reduces transactions costs it is optimal to set the inflation tax to zero when seigniorage is replaced by revenue from distortionary taxes the main reasons for this result are that the variable costs of supplying real balances are negligible and the inflation tax is a unit tax we also show that the intermediate good optimal taxation rules in the public finance literature cannot be directly applied both when money is costless and when it requires resources to be produced

ruling out divergent speculative bubbles abstract the growth in the empirical literature on testing for divergent in mean speculative bubbles indicates that existing theoretical arguments for ruling out such price paths are not sufficiently compelling here we strengthen the case for ruling out explosive or implosive bubbles a priori by filling in two gaps first we demonstrate why divergent stochastic bubbles arising from purely extrinsic uncertainty as in blanchard 1979 cannot be equilibria in a monetary optimizing model second we show why existing arguments for ruling out implosive price bubbles are insufficient in some cases and we provide stronger arguments

demythologizing consumption practices how consumers protect their field dependent identity investments from devaluing marketplace myths marketplace myths are commonly conceptualized as cultural resources that attract consumers to a consumption activity or brand this theoretical orientation is prone to overstating the extent to which consumers identity investments in a field of consumption are motivated by an associated marketplace myth we provide a theoretical corrective to this tendency by investigating consumers who have become vested in a commercially mythologized consumption field through an incremental process of building social connections and cultural capital for these consumers the prevailing marketplace myth is experienced as a trivialization of their aesthetic interests rather than as a source of identity value in response they employ demythologizing practices to insulate their acquired field dependent social and cultural capital from devaluation our findings advance theorizations concerning marketplace myths and consumer identity work and explicate the sociocultural forces that deter consumers from abandoning a consump

optimal fiscal and monetary policy some recent results this paper studies the quantitative properties of fiscal and monetary policy in business cycle models in terms of fiscal policy optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average in terms of monetary policy the friedman rule is optimal nominal interest rates are zero and optimal monetary policy is activist in the sense that it responds to shocks to the economy

towards a theory of the direct indirect tax mix despite the fact that all developed economies levy broadly based indirect taxes alongside direct taxes little theory is devoted to explaining the direct indirect tax mix our purpose is to show that if different taxes have different evasion characteristics some optimal tax mix emerges naturally assuming that only income tax can be evaded and focusing on a two class economy we analyse the case for supplementing optimal non linear income taxation with commodity taxation and we develop conditions under which the latter should or should not be uniform

non optimality of the friedman rule and optimal taxation in a growing economy with imperfect competition abstract this paper shows that if capital generates production externality there exists a wedge between returns to money and to capital driving the friedman rule is not optimal however in the absence of capital externality the friedman rule may be valid even under imperfect competition

sluggish quantity adjustment in a non clearing market a disequilibrium econometric application to the loan market the paper argues that the estimated speed of price adjustment in a disequilibrium econometric model is likely to be biased if allowance is not made for quantity adjustment inertia on both sides of the market furthermore if the model estimated is static rather than dynamic then in certain circumstances an excess demand regime may be mistaken for one of excess supply and vice versa in an empirical application to the loan market for the clearing banks in ireland we can claim to have obtained some support for this belief

public provision of private goods self selection and income tax avoidance several contributions in the optimal taxation literature have emphasized that when individuals preferences are not separable between leisure and other goods it is desirable to supplement a nonlinear income tax with public provision of private goods moreover it has also been shown that the choice between a topping up and an opting out scheme depends on whether the publicly provided good is a complement or substitute with leisure with opting out topping up being the preferred scheme for goods which are substitutes complements for labor in this paper using the self selection approach to tax analysis we revisit these results in the presence of tax avoidance and investigate how public provision interacts withthe agents incentives to engage in tax avoidance three results are obtained first we show that tax dodging opportunities imply that non separability between labor and other goods is neither a necessary nor a sufficient condition to make public provision of private goods a welfare enhancing policy instrument second we show how tax dodging opportunities limit the scope for using topping up provision schemes as a redistributive device finally we show that for most of the public provision schemes previously analyzed in the literature being a welfare enhancing policy instrument goes hand in hand with weakening the agents incentives to shelter income from the tax authority however we also point out an important exceptionto this pattern

the simple economics of bank regulation this paper discusses the effects of central bank regulation of the banking system carried out to control the level of bank lending prudential regulation designed to reduce the frequency of bank failure a problem in the economics of uncertainty and information is not considered the main point of this paper is that bank regulation in so far as it is effective and goes beyond the general effects of government intervention in credit markets can be seen as a tax on transactions intermediated through banks the variations in the incidence and beneficiaries of the tax provide a convenient framework for the different regulatory schemes the paper focuses on the effect of regulation on an individual bank the theory presented here is an elementary comparative static one based on the equality of marginal cost and marginal revenue it does not consider the more complicated issues of dynamic control however it is unlikely that any policy that has unsatisfactory comparative static properties will be successful the main ideas of this approach are due to tobin 1963 and johnson 1967 197 1 they have been further developed in work by spencer and mowl 1978 and artis and miller 1978 however the application of the analysis to the effects of different types of regulation is i believe new a general equilibrium model in the same spirit as the partial equilibrium model used here is given by fama 1980 the following section presents a simple model of the banking system section ii discusses the effect of government intervention and regulation and section iii looks at the way in which government regulation induces disintermediation section iv applies the previous results to consider various actual or proposed schemes in practice the final section draws conclusions

redistribution when avoidance behavior is heterogeneous abstract the optimal income taxation framework is extended to account for heterogeneity in avoidance behavior the optimal tax formulae are shown to be simply and intuitively modified to reflect the value of taxable income as an indicator of the need for transfers at a given skill level this effect is in addition to any effect implied by just considering additional margins of response to taxes alternative sources of heterogeneity and their likely consequences are discussed when the choice of administration is added to the model it is demonstrated that the optimal tax system may include some seemingly wasteful avoidance schemes even if they could be eliminated without any cost when an avoidance scheme is more heavily used by the needy it may provide additional redistribution without affecting standard incentive constraints

corporate bank borrowing in the uk 1965 1981 the instability of demand for money equations in both the united states and the united kingdom in the 1970s has reinforced the view that money holdings may usefully be viewed as buffer stocks and that observed movements in broad monetary aggregates may reflect supply side shocks predominantly caused by changes in bank lending to the private sector judd and scadding 1981 goodhart 1982 laidler 1983 this paper presents some new econometric results for uk bank lending to industrial and commercial companies iccs the results are consistent with the view that the quantity of bank borrowing is largely demand determined and as such they provide additional support for the view of a credit driven money stock coghlan 1981 moore 1979 1983 the demand for bank credit by iccs appears highly interest inelastic at least within the single equation framework of this paper finally the policy implications of the study suggest that contrary to some previous work during the period considered 1965 to mid 1981 the bank of england was largely unsuccessful in its attempts to control bank lending by discriminatory regulation gowland 1978 artis and lewis 1981

optimality of the friedman rule in economies with distorting taxes abstract we find conditions for the friedman rule to be optimal in three standard monetary models our main contribution is to shed light on two issues in the literature first the conventional view maintains that when money is a final good its services should be taxed moreover if money demand is interest inelastic its services should be taxed heavily we show that this view is incorrect second there is an ongoing controversy about whether the optimality of the friedman rule is connected to the intermediate goods result from public finance we resolve this controversy by showing a deep connection between these results

nonmonotonic status effects in new product adoption we investigate how the tendency to adopt a new product independently of social influence the recipients susceptibility to such influence and the sources strength of influence vary with social status leveraging insights from social psychology and sociology about middle status anxiety and conformity we propose that for products that potential adopters expect to boost their status both the tendency to adopt independently from others and the susceptibility to contagion is higher for middle status than for low and high status customers applying a nested case control design to the adoption of commercial kits used in genetic engineering we find evidence that status affects i how early or late one adopts regardless of social influence ii how susceptible one is to such influence operating through social ties and iii how influential one s own behavior is in triggering adoption by others the inverse u patterns in i and ii are consistent with middle status anxiety and conformity the findings have implications for how to use status to better understand adoption and contagion mechanisms and for targeting customers when launching new products

toward a theory of status consumption in less industrialized countries how does status consumption operate among the middle classes in less industrialized countries lics those classes that have the spending power to participate effectively in consumer culture globalization research suggests that bourdieu s status consumption model based upon western research does not provide an adequate explanation and what we call the global trickle down model often invoked to explain lic status consumption is even more imprecise we study the status consumption strategies of upper middle class turkish women in order to revise three of bourdieu s most important concepts cultural capital habitus and consumption field to propose a theory specific to the lic context we demonstrate that cultural capital is organized around orthodox practice of the western lifestyle myth that cultural capital is deterritorialized and so accrues through distant textbook like learning rather than via the habitus and that the class faction with lower cultural capital indigenizes the consumption field to sustain a national social hierarchy

the role of countercyclical monetary policy when firms set nominal prices in advance optimal monetary policy insulates aggregate output against shocks to demand it can do so however by following the constant money growth rule advocated by milton friedman it need not respond to the shocks in an actively countercyclical way in addition to the extent that output fluctuations are driven by shocks to supply money growth should be procyclical

optimal monetary policy optimal monetary policy maximizes the welfare of a representative agent given frictions in the economic environment constructing a model with two sets of frictions costly price adjustment by imperfectly competitive firms and costly exchange of wealth for goods we find optimal monetary policy is governed by two familiar principles first the average level of the nominal interest rate should be sufficiently low as suggested by milton friedman that there should be deflation on average yet the keynesian frictions imply that the optimal nominal interest rate is positive second as various shocks occur to the real and monetary sectors the price level should be largely stabilized as suggested by irving fisher albeit around a deflationary trend path since expected inflation is roughly constant through time the nominal interest rate must therefore vary with the fisherian determinants of the real interest rate although the monetary authority has substantial leverage over real activity in our model economy it chooses real allocations that closely resemble those which would occur if prices were flexible in our benchmark model there is some tendency for the monetary authority to smooth nominal and real interest rates

tax evasion and optimal commodity taxation abstract this paper incorporates tax evasion into ramsey s optimal taxation problem it provides i a precise and intuitive characterization of the tradeoff between optimal tax rates and audit probabilities and ii a modified version of the ramsey equation it also proves that in the presence of tax evasion a the well known requirement of proportional reduction in compensated demands b the traditional result on the optimality of uniform taxation when income is exogenous and c the equivalence of wage and uniform commodity taxes are no longer valid

optimal fiscal and monetary policy under sticky prices this paper studies optimal fiscal and monetary policy under sticky product prices the theoretical framework is a stochastic production economy without capital the government finances an exogenous stream of purchases by levying distortionary income taxes printing money and issuing one period nominally risk free bonds the main findings of the paper are first for a miniscule degree of price stickiness i e many times below available empirical estimates the optimal volatility of inflation is near zero this result stands in stark contrast with the high volatility of inflation implied by the ramsey allocation when prices are flexible the finding is in line with a recent body of work on optimal monetary policy under nominal rigidities that ignores the role of optimal fiscal policy second even small deviations from full price flexibility induce near random walk behavior in government debt and tax rates third sluggish price adjustment raises the average nominal interest rate above the one called for by the friedman rule finally an interest rate feedback rule whereby the nominal interest rate depends on inflation and output fits well the data emanating from the ramsey economy however the fitted rule is not of the taylor type for the implied inflation coefficient is less than one and close to zero and the output coefficient is negative jel classification e52 e61 e63

samurai accountant a theory of auditing and plunder a risk neutral principal wishes to exact a payment from a risk neutral agent whose wealth he does not know but may verify through a costly auditing procedure we characterize efficient schemes for the principal when he is allowed to choose schedules for preaudit and postaudit payments and audit probabilities subject to the constraint that only monetary incentives can be used and that the principal may never make a net payment to the agent the main results are that efficient schemes involve preaudit payments which are increasing in the agent s wealth audit probabilities are decreasing in the agent s wealth and also satisfy certain constraints as equalities in general such schemes involve stochastic auditing and rebates after an audit in this paper we analyse the problem of a principal extracting wealth from an agent who is reluctant to part with it and is also better informed than the principal as to the amount he owns we assume that the principal has a costly means of discovering the agent s

lump sum taxation and the superneutrality and optimum quantity of money in life cycle growth models abstract the question of superneutrality and the optimum quantity of money is addressed in a model where money services enter the utility function and where individuals have finite lives it is demonstrated that the existing result in the literature regarding a positive relationship between money creation and the steady state capital intensity and welfare is not due to monetary policy per se on the contrary this is shown to arise because of the intergenerational wealth effects embedded in the manner in which money is created assuming that preferences are separable between consumption goods and real balances and that the consumption goods are normal it is proved that i money is superneutral and ii any other money supply rule is pareto inferior to the chicago rule provided that the government also embarks on a policy of wealth redistribution across generations through the imposition of appropriate lump sum taxes and transfers

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic