a dynamic tiebout theory of voluntary vs involuntary provision of public goods this paper considers a dynamic model of tiebout like migration between communities that utilize distinct allocation procedures for public goods at issue is whether voluntary or compulsory procedures are more likely to prevail over time we model infinitely lived individuals who make repeated sequential location decisions over one of two communities each community uses a distinct mechanism for allocating public goods the first is one in which contributions are given voluntarily by the citizenry of the community the second is a compulsory scheme by which individuals are taxed proportionately to wealth with the tax determined by a majority vote opportunities to accumulate wealth exist via accumulation of public capital the markov perfect equilibria of the dynamic game are studied our main result shows that when accumulated wealth converges to a steady state individuals locational choices eventually select the involuntary provision mechanism this holds despite the fact that unanimous location in the voluntary provision community may in many cases remain as a nash equilibrium of the static game each period we also describe conditions under which voluntary provision survives these conditions require that accumulation of capital fails to decrease wealth dispersion over time the results are shown to be consistent with findings relating inequality to school choice

exchange rate fundamentals forecasting and speculation bayesian models in black markets summary although speculative activity is central to black markets for currency the out of sample performance of structural models in those settings is unknown we substantially update the literature on empirical determinants of black market rates and evaluate the out of sample performance of linear models and non parametric bayesian treed gaussian process btgp models against the random walk benchmark fundamentals based models outperform the benchmark in out of sample prediction accuracy and trading rule profitability measures given future values of fundamentals in simulated real time trading exercises however the btgp achieves superior realized profitability accuracy and market timing while linear models do no better than a random walk copyright 2013 john wiley sons ltd

human capital accumulation in a federation abstract more than half of the variation across u s school districts in real k 12 education expenditures per student is due to differences between rather than within states i study the welfare implications of redistribution of education expenditures by the federal government using an analytically tractable model of human capital accumulation with heterogeneous agents and endogenous state policies the net welfare effect of federal redistribution depends on a trade off between the positive effect of redistributing resources toward poorer states and the negative effect resulting from misallocation of population across states federal redistribution increases welfare in a calibrated version of the model

do better schools matter parental valuation of elementary education the evaluation of numerous school reforms requires an understanding of the value of better schools given the difficulty of calculating the relationship between school quality and student outcomes i turn to another method and use house prices to infer the value parents place on school quality i look within school districts at houses located on attendance district boundaries houses then differ only by the elementary school the child attends i thereby effectively remove the variation in neighborhoods taxes and school spending i find that parents are willing to pay 2 5 percent more for a 5 percent increase in test scores this finding is robust to a number of sensitivity checks

school finance reform assessing general equilibrium effects abstract in 1994 the state of michigan implemented one of the most comprehensive school finance reforms undertaken to date in any of the states understanding the effects of the reform is thus of value in informing other potential reform initiatives in addition the reform and associated changes in the economic environment provide an opportunity to assess whether a simple general equilibrium model can be of value in framing the study of such reform initiatives in this paper we present and use such a model to derive predictions about the effects of the reform on housing prices and neighborhood demographic compositions broadly our analysis implies that the effects of the reform and changes in the economic environment are likely to have been reflected primarily in housing prices and only modestly on neighborhood demographics we find that evidence for the detroit metropolitan area from the decade encompassing the reform is largely consistent with the predictions of the model

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

community membership aspirations the link between inequality and redistribution revisited the issue at stake is to explain why redistributive policies may vary so greatly for a given distributional skewness to this end we abandon the stylized median voter and study how distributional tensions can act in many different ways depending on social affinity between the different economic classes and their prospect of upward or downward mobility in particular we consider that socioeconomic group membership through its implied social interactions and peer effects is an important determinant of an individual s outcome hence agents while voting on a social contract must take into account the consequences of their choice over their ex post belonging to a particular community this allows us to shed light on how the endogenous sorting of the population into clusters may interact with the balance of political power leading to a non monotonic relationship through the pattern of community formation in the economy between inequality and the pressure for redistributive policies

social networks and technology adoption in northern mozambique despite their potentially strong impact on poverty agricultural innovations are often adopted slowly using a unique household dataset on sunflower adoption in mozambique we analyse whether and how individual adoption decisions depend upon the choices of others in the same social networks since farmers anticipate that they will share information with others we expect farmers to be more likely to adopt when they know many other adopters dynamic considerations however suggest that farmers who know many adopters might strategically delay adoption to free ride on the information gathered by others we present empirical evidence that shows that the relationship between the probability of adoption and the number of known adopters is shaped as an inverse u in line with information sharing the network effect is stronger for farmers who report discussing agriculture with others the data contains information which is needed to ameliorate the identification issues that commonly arise in this context in particular social networks are precisely identified and in addition we can control for village heterogeneity and endogenous group formation

optimal debt endogenous fertility and human capital externalities in a model with altruistic bequests abstract this paper explores optimal debt in a model with altruistic bequests endogenous fertility and human capital externalities because of such externalities education investment is too low and fertility is too high while education subsidies are the conventional means to deal with these problems we show that the optimal policy also comprises debt even when distortionary taxes are used the reason is that debt tips the usual trade off between children s quantity and quality in favor of the latter by increasing the bequest cost of children the optimal debt output ratio exceeds 10 for plausible parameterization

institutions infrastructure and economic growth abstract this paper develops a structural model of infrastructure and output growth that takes account of institutional and economic factors that mediate in the infrastructure gdp interactions cross country estimates of the model indicate that the contribution of infrastructure services to gdp is substantial and in general exceeds the cost of provision of those services the results also shed light on the factors that shape a country s response to its infrastructure needs and offer policy implications for facilitating the removal of infrastructure inadequacies

r d management and corporate financial policy the hypothesis that firms simultaneously determine their research and development investment dividend and new debt policies generally is substantiated in the financial literature the determinants of research and development dividend investment and financing decisions of 140 firms are estimated econometrically during the 1978 1982 period management gains insights into the interactions of pursuing research and development expenditures paying dividends and undertaking investments

a population macroeconomic growth model for currently developing countries abstract this paper constructs a theoretical model that predicts as observed in some currently developing countries that the average school enrollment ratio may fall even when the average fertility rate declines unlike existing models the current analysis indicates that economic growth may slow down when a fertility transition starts asymmetric behavior with respect to fertility and education between households stemming from income inequality plays an important role in generating this result we examine the implications of an education subsidy policy contrary to intuition in some circumstances this policy may decrease the average school enrollment ratio and future economic growth

distributional effects of public education in an economy with public pensions we study how the allocation of government expenditures between two major outlays education and pay as you go social security affects human capital distribution in an economy with heterogeneous agents we consider an overlapping generations economy where the government maintains both programs and allocates tax revenues to finance them in our model human capital is one of the factors of production it is itself produced as a combined result of public inputs and private inputs parents decisions to invest time and material resources in education of their children are motivated by altruism heterogeneous in its strength across the population which leads to heterogeneity of incomes we investigate the effect of an increase in public funding for education on the human capital distribution we show that in this framework contrary to some earlier results increased spending on public education may lead to higher inequality our results depend crucially on the interaction of education funding with the social security budget and on the elasticity of substitution in the learning technology

interregional redistribution and mobility in federations a positive approach the paper studies the effects and the determinants of interregional redistribution in a model of residential and political choice we find that paradoxical consequences of inter jurisdictional transfers arise if people are mobile while self sufficient regions are nec essarily identical with respect to policies and average incomes in our model interregional redistribution always leads to the divergence of regional policies and per capita incomes thus interregional redistribution prevents interregional equality at the same time however transfers may allow for more interpersonal equality among the inhabitants of each region the voting population may therefore in a decision over the fiscal constitution deliberately implement such a transfer scheme to foster regional divergence empirical evidence from panel data from oecd countries and candian provinces is consistent with the theory

white discrimination in provision of black education plantations and towns abstract we present a model of public provision of education for blacks in two discriminatory regimes white plantation controlled and white yeoman town controlled we show that the ability to migrate to a non discriminating district constrains the ability of both types of regimes to discriminate the model produces time series of educational outcomes for whites and blacks that mimic the behavior seen in post reconstruction south carolina to the onset of the civil rights act it also fits the post world war ii black white income differentials

productivity gains from geographic concentration of human capital evidence from the cities abstract based on recent theoretical developments the argument is made that the average level of human capital is a local public good cities with higher average levels of human capital should therefore have higher wages and higher land rents after conditioning on the characteristics of individual workers and dwellings this prediction is supported by data for standard metropolitan statistical areas smsas in the united states where the smsa average levels of formal education and work experience are used as proxies for the average level of human capital the alternative explanations of omitted smsa variables and self selection are evaluated an estimate of the effect of an additional year of average education on total factor productivity is computed

the evolution of modern educational systems technical vs general education distributional conflict and growth abstract we study the evolution of an educational system founded on a hierarchical differentiation between vocational and general education with vocational playing an inferior role in the society the dynamics are best summarized by the ratio of the fraction of the population in vocational to that in general education which we interpret as a measure of the degree of stratification of the society we show that this ratio first rises and then declines with the level of development displaying an inverted u shape which reflects the complex interaction between economic and political forces including aggregate income growth wealth inequality and political participation

centralization fiscal federalism and private school attendance a cge model is used to analyze the impact of public school financing on private school attendance the common perception that public school finance centralization will necessarily lead to greater private school attendance is not correct in such a model even when that centralization involves an extreme equalization as in california furthermore if centralization is less dramatic as in most states declines in private school attendance are even more pronounced this weakens the speculation that low exit rates to private schools in centralizing states imply that general public school quality does not drop as a result of such centralization

persistent inequality an explanation based on limited parental altruism abstract this paper proposes an alternative theory for the observed persistence in income inequality across households a theory based on limited parental altruism we argue that the degree of parental altruism is limited by the economic status of the parent a poor parent not only has less ability but also has less willingness to invest in children s human capital formation this generates a non linearity in such investment expenditures as a result initial income differences may perpetuate over time even with convex technology and convex preferences in this context we also compare the efficacy of the public vis a vis the private education system from the perspective of long run growth

tax competition and income redistribution an empirical analysis for switzerland tax competition is supposed to lead to thecollapse of the welfare state because first it willbecome difficult for a single jurisdiction to levy aredistribution tax upon the rich and mobile andsecond such a policy if undertaken in onejurisdiction will attract poor individuals from otherjurisdictions and erode internal redistributionpolicies in this paper the impact of personal incometaxes and transfers on residence decisions oftaxpayers is analyzed with swiss subfederal data therelationship of tax competition and the erosion of theswiss welfare state is tested with aggregate data onincome redistribution

the allocation of public funds in a hierarchical educational system abstract this paper studies the dynamic effects of allocating public funds between basic and advanced education holding the size of total public education funds fixed i identify the effects of their composition on aggregate efficiency and in equality first since basic education is a prerequisite for attending advanced education there exists a lower bound on funding it allocation policies below this lower bound are strictly pareto dominated whether a corresponding lower bound on funding advanced education exists or not depends on the development stage of the economy and the size of total public funds secondly while an allocation policy favoring basic education generates the usual redistribution from top to bottom one favoring advanced education may result in reverse redistribution from bottom to top last through the inter generational link short run allocation policies may have long run effects a simple rule of thumb is that for an economy in its early development stage focusing on basic education for sufficiently long duration is the only way out of polarization and low aggregate efficiency contrary to the actual policies pursued by many of the less developed economies

unequal societies income distribution and the social contract this paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political fundamentals can sustain such different systems of social insurance fiscal redistribution and education finance as those of the united states and western europe with imperfect credit and insurance markets some redistributive policies can improve ex ante welfare and this implies that their political support tends to decrease with inequality conversely with credit constraints lower redistribution translates into more persistent inequality hence the potential for multiple steady states with mutually reinforcing high inequality and low redistribution or vice versa

global and regional linkages across market cycles evidence from partial correlations in a network framework using a novel approach partial correlations within a complex network framework we examine the degree of globalization and regionalization of stock market linkages and how these linkages vary acro

effect of constraints on tiebout competition evidence from a school finance reform abstracteffect of constraints on tiebout competition evidence from a school finance reform regional studies michigan s school finance reform significantly increased state aid to low spending districts and placed restraints on the growth of spending in high spending districts it is noteworthy that there is no literature yet on the impact of such reforms on resource allocation by school districts this study begins to fill this gap it finds that the reform led the high spending districts to allocate a lower share of their total expenditure to support services and a higher share to instruction relative to the low spending districts to the extent that instructional expenditures are more productive and contribute to student achievement more than support services expenditures these results suggest that the reform led to a relative increase in productivity in the high spending districts

income inequality financial development and macroeconomic fluctuations we examine the relationship between income inequality and variability in aggregate consumption growth in high income countries greater income inequality appears to be associated with more volatility in consumption growth whereas in lower income countries higher levels of income inequality tend to be associated with less volatility we present evidence that variability in real gdp growth is also related to income inequality in the same way our results suggest that the level of financial development may help to explain why the distribution of income affects the short run variability of consumption and output differently in high income countries than in low income countries

inequality and crime this paper considers the relationship between inequality and crime using data from urban counties the behavior of property and violent crime are quite different inequality has no effect on property crime but a strong and robust impact on violent crime with an elasticity above 0 5 by contrast poverty and police activity have significant effects on property crime but little on violent crime property crime is well explained by the economic theory of crime while violent crime is better explained by strain and social disorganization theories

public versus private education when differential fertility matters we assess the merits of different education systems in a framework that accounts for the joint decision problem of parents regarding fertility and education specifically we compare the implications of a public and a private schooling regime for economic growth and inequality we find that private schooling leads to higher growth when there is little inequality in human capital endowments across families in contrast when inequality is high public education yields higher growth by reducing fertility differentials in addition public schooling leads to income convergence while private schooling can result in ever increasing inequality our analysis highlights theimp ortanceof accounting for endogenous fertility differentials when analyzing educational policies

does competition among public schools benefit students and taxpayers tiebout choice among districts is the most powerful market force in american public education naive estimates of its effects are biased by endogenous district formation i derive instruments from the natural boundaries in a metropolitan area my results suggest that metropolitan areas with greater tiebout choice have more productive public schools and less private schooling little of the effect of tiebout choice works through its effect on household sorting this finding may be explained by another finding students are equally segregated by school in metropolitan areas with greater and lesser degrees of tiebout choice among districts

goal setting for effective corporate planning the hypothesis that firms simultaneously determine their research and development investment dividend and new debt policies generally is substantiated in the financial literature the strategic planning model advocated in this study offers an alternative to the generally accepted goals of maximizing the return on equity or growth in earnings per share

educational vouchers and cream skimming educational vouchers and cream skimming epple and romano 1998 show equilibrium provision of education by public and private schools has the latter skim off the wealthiest and most able students and universal vouchers lead to further cream skimming here we study voucher design that injects private school competition and increases technical efficiencies without cream skimming conditioning vouchers on student ability without restriction on participating schools policies fails to affect significantly cream skimming however by adding restrictions like tuition constraints such vouchers can reap the benefits of school competition without increased stratification this is accomplished while allowing voluntary participation in the voucher system and without tax increases

worker sorting compensating differentials and health insurance evidence from displaced workers this article introduces an empirical strategy to the compensating differentials literature that i allows both individual observed and unobserved characteristics to be rewarded differently in firms based on health insurance provision and ii selection to jobs that provide benefits to operate on both sides of the labor market estimates of this model are used to directly test empirical assumptions that are made with popular econometric strategies in the health economics literature our estimates reject the assumptions underlying numerous cross sectional and longitudinal estimators we find that the provision of health insurance has influenced wage inequality finally our results suggest there have been substantial changes in how displaced workers sort to firms that offer health insurance benefits over the past two decades we discuss the implications of our findings for the compensating differentials literature

the effect of rising income inequality on taxation and public expenditures evidence from u s municipalities and school districts 1970 2000 the income distribution in many developed countries widened dramatically from 1970 to 2000 some scholars argue that income inequality contributes to a host of social ills by undermining voters will ingness to support public expenditures in contrast we find that growing income inequality is associated with an expansion in government reven ues and expenditures on a wide range of services in u s municipalities and school districts results are robust to a number of model specifica tions including instrumental variables that address the endogeneity of the local income distribution our results are inconsistent with models pre dicting that heterogeneous societies provide lower levels of public goods public sector 3 two types of identification problems com plicate estimation of the empirical relationship between income inequality and public goods provision the cross country variation often used for this exercise suffers from omitted variable bias that is countries with high income inequality may also have other characteristics that could limit the size of the public sector cross state comparisons also suffer from endogenous household sorting if low or high income families migrate to states with high public expenditures the positive association observed in the litera ture between state public expenditures and income inequal ity may be spurious in this paper we examine the relationship between income inequality and government finances in municipali ties and school districts in the united states from 1970 to 2000 local government represents a large segment of the economy in fiscal year 2009 local governments disbursed more than 3 trillion for such important services as educa tion and public safety 4 our study has several advantages over existing empirical work first the large number of local governments in our data exhibit much greater variation in income inequality over time than do the small number of countries or states used in previous studies a large sample size allows us to separately control for changes in the top end or bottom end of the income distribution and for initial levels of inequal ity thus ruling out a mechanical association between tax revenues and rising income for the affluent second we develop an instrumental variable strategy to mitigate con cerns about potential reverse causality from the endogenous

human capital accumulation and endogenous public expenditures in this paper we present an overlapping generations model where individuals accu mulate human capital through formal schooling we model the role of the public sector in schooling as one of collecting taxes from households and providing inputs to the learning technology public expenditures on schools are determined endogenously under plausible restrictions our model s predictions qualitatively match the observations on schooling pub lic expenditures on education and student teacher ratios jel classification el 3 e62 accumulation de capital humain et depenses publiques endogenes dans ce memoire les auteurs presentent un modele de generations qui se chevauchent ofu les individus accumulent du capital humain via l education formelle le r6le du secteur public dans l education est defini comme celui de collecteur d imp6ts aupres des menages et de fournisseur d intrants dans la technologie d apprentissage les depenses publiques en education sont determinees de maniere endogene a partir de restrictions plausibles les predictions du modele s arriment qualitativement aux observations sur le monde scolaire aux depenses publiques en educa tion et aux ratios 6leves enseignants

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

a reexamination of the empirical relationship between investment and financing decisions several studies see 7 15 9 and 16 have attempted to ascertain the empirical relationships that exist between the financing and investment decisions of firms the primary impetus for these efforts was provided by modigliani and miller mm 20 21 when they demonstrated that under the assumption of perfect capital markets the optimal investment decisions of a firm are separable from its financing decisions in the presence of market imperfections interdependencies between these decisions that violate the basic mm propositions may exist therefore the studies referred to above have essentially focused upon determining whether market imperfections have been of sufficient magnitude to lead to joint determination of investment and financing decisions though the original mm propositions were introduced more than two decades ago the nature of the empirical relationship between investment and financing decisions remains a controversial issue the fact that this matter is still unresolved is not attributable to a lack of attention for the original propositions have been examined in the presence of taxes bankruptcy costs and agency costs with no clear consensus emerging

economic and mechanical models of intergenerational transmission the author critically examines gary beckers attempt to integrate the theory of income distribution intragenerational differences with the theory of mobility intergenerational differences in an economic model of the family he assesses beckers claims of distinctiveness integration explanatory power and surprise and arrives at a rather skeptical view of the contribution that the core of microeconomics has made to this study of the family a reply by becker is included pp 514 8 excerpt

persistent parochialism trust and exclusion in ethnic networks decentralized groups such as close knit residential neighborhoods and ethnically linked businesses often achieve high levels of cooperation while engaging in exclusionary practices that we call parochialism we investigate the contribution of within group cultural affinity to the ability of parochial groups to cooperate in social dilemmas we analyze parochial networks in which the losses incurred by not trading with outsiders are offset by an enhanced ability to enforce informal contracts by fostering trust among insiders we show that there is a range of degrees of parochialism for which parochial networks can coexist with an anonymous market offering unrestricted trading opportunities

the desegregating effect of school tracking this paper makes the following point detracking schools that is preventing them from allocating students to classes according to their ability may lead to an increase in income residential segregation it does so in a simple model where households care about the school peer group of their children if ability and income are positively correlated tracking implies that some high income households face the choice of either living in the areas where most of the other high income households live and having their child assigned to the low track or instead living in lower income neighbourhoods where their child would be in the high track under mild conditions tracking leads to an equilibrium with partial income desegregation where perfect income segregation would be the only stable outcome without tracking

housing markets and residential segregation impacts of the michigan school finance reform on inter and intra district sorting abstract local financing of public schools in the u s leads to a bundling of two distinct choices residential choice and school choice and has been argued to increase the degree of socioeconomic segregation across school districts a school finance reform aimed at equalization of school finances can in principle weaken this link between housing choice and choice of schools in this paper we study the impacts of the michigan school finance reform of 1994 proposal a on spatial segregation the reform was a state initiative intended to equalize per pupil expenditures between michigan school districts and reduce the role of local financing we find that proposal a led to a decline in neighborhood sorting within education markets as measured by changes in the value of housing stock and several socioeconomic indicators we also find that the reform affected the dispersion of incomes and educational attainment within school districts increasing within district heterogeneity in the lowest spending school districts while decreasing the same in the highest spending districts however there is a continued high demand for residence in the highest spending communities these findings are robust to various alternative definitions of education market and survive several sensitivity checks these spatial segregation patterns are not replicated in neighboring ohio that did not face similar school finance equalization

education choice endogenous growth and income distribution this paper studies an economy where parents can choose between public or private schools and can vote on taxes used to fund public schools the model is calibrated to us data and studied using simulations a bimodal income distribution emerges where public education students converge to a low income equilibrium while private education students experience endogenous growth with higher incomes however public education students experience long run growth through a spillover from private education students possible problems with the existence of a private alternative to pubic education such as the emergence of a education based class structure are identified

going beyond crosscountry averages growth inequality and poverty reduction in the philippines summary this paper analyzes the processes of growth and poverty reduction simultaneously under a neoclassical growth model framework using provincial data from the philippines we obtain a high rate of provincial income convergence and a tradeoff between equity and growth the lack of political competition inhibits growth land reform is positively associated with growth and poverty reduction while higher agricultural terms of trade facilitate poverty reduction the growth elasticity of poverty reduction is low by international standards but is sensitive to sectoral income composition and initial conditions in poverty incidence mortality rate and irrigation coverage

a spatial temporal model of human capital accumulation abstract we develop an overlapping generations model of human capital accumulation and analyze its spatial and temporal properties the interplay between local spillovers of human capital and global market participation partitions the society into socio economic classes we focus upon stationary equilibria and show that a large class of them are locally stable stationary equilibria can be homogeneous where the human capital distribution is degenerate or stratified with a distinct spatial pattern of human capital distribution we provide several examples and specify conditions under which equilibria are sensitive to the spatial structure of the society we illustrate our results by numerical simulations journal of economic literature classification numbers d90 i21 j24 o15

miller s equilibrium shareholder leverage clienteles and optimal capital structure the purpose of this paper is twofold first we examine the individual portfolio decisions when income from stocks and bonds is taxed at different rates second a rationale for the existence of risky debt in the presence of leverage related costs and differential personal income taxation is provided previous studies on capital structure with differential personal income taxation have ignored either the portfolio risk consideration and or the possibility of losing personal and corporate interest tax shields due to insufficient taxable earnings e g 8 2 3 14 13 6 7 1 9 19 20 21 23 in section i of this paper both the portfolio risk consideration and the possibility of losing personal and corporate interest tax shields are explicitly introduced this enables us to provide a rationale for the shareholder leverage clientele phenomenon within a mean variance framework we also demonstrate a non corner solution for the optimal corporate capital structure in a tax environment similar to that of miller s debt and taxes 14 in sections ii and iii of this paper miller s world is further modified to include risky debt and the attendant costs we re examine and synthesize recent studies on the theory of optimal capital structure which have appeared since the publication of debt and taxes e g 4 6 7 13 19 20

network effects and welfare cultures we empirically examine the role of social networks in welfare participation using data on language spoken at home to better infer networks within an area our empirical strategy asks whether being surrounded by others who speak the same language increases welfare use more for those from high welfare using language groups this methodology allows us to include local area and language group fixed effects and to control for the direct effect of being surrounded by one s language group these controls eliminate many of the problems in previous studies the results strongly confirm the importance of networks in welfare participation

tax and education policy in a heterogeneous agent economy what levels of redistribution maximize growth and efficiency this paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy such redistributive policies entail distortions to labor supply and savings but also serve as partial substitutes for missing credit and insurance markets the resulting tradeoffs for growth and efficiency are explored both theoretically and quantitatively in a model that yields complete analytical solutions progressive education finance always leads to higher income growth than taxes and transfers but at the cost of lower insurance overall efficiency is assessed using a new measure that properly reflects aggregate resources and idiosyncratic risks but unlike a standard social welfare function does not reward equality per se simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude resulting in plausible values for the optimal rates aggregate income and aggregate welfare provide only crude lower and upper bounds around the true efficiency tradeoff

the bid ask spread in the black market for dollars in brazil note several studies have offered empirical support for the demsetz bagehot theory of dealer services and bid ask spreads the tests have always concentrated on bid ask spreads or price dispersion in cross section studies of securities markets thus stoll 1978 for example tested a theory of the bid ask spreads in the over the counter market for common stocks and garbade and silber 1976 studied price dispersion in the market for u s government bonds in each case the object was to determine the spreads associated with different securities depending on their characteristics such as trading volume or risk the present study by contrast focuses on the time series of the bid ask spread we report on the bid ask spreads in the black market for dollars and show support for the theory of spreads in a market far less institutionalized than the u s capital markets moreover structural features of the market not present in security markets are shown to influence the spread the theory of bid ask spreads was developed by demsetz 1968 and has since been extended in a number of papers among which garbade and silber 1976 and ho and stoll 1981 are of particular interest for our questions the literature is comprehensively reviewed in cohen maier schwartz and whitcomb 1979 the theory views dealers as providers of liquidity services the exchange houses provide a liquidity service in standing ready to buy or sell securities in our case u s dollarsthus saving potential customers the need to search and the possibility of illiquidity in exchange for this service the dealer can charge a fee that takes the form of a bid ask spread the spread covers the costs of running the establishment and specific costs of making the market there are in particular two costs of market making one is the opportunity cost of carrying a cash inventory and the other arises from the risk of dealing with customers who have potential inside information the inventory costs arise because there is not perfect synchronization between inflows and outflows the cost is given by the interest rate times the average inventory position customers with inside information pose a risk because they may have privileged access to news about exchange rate changes trade restrictions or political events that will influence the market these customers cannot be dis

ethnic capital and intergenerational mobility this paper analyzes the extent to which ethnic skill differentials are transmitted across generations i assume that ethnicity acts as an externality in the human capital accumulation process the skills of the next generation depend on parental inputs and on the quality of the ethnic environment in which parents make their investments or ethnic capital the empirical evidence reveals that the skills of today s generation depend not only on the skills of their parents but also on the average skills of the ethnic group in the parent s generation

public education and redistribution when talents are mismatched in democratic countries elected policymakers determine public spending the level of public spending depends on taxes that are decided by a voting mechanism policymakers also decide how to allocate funds among different policies such as public education and pure redistributive transfers how are the levels of funding for public education and redistribution determined in the political process what impacts do votes on these two policies have on inequality growth and social mobility we develop a politico economic model that highlights a novel mechanism public education provides opportunities for the children of the poor to be recognized for their talent this reduces the probability of a mismatch which takes place when individuals with low talent who come from rich families find jobs that should go to people with high talent and vice versa hence the poor may prefer public spending on education to direct redistribution while the rich prefer redistribution as education implies more competition for good jobs from the poor

changes in dividend smoothing after the financial crisis abstract this study examines changes in dividend smoothing among korean firms after the financial crisis in 2008 and analyzes the factors influencing those changes we find that the speed of adjustment of firms after the crisis has increased above pre crisis levels indicating that firms focus more on investments and the appropriate level of cash facing increased corporate risk while such tendency is stronger for small firms with higher investment levels

special exchange rates for capital account transactions the governments of developing countries are constrained in the effective implementation of domestic policy by the interlinkages of national and international financial markets domestic macroeconomic conditions are influenced by the interaction of national and world interest rates and prices and through the impact of real exchange rates on employment the domestic responses to changes in these factors are often strong and rapid this article suggests that dual rates can indeed be used successfully as a strictly transitory policy to offset sudden shocks in capital markets the article develops models which indicate why these dual systems are able to prevent inflationary or recessionary pressures caused by a misaligned exchange rate in the short term while free capital account rates can cut the flow of capital flight however a dual rate system cannot prevent a possibly equivalent loss of foreign reserves that will ultimately result because of the impact of the overvaluation of the commercial rate on the trade balance in the longer term a dual rate system with a misaligned commercial rate exacerbates the government s deficit ultimately real wages must be cut and real interest rates raised to generate sufficient foreign exchange to finance the external debt thus a dual rate works well if the commercial rate is maintained close to the equilibrium level

efficient equilibrium convergence heterogeneity and growth abstract an endogenous growth model arising from task specialization is used to examine the effects of differing initial human capital distributions two macroeconomic phenomena are produced income convergence and leapfrogging of living standards income convergence occurs for all countries in the same market arising from diminishing returns to individual human capital leapfrogging occurs by comparing countries in two separate markets income leapfrogging can occur because the stationary growth rate increases with market size and human capital heterogeneity reduces growth the introduction of coordination costs of task assignment can produce gains in welfare and growth from human capital heterogeneity

more equal but less mobile education financing and intergenerational mobility in italy and in the us a centralised and egalitarian school system reduces the cost of education for poor families and so it should reduce income inequality and make intergenerational mobility easier in this paper we provide evidence that italy compared to the usa displays less income inequality as expected given the type of school system but also less intergenera tional upward mobility between occupations and between education levels we explore some of the reasons which can explain this puzzling result and conclude that in a world in which family background is important for labor market success a centralised and egalitarian tertiary education does not necessarily help poor children and may take away from them a fundamental tool to prove their talent and to compete with rich children 1999 elsevier science s a all rights reserved

an equilibrium analysis of debt financing under costly tax arbitrage and agency problems in his recent paper merton miller 12 extends the notion of tax induced differential returns on securities into a general equilibrium framework in which firms make adjustments in the supply of corporate debt in an environment of progressive personal taxation the interest rates on taxable corporate bonds are greater than rates on tax exempt securities so as to compensate investors for the associated tax burden on the supply side value maximizing firms have an incentive to issue additional debt so long as the personal tax induced compensation is less than the tax savings from interest payment deductions at the corporate level miller argues that in the final equilibrium the interest rate differential between taxable and tax exempt bonds exactly reflects the tax advantage of debt financing at the corporate level thus the tax subsidy disappears in its entirety and we are back to an environment in which corporate leverage is inconsequential to the value of any particular firm what emerges in equilibrium is merely an optimal debt equity ratio for the corporate sector as a whole 1 miller derives this invariance proposition under the following assumptions 1 progressive personal tax rates reach a maximum at a level beyond the corporate tax rate 2 no tax arbitrage by individuals and firms is allowed 3 there is a personal tax rate differential in favor of income from stocks and 4 the opportunity for riskless borrowing and lending exists 2 indeed miller s equilibrium analysis is based on a zero effective personal tax rate on income from stocks but

endogenous determination of public budget allocation across education stages abstract this paper studies the endogenous determination of public budget allocation across hierarchical education stages in less developed economies the top class has dominant political power to implement its most preferred policy which is characterized by exclusive participation and large schooling expenditure at higher education at the expense of basic education in developed economies the budget allocation is more balanced under certain parameters it leads to expanded participation of the middle class in higher education the model offers an explanation to the observed cross country policy difference and is broadly consistent with historical evidence

public education and intergenerational economic mobility this paper examines the role of public education in determining intergenerational economic mobility it considers a model in which education is free and admission to schools is competitive the results indicate that for mobility to increase during the process of development the share of resources devoted to public education needs to be large enough to offset the relative advantage of having educated parents in academic attainment

honey i shrunk the kids benefits revisiting intergenerational conflict in oecd countries intergenerational conflict may arise when the interests of different age groups do not align we examine cross country data to find evidence for this conflict in oecd countries we derive our results from a fgls estimation model which is complemented by a system gmm estimation to account for potential endogeneity the data are from a panel of 22 oecd countries over the time period 1985 2005 we find little support for intergenerational conflict in general however those who are close to statutory retirement age dislike public expenditure on families and education because once they retire they will have less income compared to their work income this effect is transitory however implying a change in voting behavior during retirement age

assessing the importance of tiebout sorting local heterogeneity from 1850 to 1990 this paper argues that long run trends in geographic segregation are inconsistent with models where residential choice depends solely on local public goods the tiebout hypothesis we develop an extension of the tiebout model that predicts as mobility costs fall the heterogeneity across communities of individual public good preferences and of public good provision must weakly increase given the secular decline in mobility costs these predictions can be evaluated using historical data we find decreasing heterogeneity in policies and proxies for preferences across i a sample of u s municipalities 1870 1990 ii all boston area municipalities 1870 1990 and iii all u s counties 1850 1990

interactive property valuations this paper estimates models of social interactions within residential neighborhoods using data on neighborhood clusters for standard metropolitan areas in the united states from the american housing survey for 1985 and 1989 it examines eects of social interactions in the form of reaction functions for homeowners valuation of their properties at the level of the immediate residential neighborhood with neighborhoods consisting of a randomly chosen dwelling unit and about ten nearest neighbors the paper identifies the eect of endogenous social interactions to be significant and large ranging from 0 587 to 0 770 and much more important then the dynamic autoregressive structure of the model when both variables are present and both are significant the interactive regressions that it reports improve upon commonly used hedonic regressions as well the paper provides empirical support for the notion common in the real estate world of the importance of neighboring properties in property valuations

keeping one step ahead of the joneses status the distribution of wealth and long run growth assuming that the utility of each agent depends on its relative wealth position in the society this chapter constructs an endogenous growth model it is shown that even if the subjective discount rates differ across agents there exists a unique balanced growth equilibrium in which each agent owns a positive share of the world wealth it is also shown that if the agents are identical then an increase in savings incentives always raises the long run growth rate but if they are heterogeneous then an increase in savings incentives may lower the long run growth rate

school choice through relocation evidence from the washington d c area abstract in this paper i show how the monetary value parents place on school quality may be inferred from their residential location choice the method identifies parental valuation of school quality from the differential effect of school quality on residential choices of households with and without children i implement the method with 1990 census data for washington d c for whites households with children are willing to pay 1800 more per year for schools generating a 100 sat point advantage while some evidence indicates african american choices are negatively associated with school quality additional evidence suggests african american households may be constrained in available choices

the administrative costs of corporate bankruptcy a note in this paper we present evidence on the direct administrative costs of corporate bankruptcy the investigation is directed toward providing evidence that may be helpful in answering questions about the role of bankruptcy costs as a determinant of corporate capital structures the importance of bankruptcy costs as a determinant of corporate financing policy has been extensively debated in the finance literature the origins of the debate can be traced to modigliani and miller 8 and robichek and myers 9 under the assumption that debt is default free and interest payments are taxdeductible modigliani and miller demonstrated that firms will maximize their market values by maximizing their use of debt financing robichek and myers demonstrated that this conclusion also holds when debt is not default free but bankruptcy is costless to explain observed corporate debt to total value ratios which typically fall in the range of 20 percent to 30 percent robichek and myers 9 and baxter 1 appealed to the existence of bankruptcy costs as a possible counterweight to the tax deductibility of interest payments subsequently kraus and litzenberger 5 scott 10 lee and barker 6 kim 4 and turnbull 13 developed formal models in which firms maximize value by increasing their use of debt financing to the point where the marginal present value of future tax shields equals the marginal present value of future bankruptcy costs the bankruptcy cost literature has identified three types of costs as potentially relevant to the determination of a firm s optimal mix of debt and equity financing 1 the direct administrative expenses paid to various third parties involved in the bankruptcy proceedings 2 the shortfall in realized value when assets are sold in liquidation or the indirect costs of reorganization and 3 the loss of tax credits which the firm would have received had it not gone bankrupt contrarily haugen and senbet 3 and to a lesser extent miller 7 and warner 14 have argued that the only bankruptcy costs relevant to the determination of a firm s optimal capital structure are the direct administrative costs of bankruptcy the crux of their argument is that the shortfall costs of liquidation the indirect costs of reorganization and the loss of tax credits which occurs upon dissolution of the firm are in fact relevant to the liquidation investment decisions of the firm these costs would be borne by the security holders of a failing firm

tiebout sorting and neighborhood stratification tiebout s classic 1956 paper has strong implications regarding stratification across and within jurisdictions predicting in the simplest instance a hierarchy of internally homogeneous communities ordered by income typically urban areas are less than fully stratified and the question arises how much do departures from standard tiebout assumptions contribute to observed within neighborhood mixing this paper quantifies the separate effects of employment geography via costly commuting and preferences for housing attributes on neighborhood stratification it does so using an equilibrium sorting model estimated with rich census micro data simulations based on the model and credible preference estimates show that counterfactual reductions in commuting costs lead to marked increases in racial and education segregation and to a lesser degree increases in income segregation given that households now find it easier to locate in neighborhoods with like households while turning off preferences for housing characteristics increases racial segregation especially for blacks doing so reduces income segregation indicating that heterogeneity in the housing stock serves to stratify households based on ability to pay further we show that differences in housing help to accentuate differences in the consumption of local amenities

neighborhood income distributions this paper studies the distribution of income within neighborhoods and contrasts it with the national income distribution it relies on a unique feature of the american housing survey whose 1985 1989 and 1993 waves of interviews provide data for small residential neighborhoods these consist of a dwelling unit and up to ten of its nearest neighbors most previous work on neighborhoods has used information for much larger groupings of the population such as census tracts the paper employs a variety of parametric and nonparametric econometric tools to study income sorting across us residential neighborhoods it documents the patterns of dependence among neighbors income and imperfect sorting with moderate but very significant correlation among incomes of neighbors and of considerable income mixing in u s neighborhoods

teach a man to fish education vs optimal taxation in models of redistribution differences in human capital are often the relevant source of heterogeneity among individuals presumably the distribution of human capital can be manipulated through education spending this paper examines the use of education as a redistributive tool when there is a non linear tax system in place the results show that taxation whether under full or asymmetric information substantially reduces the redistributive role of education spending in maximizing social welfare this points to a conflict between the equalization of utility and human capital outcomes dans les modeles de redistribution des differences dans le capital humain sont souvent la source pertinente d heterogeneite entre individus censement la distribution de capital humain peut etre manipulee par le truchement des depenses en education ce texte examine l utilisation de l education en tant qu instrument de redistribution quand un regime de fiscalite non lineaire est en place les resultats montrent que la fiscalite en regime de d information complete ou asymetrique reduit substantiellement le role de redistribution des depenses en education pour maximiser le bien etre social voila qui souligne un conflit entre l egalisation de l utilite et les resultats en termes de capital humain

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

academic admissions standards implications for output distribution and mobility we examine the trade offs implicit in academic admissions standards when students are charged cost based tuition and offered loans that remove liquidity constraints lowering entry requirements while holding graduation requirements fixed increases aggregate output and promotes a more equal distribution of wages but reduces relative income mobility and diminishes the scope for affirmative action lowering admissions standards while raising graduation requirements so that the number of graduates remains constant has little direct effect on output distribution or mobility but again reduces the scope for affirmative action income based affirmative action offers a better trade off between output and relative mobility than income neutral admissions jel d31 h42 i23 i28 j24

the effects of spending on test pass rates evidence from michigan abstract this study uses data on standardized test scores from 1992 through 1998 at michigan schools to determine the effects of spending on student performance the years in the data set straddle 1994 when michigan dramatically changed the way that k 12 schools are funded and moved toward equalization of spending across schools focusing on pass rates for a fourth grade math tests the most complete and consistent data available for michigan i find that increases in spending have nontrivial statistically significant effects on math test pass rates and the effects are largest for schools with initially poor performance

the capitalization of education finance reforms abstract the education finance reforms encouraged by state court rulings over the past 25 years have led to increased state aid and educational spending in poorer school districts this empirical study addresses whether these new resources were capitalized into the housing values and residential rents within those districts estimations based on district level census data indicate that the new educational expenditures generated by the court mandates substantially increased median housing values and residential rents this tiebout response implies that court mandated finance reforms increased the perceived quality of the poorer school districts in reform states however the existence and magnitude of this response also implies that these reforms had unintended distributional consequences for example these results indicate that for some the redistributive impact of education finance reform may have been sharply attenuated by the increased cost of residing in the districts that received new educational re

education finance reform and investment in human capital lessons from california abstract this paper examines the effect of different education financing systems on the level and distribution of resources devoted to public education we focus on california which in the 1970 s was transformed from a foundation system of mixed local and state financing to one of effectively pure state finance and subsequently saw its funding of public education fall between 10 and 15 relative to the rest of the us we show that a simple political economy model of public finance can account for the bulk of this drop we find that while the distribution of spending became more equal this was mainly at the cost of a large reduction in spending in the wealthier communities with little increase for the poorer districts our calibrated model implies that there is no simple trade off between equity and resources we show that if california had moved to the opposite extreme and abolished state aid altogether funding for public education would also have dropped by almost 10

the intergenerational conflict over the provision of public education abstract we study the intergenerational conflict over the provision of public education this conflict arises because older households without children have weaker incentives to support the provision of high quality educational services in a community than younger households with school age children we develop an overlapping generations model for households in a system of multiple jurisdictions this model captures the differences in preferred policies over the life cycle we show that the observed inequality in educational policies across communities is not only the outcome of stratification by income but is also determined by the stratification by age and a political process that is dominated by older voters in many urban communities with low quality of educational services the mobility of older households creates a positive fiscal externality since it creates a larger tax base per student this positive tax externality can dominate the negative effects that arise because older households tend to vote for lower educational expenditures as a consequence sorting by age can reduce the inequality in educational outcomes that is driven by income sorting

tiebout economies with differential genetic types and endogenously chosen crowding characteristics abstract we consider a tiebout economy with differential crowding and public projects in which agents are distinguished by their tastes and genetic endowments agents choose which crowding characteristic for example a skill they wish to express and this affects their value to other members of their jurisdiction club firm etc an agent s choice is influenced both by his genetic endowment which affects his cost of acquiring crowding characteristics and by his preferences over which crowding characteristic he expresses we show that if small groups are strictly effective the core is equivalent to the set of anonymous competitive equilibrium outcomes but that the core generally contains taste homogeneous jurisdictions journal of economic literature classification numbers h41 h72

the effect of school capital investments on local housing markets and household sorting in california abstractin this paper i investigate what effect school capital investments have on housing values and household location choice in the context of the tiebout model this research identifies an exogenous variation in school capital investments by exploiting the lottery allocation of entitlement to an interest free construction bond among districts in california although the lottery is exogenous additional non lottery allocation complicates identification this paper develops an empirical model based on sample selection methods in order to create a counterfactual state in which additional non lottery allocation would not have existed i find that receiving the interest free construction bond increases school capital expenditure and housing values at the district level i view the increase in housing values as the capitalization of school capital investments i find little evidence for the effect of the interest free construction bond on household sorting and student s academic outcomes

all school finance equalizations are not created equal school finance equalization has probably affected american schools more than any other reform of the last 30 years understanding it is a prerequisite for making optimal social investments in human capital yet it is poorly understood in this paper i explain why it differs from conventional redistribution because it is based on property values which are endogenous to schools productivity taste for education and the school finance system itself i characterize equalization schemes and show why some level down and others level up schemes that strongly level down have unintended consequences even poor districts can end up worse off i also show how school finance equalization affects property prices private school attendance and student achievement

heterogeneity stratification and growth macroeconomic implications of community structure and school finance this paper examines how socioeconomic stratification and alternative systems of education finance affect inequality and growth agents interact through local public goods or externalities school funding neighborhood effects and economywide linkages complementary skills knowledge spillovers sorting families into homogeneous communities often minimizes the costs of existing heterogeneity but mixing reduces heterogeneity faster integration therefore tends to slow down growth in the short run yet raise it in the long run a move to state funding of education presents society with a similar intertemporal trade off local and global complementarities play major roles in determining the efficient social and educational structures copyright 1996 by american economic association

a comparison of census nsf r d data vs compustat r d data in a financial decision making model abstract this paper reports the results of a project in which r d data drawn from national science foundation and census bureau studies were substituted in several financial models for r d data drawn from the 1975 1982 compustat tapes the result using the compustat data did not differ significantly from that based on the nsf census data in the aggregate but significant differences were observed for certain industries and certain years the purpose of this paper is to discuss the financial models and determinants of corporate r d expenditures using the different databases and to suggest further questions for research financial support was provided by the center for innovation management studies at lehigh university and the national science foundation

the effect of increased funding on student achievement evidence from texas s small district adjustment abstract we leverage an obscure set of rules in texas s school funding formula granting some districts additional revenue as a function of size and sparsity we use variation from kinks and discontinuities in this formula to ask how districts spend additional discretionary funds and whether these improve student outcomes a 1000 annual increase in foundation funding or 10 increase in expenditures yields a 0 1 s d increase in reading scores and a near 0 08 increase in math in addition dropout rates decline graduation rates marginally increase as does college enrollment and to a smaller degree graduation these gains accrue in later grades and largely among poorer districts an analysis of budget allocations reveals that additional funding only marginally affects budget shares