re examination of uniform commodity taxes under a non linear income tax system and its implication for production efficiency abstract this paper shows that the result of uniform commodity tax under nonlinear income taxation by atkinson and stiglitz 1976 no longer holds if the production side of an economy is taken into the consideration in particular imposing a non uniform commodity tax can pareto improve welfare even under nonlinear income taxation in addition the paper shows that if the government uses a nonlinear income tax system for income redistribution then the introduction of distortions in the public sector can pareto improve welfare contrary to the results in diamond and mirrlees 1971

inflation persistence alternative interpretations and policy implications in this paper i consider the policy implications of two alternative structural interpretations of observed inflation persistence which correspond to two alternative specifications of the new keynesian phillips curve nkpc the first specification allows for some degree of intrinsic persistence by way of a lagged inflation term in the nkpc the second is a purely forward looking model in which expectations farther into the future matter and coefficients are time varying in this specification most of the observed inflation persistence is attributed to fluctuations in the underlying inflation trend which are a consequence of monetary policy rather than a structural feature of the economy with a simple quantitative exercise i illustrate the consequences of implementing monetary policy assuming a degree of intrinsic persistence that differs from the true one the results suggest that the costs of implementing a stabilization policy when the policymaker overestimates the degree of intrinsic persistence are potentially higher than the costs of ignoring actual structural persistence the result is more clear cut when the policymaker minimizes a welfare based loss function

the optimal level of social security benefits the optimal level of social security benefits depends on balancing the protection that these benefits offer to those who lack the foresight to provide for their own old age against the welfare costs of distorting economic behavior the primary such cost is the distortion in private saving the present paper derives the level of social security benefits that is optimal in three basic cases in the first section the paper derives the optimal level of benefits for an economy in which all individuals do not anticipate retirement at all and therefore do no saving the second and third sections then derive optimal benefits for two different definitions of incomplete myopia

academic research underlying industrial innovations there has been no systematic study of the characteristics of the universities and academic researchers that seem to have contributed most to industrial innovation nor do we know how such academic research has been funded this paper based on data obtained from sixty six firms in seven major manufacturing industries and from over two hundred academic researchers sheds new light on the sources characteristics and financing of academic research underlying industrial innovation the findings should be of interest to economists concerned with technological change and to policymakers attempting to increase the economic payoff from the nation s academic research copyright 1995 by mit press

labor supply and the optimality of social security abstract traditional economic theory predicts that an unfunded public pension system can be justified on the basis of its ability to provide intergenerational transfers and also for its ability to provide partial insurance against mortality and labor income risks in this paper i demonstrate that the quantitative importance of these traditional roles depends on how the pension system distorts households labor supply decisions using a general equilibrium life cycle consumption model calibrated to the u s economy i show that these distortions can be large enough to erase much of the traditional welfare gains from social security i also find that this fact is robust within the range of labor supply elasticities usually encountered in the macroeconomic literature

the effect of inflation targeting on the behavior of expected inflation evidence from an 11 country panel abstract inflation targets were introduced in the 1990s in australia canada new zealand sweden and the united kingdom change in the behavior of expected inflation in the five targeting countries is measured in a panel that includes six non targeting countries france germany italy the netherlands japan and the united states the level of expected inflation in targeting countries falls after the announcement of targets with controls for country effects year effects ongoing inflation reduction and the business cycle neither the variability of expected inflation nor the average absolute forecast error falls after the announcement of targets with controls for the level and variability of past inflation both targeting and non targeting countries experience unexpected disinflation

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

the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

myopia redistribution and pensions this paper reviews a number of recent contributions that study pension design with myopic individuals its objective is to explore how the presence of more or less myopic individuals affects pension design when individuals differ also in productivity this double heterogeneity gives rise to an interesting interplay between paternalistic and redistributive considerations which is at the heart of most of the results that are presented the main part of the paper is devoted to the issue of pension design when myopic individual do not save enough for their retirement because their myopic self with a high discount rate emerges when labor supply and savings decisions are made some extensions and variations are considered in the second part in particular we deal with situations where labor disutility or preferences for consumption are subject to habit formation and where sin goods have a detrimental effect on second period health myopic individuals tend to underestimate the effects of both habit formation and sinful consumption which complicates public policy

multi dimensional screening a user s guide abstract multi dimensional screening models have many potential applications but economists have so far been hindered by the considerable technical difficulties involved in their resolution this paper studies the simplest formulation of the general screening model and we provide a complete solution to this case we then show how this model can be applied to multi product nonlinear pricing and to multi product monopoly regulation finally we discuss how the model has been applied to other economic situations of interest including auction design and optimal taxation

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

reconsidering the relationship between inflation and relative price variability it has long been popularly believed that the relationship between inflation and relative price variability rpv is positive and stable using disaggregated cpi data for the united states and japan however this study finds that the relationship is neither linear nor stable over time the overall relationship is approximately u shaped around a nonzero threshold inflation rate rpv therefore changes not with the inflation rate per se but with the deviation of inflation from the threshold inflation rate more importantly the relationship is by no means stable over time but instead varies significantly in a way that coincides with regime changes of inflation or monetary policy the relationship was positive during the period of high inflation of the 1970s and the early 1980s as has been documented by a number of previous studies whereas it takes a u shape profile during the great moderation the results are robust to the use of core inflation which excludes the traditionally volatile prices of food and energy this paper then presents a modified version of the calvo type sticky price model to describe the observed empirical regularities simulation experiments show that the modified calvo model fits the data well and that the underlying relationship hinges upon the degree of price rigidity which is systematically related to inflation regime for countries and periods with low inflation rates the relationship takes a u shape as price adjustment is more sticky in a high inflation environment when price setting becomes more flexible the u shaped profile vanishes

time inconsistent preferences and social security in this paper we examine the role of social security in an economy populated by overlapping generations of individuals with time inconsistent preferences who face mortality risk individual income risk and borrowing constraints we find that unfunded social security lowers the capital stock output and consumption for consumers with time consistent or time inconsistent preferences however it may raise or lower welfare depending on the strength of time inconsistency

the effect of inflation targets on the level of expected inflation in five countries did inflation targets reduce the level of expected inflation in australia canada new zealand sweden and the united kingdom in this note predictions of forecasts by professional forecasters are constructed for five consecutive 12 month periods after the announcement of targets these predictions use a variety of information variables known to forecasters at the time they make their forecasts the results show that after the announcement of targets predicted forecasts are less than actual forecasts in australia canada new zealand and sweden this is evidence that targets reduced the level of expected inflation no evidence of such effects is found in the united kingdom

evidence on the functional relationship between relative price variability and inflation with implications for monetary policy this paper considers the functional relationship between relative price variability rpv and inflation using quarterly personal consumer expenditure data in the us over 1967q1 2003q1 deriving some implications for monetary policy non parametric regression techniques are used to explore the shape of the rpv function and this shape is related to the theory outlined by rotemberg 1982 1983 the empirical rpv function yields a plausible optimal value of inflation in the region of five percentage points which is consistent with this theory and lies within the range of values cited by recent evaluations of sand and grease effects

inflation inflation uncertainty and relative price dispersion evidence from bivariate garch m models abstract one potential real effect of inflation is its influence on the dispersion of relative prices in the economy menu cost models generally imply that higher trend inflation will increase price dispersion in contrast signal extraction models predict that increased inflation uncertainty will raise relative price dispersion existing empirical studies do not distinguish between these separate hypotheses we constuct a bivariate garch m model of inflation and relative price dispersion to test these differing explanations in a single model and find that inflation uncertainty dominates trend inflation as a predictor of relative price dispersion

signaling and indirect taxation commodities communicate we investigate optimal indirect taxation when both the intrinsic qualities of goods and signaling motivate consumption choices optimal indirect taxes are introduced into a monotonic signaling game we provide sufficient conditions for the uniqueness of the d1 sequential equilibrium strategies in the case of pure costly signaling signaling goods can in equilibrium be taxed without burden when commodities serve both intrinsic consumption and signaling optimal taxes are characterized by a ramsey rule which deals with distortions resulting from signaling

taxing sin goods and subsidizing health care we consider a two period model in the first period individuals consume two goods one is sinful and the other is not the sin good brings pleasure but has a detrimental effect on second period health and individuals tend to underestimate this effect in the second period individuals can devote part of their saving to improve their health status and thus compensate for the damage caused by their sinful consumption we consider two alternative specifications concerning this second period health care decision either individuals acknowledge that they have made a mistake in the first period out of myopia or ignorance or they persist in ignoring the detrimental effect of their sinful consumption we study the optimal linear taxes on sin good consumption saving and health care expenditures for a paternalistic social planner we compare those taxes in the two specifications we show under which circumstances the first best outcome can be decentralized and we study the second best taxes when saving is unobservable

public goods self selection and optimal income taxation using the self selection approach to tax analysis this paper derives a modified samuelson rule for the provision of public goods when the government deploys an optimal nonlinear income tax this approach gives a straightforward interpretation of the central result in this area generalises it and provides a simple characterisation of optimal policy in a wide range of circumstances the analysis also emphasises and clarifies the significance of the choice of numeraire for the optimality of decentralising public spending decisions it is well known that the famous samuelson rule for the provision of public goods may not be applicable when the tax revenues used to finance the public goods come from distorting taxes the principle was recognized as long ago as pigou 1947 long before the samuelson rule was devised pigou saw that in addition to the resource cost involved in transferring funds from the private to the public sector there was a deadweight loss involved from this insight he suggested that the criterion for providing public goods should be more stringent than the samuelson rule would later suggest in particular one might expect that the inclusion of the deadweight loss of taxes as part of the cost of providing a public good would lead to a reduction in its optimal provision relative to a situation in which lump sum taxes were available the problem was investigated more systematically by atkinson and stern 1974 who considered the case in which a public good is financed by a set of optimal commodity taxes all individuals were assumed to be identical so efficiency alone dictated the objective they found that no prima facie case could be made for the pigou position that the use of distortionary taxes called for a reduction in the supply of the public good their analysis clearly showed that there were two influences at work when the financing of a public good was by distorting taxes on the one hand

the relationship between relative prices and the general price level it is very nearly a truismi amaong neoclassical economists that the public is wont to confuse changes in the general price level with relative price changes correspondingl y one might speak of the independence between the two as one of the central postulates of the neoclassical tradition william stanley jevons was aml ong the first to identify this basic dichotomin economic life as well as to attempt to explain the ordinary citizen s seenming incapacity to understand it

inflation and relative price variability new evidence for the united states this article provides new evidence on the empirical relationship between inflation and relative prices in the united states in line with the predictions of recent monetary search models we find that the impact of expected inflation on relative price variability rpv has disappeared during the recent period when inflation expectations have been stabilized on a low level endogenous break point tests are applied to identify the timing and to confirm the significance of the changing role of inflation for rpv the empirical findings are robust with respect to different price indices disaggregation levels and measurement concepts

permanent and transitory policy shocks in an empirical macro model with asymmetric information abstract an empirical model that allows for shifts in the inflation target and imperfect policy credibility is estimated imperfect credibility defined by differences between the perceived and actual inflation target obtains because private agents cannot correctly distinguish between permanent target shocks and transitory funds rate shocks learning affects responses to structural shocks important features include the absence of a price puzzle permanent nominal effects of aggregate supply shocks due to partial policy accommodation and the ability to examine responses to a permanent target change and expectations shocks perceptions of permanent target shocks explain sizable movements in bond yields and inflation

after the big bang obstacles to the emergence of the rule of law in post communist societies when russia launched mass privatization it was widely believed that it would create a powerful constituency for the rule of law that didn t happen we present a dynamic equilibrium model of the political demand for the rule of law and show that beneficiaries of mass privatization may fail to demand the rule of law even if it is the pareto efficient rule of the game the reason is that uncertainty about the legal regime can lead to asset stripping and stripping can give agents an interest in prolonging the absence of the rule of law this abstract was borrowed from another version of this item

quasi hyperbolic discounting and retirement abstract some people have self control problems regularly this paper adds endogenous retirement to laibson s quasi hyperbolic discounting savings model quarterly journal of economics 112 1997 443 477 earlier selves think that the deciding self tends to retire too early and may save less to induce later retirement still earlier selves may think the pre retirement self does this too much saving more to induce early retirement the consumption pattern may be different from that with exponential discounting other observational non equivalence includes the impact of changing mandatory retirement rules or work incentives on savings and a possibly negative marginal propensity to consume out of increased future earnings naive agents are briefly considered

relative price variability and inflation regression studies have established that there tend to be convex nonsymmetric relationships between relative price variability and the inflation rate unanticipated inflation and the change in the inflation rate this paper shows that such regression results follow as definitional artifacts for a simple but quite general stochastic model of price changes the analysis is based on the fact that the definitions of relative price variability the inflation rate unanticipated inflation and the change in the inflation rate imply a particular structure for the covariances among these variables the structure of these covariances has implications for the regression coefficients copyright 1991 by ohio state university press

inflation targeting and relative price variability what difference does inflation targeting make author affiliation chi young choi cychoi uta eduyoung se kim acknowledgment the authors are grateful to coeditor kent kimbrough and two anonymous referees for constructive comments that helped to improve this article the authors also wish to thank steve cecchetti kang liu shin ichi nishiyama margie tieslau taka tsuruga and the seminar participants at the academia sinica national chung cheng university national sun yat sen university national taiwan university texas tech university and the university of texas at arlington for helpful comments and vikas kakkar for providing cpi data for hong kong any remaining errors are the authors 1 introductionvariability in relative prices is known to be a major channel through which inflation can induce welfare costs by impeding an efficient allocation of resources in the economy consequently substantial effort has been devoted in the literature to examining the link between relative price variability rpv and aggregate inflation although much of the existing theoretical and empirical literature points to a positive monotonic relationship newer contributions suggest that the relationship between inflation and rpv is more complicated particularly in terms of its sensitivity to the inflation regime 1the primary purpose of this study is to investigate whether the connection between inflation and rpv is influenced in an important way by the monetary policy framework chosen by a central bank specifically this article focuses on exploring whether the adoption of an inflation targeting it framework exerts any significant impact on rpv as measured by the standard deviations of sectoral inflation rates relative to the aggregate rate since it was first implemented in new zealand more than two decades ago the popularity of it has spread with some twenty five countries worldwide implementing the framework to date freedman and laxton 2009 the literature is now replete with studies pointing to reductions in both the level and the volatility of inflation in countries that have adopted it e g mishkin and schmidt hebbel 2007 2 while studies of the impact of it on aggregate inflation performance are plentiful little attention has been paid to the impact of it on rpv the question of whether and indeed how it affects rpv is an important one for several reasons first exploring the potential connection between it and rpv is a worthwhile exercise given the popularity of it as a monetary framework and the centrality of rpv to the current generation of macromodels the importance of rpv is recognized in standard new keynesian dynamic stochastic general equilibrium dsge models where the variance of relative prices is viewed as a useful summary statistic as noted by amano ambler and rebei 2007 for example in dsge models the optimal rate of target inflation and the optimal variability of inflation relative to output depend on the quantitative effects of price dispersion on macroeconomic equilibrium second answering the question helps us identify the driving force behind the change in rpv distinguishing between it adoption itself and its subsequent impact on inflation if the relationship is monotonically positive as is often believed in the literature one should expect that it adoption would bring about a decline in rpv in the same way as it has led to a decline in inflation if the relationship is more complex however the effect of it adoption on reducing rpv may hinge on the change in inflation regimes after it adoption third our answer to the question also sheds additional light on the empirical evidence for the relative effectiveness of it across different stages of development while there is strong evidence that developing countries benefit more from it than industrial countries in combating inflation and its volatility e g petursson 2004 lin and ye 2009 we are aware of no empirical research that has assessed this issue with respect to rpv

monetary policy for inattentive economies we offer a contribution to the analysis of optimal monetary policy we begin with a critical assessment of the existing literature arguing that most work is based on implausible models of inflation output dynamics we then suggest that this problem may be solved with some recent behavioral models which assume that price setters are slow to incorporate macroeconomic information into the prices they set a specific such model is developed and used to derive optimal policy in response to shocks to productivity and aggregate demand optimal policy is price level targeting base drift in the price level which is implicit in the inflation targeting regimes currently used in many central banks is not desirable in this model when shocks to desired markups are added optimal policy is flexible targeting of the price level that is the central bank should allow the price level to deviate from its target for a while in response to these supply shocks but it should eventually return the price level to its target path optimal policy can also be described as an elastic price standard the central bank allows the price level to deviate from its target when output is expected to deviate from its natural rate

the inflation aversion of the bundesbank a state space approach abstract a simple backward looking taylor rule is estimated in a time varying coefficient framework with quarterly german data for the period 1975 1998 the main finding is that the inflation aversion of the bundesbank was not constant over time and exhibits some sudden and large shifts during the period of monetary targeting there are phases with low and with high inflation aversion these findings provide an explanation why the estimated inflation coefficient in backward looking taylor rules often does not exceed one and violates the implications of theoretical models moreover the results provide evidence that the bundesbank followed the so called opportunistic approach to disinflation

university knowledge transfer private ownership incentives and local development objectives abstract we study the impact of private ownership incentive pay and local development objectives on university licensing performance we develop and test a simple contracting model of technology licensing offices using new survey information together with panel data on u s universities for 1995 99 we find that private universities are much more likely to adopt incentive pay than public ones but that ownership does not affect licensing performance conditional on the use of incentive pay adopting incentive pay is associated with about 30 40 percent more income per license universities with strong local development objectives generate about 30 percent less income per license but are more likely to license to local in state start up companies in addition we show that government constraints on university licensing activity are costly in terms of forgone license income and the creation of start up companies these results are robust to controls for observed and unobserved heterogeneity

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

the redistributive design of social security systems countries with low intragenerational redistribution in social security systems bismarckian are associated with larger public pension expenditures a smaller fraction of private pension and lower income inequality than countries with more redistributive social security beveridgean this article introduces a bidimensional voting model to account for these features agents different in age income and in their ability to invest in the capital market vote on the degree of redistribution of the social security system and on the size of the transfer in an economy with three income groups a small beveridgean system is supported by low income agents who gain from its redistributive feature and high income individuals who seek to minimise their tax contribution and to invest in a private scheme middle income individuals instead favour a large bismarckian system

the political economy of sin taxes we analyse the determination of taxes on harmful goods when consumers have self control problems we show that under reasonable assumptions the socially optimal corrective tax exceeds the average distortion caused by self control problems further we analyse how individuals with self control problems would vote on taxes on the consumption of harmful goods and show that the equilibrium tax is typically below the socially optimal level when the redistributive effects of sin taxes are taken into account the difference between the social optimum and equilibrium is small at low levels of harm but becomes more pronounced when consumption is more harmful

mobility and redistribution the ability of individuals to move freely from one jurisdiction to another is generally seen as a constraint on the amount of redistribution that each jurisdiction within a system of governments can undertake in this paper we look at this proposition by developing a positive analysis of income redistribution by local governments in a federal system we ask how much redistribution occurs when only local governments can have tax transfer instruments individuals can move freely among jurisdictions and voters in each jurisdiction are fully aware of the migration effects of redistributive policies local redistribution is shown to induce sorting of the population with the poorest households located in the communities that provide the most redistribution while the threat of out migration affects the potential for redistribution our results suggest that significant local redistribution is nonetheless feasible numerical computations indicate that the proportion of residents who are renters is a major factor affecting the local choice of level of redistribution

subsidies versus public provision of private goods as instruments for redistribution the literatures on differential commodity taxes and on quantity controls to supplement income taxation have developed separately this paper combines these two strands in the standard framework of optimal non linear income taxation we use a model with two types of households where the government has access to both subsidy policy and public provision of a good substitutable for leisure and households can supplement the publicity provided good from the market we present conditions under which policy should involve one or both of these two instruments alongside income taxation the model is extended to many ability types

regional co evolution of firm population innovation and public research evidence from the west german laser industry abstract we trace the co evolution of regional firm population sizes private sector patenting and public research in german laser research and manufacturing for over 40 years from the emergence of the industry to the mid 2000s qualitative as well as quantitative evidence suggests a co evolutionary process of mutual interdependence rather than a unidirectional effect of public research on private sector activities

externalities and optimal taxation this paper reexamines the optimal tax design problem income and commodities in the presence of externalities the nature of the second best and the choice of the tax instruments are motivated by the informational structure in the economy the main results are i environmental levies linear or nonlinear differ in formula from pigouvian taxes by the expressions for the optimal tax on private goods ii externalities do not affect commodity tax formulas linear and nonlinear for private goods iii externalities do not affect the income tax structure if commodity taxes are nonlinear and affect it if commodity taxes are linear and iv a general income tax plus strictly pigouvian taxes are sufficient for efficient taxation if individuals of different types have identical marginal rates of substitution at any given consumption bundle

direct versus indirect taxation the design of the tax structure revisited this article studies the optimal direct indirect tax mix problem when individuals differ in several unobservable characteristics productivity and endowments it presents general expressions for the optimal commodity tax rates and proves that contrary to atkinson and stiglitz s 1976 result differential commodity taxation remains a useful instrument of tax policy even if preferences are separable between labor and produced goods when cross substitution effects are zero the expressions resemble traditional many households ramsey rules in a cobb douglas illustration where endowments differ only in good 1 interpreted as wealth the tax on good 2 provides an indirect way to tax the unobservable wealth

changes in the federal reserve s inflation target causes and consequences this paper estimates a new keynesian model to draw inferences about the behavior of the federal reserve s unobserved inflation target the results indicate that the target rose from 1 1 4 percent in 1959 to over 8 percent in the mid to late 1970s before falling back below 2 1 2 percent in 2004 the results also provide some support for the hypothesis that over the entire postwar period federal reserve policy has systematically translated short run price pressures set off by supply side shocks into more persistent movements in inflation itself although considerable uncertainty remains about the true source of shifts in the inflation target jel e31 e32 e52

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

long term care policy myopia and redistribution this paper examines whether myopia misperception of the old age dependency risk and private insurance market loading costs can justify public long term care ltc provision and or the subsidization of private insurance individuals differ in dependency risk productivity and degree of risk misperception the former two are positively correlated because of the longevity factor and social insurance tends to be regressive a first best solution requires subsidization of private insurance and or public provision of the appropriate level of ltc the support for these instruments is less strong in a second best setting as there may be a conflict between the correction for myopia and redistribution public ltc provision is never optimal when private insurance markets are fair irrespective of the proportion of myopic individuals and their degree of misperception under loading costs the solution may require a combination of private and public insurance or even rely solely on public provision

mean variance analysis of supply chains under wholesale pricing and profit sharing schemes in this paper we explore the use of a wholesale pricing and profit sharing scheme wpps for coordinating supply chains under the mean variance mv decision framework we first analytically establish the necessary and sufficient conditions for coordinating the centralized supply chain by wpss we then show that there exists a unique equilibrium of the stackelberg game with wpps in the decentralized case after that we discuss the information asymmetric case in which the retailer can be benefited by pretending to be more risk averse finally we propose a new measure for the manufacturer to prevent this cheating from happening insights are generated

uncertainty optimal taxation and the direct versus indirect tax controversy this paper examines how the presence of uncertainty affects the design of tax policy when both indirect taxes and a general income tax are available to the government there are two categories of goods the consumption levels in one group are committed to before the resolution of uncertainty and those of the other after the paper proves that contrary to a b atkinson and j e stiglitz s 1976 result differential commodity taxation remains a useful instrument of optimal tax policy even if preferences are separable between labor and produced goods copyright 1995 by royal economic society

is there any asymmetry in the effect of inflation on relative price variability abstract it is widely perceived that relative prices are more dispersed in periods of price decreases than in periods of price increases we show that the asymmetry results from misspecifying the true u shaped underlying model with a piecewise linear regression model

voting over type and generosity of a pension system when some individuals are myopic this paper studies the determination through majority voting of a pension scheme when society consists of far sighted and myopic individuals all individuals have the same basic preferences but myopics tend to adopt a short term view instant gratification when dealing with retirement saving and labor supply consequently they will find themselves with low consumption after retirement and regret their insufficient savings decisions henceforth when voting they tend to commit themselves into forced saving we consider a pension scheme that is characterized by two parameters the payroll tax rate that determines the size or generosity of the system and the bismarckian factor that determines its redistributiveness individuals vote sequentially we examine how the introduction of myopic agents affects the generosity and the redistributiveness of the pension system our main result is that a flat pension system is always chosen when all individuals are of one kind all far sighted or all myopic while a less redistributive system may be chosen if society is composed of both myopic and far sighted agents furthermore while myopic individuals tend to prefer larger payroll taxes than their far sighted counterparts the generosity of the system does not always increase with the proportion of myopics

firm growth and productivity growth evidence from a panel var this paper offers new insights into the processes of firm growth by applying a reduced form vector autoregression var model to longitudinal panel data on french manufacturing firms 1996 2004 we observe the co evolution of key variables such as growth of employment sales and gross operating surplus as well as growth of multifactor productivity it seems that employment growth is negatively associated with subsequent growth of productivity this latter result however is sensitive to our choice of productivit indicator i e multifactor productivity or labour productivity

the effects of male and female labor supply on commodity demands we examine the effects of male and female labor supply on household demands and present a simple and robust test for the separability of commodity demands from labor supply using data on individual households from six years of the uk fes we estimate a demand system for seven goods which includes hours and participation dummies as conditioning variables allowance is made for the possible endogeneity of these conditioning labor supply variables we find that separability is rejected furthermore we present evidence that ignoring the effects of labor supply leads to bias in the parameter estimates

optimal control of externalities in the presence of income taxation optimal control of externalities a substantial literature examines second best environmental policy focusing particularly on how the pigouvian directive that marginal taxes should equal marginal external harms needs to be modified in light of the preexisting distortion due to labor income taxation additional literature is motivated by the possibility that distributive concerns should amend the internalization prescription it is demonstrated however that simple first best rules unmodified for labor supply distortion or distribution are correct in a natural basic formulation of the problem specifically setting all commodity taxes equal to marginal harms and subsidies equal to marginal benefits can generate a pareto improvement likewise a marginal reform in the direction of the first best can yield a pareto improvement for other reforms a simple efficiency test characterizing when a pareto improvement is possible is offered qualifications and explanations for the substantial departure from results in previous work are also elaborated

inflation and relative price variability in the short and long run new evidence from the united states this paper presents new evidence that a positive association exists between inflation and relative prices and relative inflation rates in very disaggregated data for the united states over the period 1975 through 1992 there is also evidence that the response of relative prices and relative inflation rates to inflation varies inversely with the information content of a given shock to inflation the relationship is studied from two cross sectional perspectives using individual price series collected from forty eight u s cities evidence on the persistence of the effects of inflation on relative prices is also presented results here demonstrate the absence of a long run relationship between inflation and relative price dispersion i e the two series are not cointegrated finally results from vector autoregressions further imply the effect is smaller than indicated by typical estimates copyright 1996 by ohio state university press

the macroeconomic effects of nonzero trend inflation we study the macroeconomic effects of nonzero trend inflation in a simple dynamic stochastic general equilibrium model under three common time dependent pricing schemes calvo truncated calvo and taylor we show that regardless of the pricing mechanism trend inflation leads to a reduction in the stochastic means of output consumption and employment and an increase in the stochastic mean of inflation beyond its deterministic steady state level the variability of most aggregates also increases these effects are quantitatively much stronger with calvo pricing

immigration and pension benefits in the host country this paper examines the role that low skilled immigration plays in determining pension benefits of the host population with an overlapping generations model which allows identifying which groups of native population are in favour or against immigration we find that despite immigrants having low average productivity an open borders policy would be implemented since most of current domestic cohorts gain from immigration only younger workers might be against immigration since they will coincide with immigrants in their retirement periods moreover we show how a larger immigrant quota would increase the probability of a pareto improvement for the current domestic population

wealth accumulation and the propensity to plan why do similar households end up with very different levels of wealth we show that differences in the attitudes and skills with which they approach e nancial planning are a signie cant factor we use new and unique survey data to assess these differences and to measure each household s propensity to plan we show that those with a higher such propensity spend more time developing e nancial plans and that this shift in planning is associated with increased wealth these e ndings are consistent with broad psychological evidence concerning the benee cial impacts of planning on goal pursuit those with a high propensity to plan may be better able to control their spending and thereby achieve their goal of wealth accumulation we e nd direct evidence supporting this effortful self control channel in the very strong relationship we uncover between the propensity to plan and budgeting behavior

does inflation targeting really make a difference evaluating the treatment effect of inflation targeting in seven industrial countries abstract we evaluate the treatment effect of inflation targeting in seven industrial countries that adopted this policy in the 1990s to address the self selection problem of policy adoption we make use of a variety of propensity score matching methods recently developed in the treatment effect literature our results show that inflation targeting has no significant effects on either inflation or inflation variability in these seven countries further evidence from long term nominal interest rates and income velocity of money also supports the window dressing view of inflation targeting

latent submarket dynamics and industry evolution lessons from the us laser industry in its first 35 years the us laser industry was characterized by steady growth in output and the number of producers whereas subsequently the number of producers steadily declined despite continued growth in the industry s output a model of industry evolution that features the creation destruction and fusing of independent submarkets is developed to explain these two eras data on all laser producers are used to test various implications of the model concerning entry exit and innovation the findings suggest that the emergence of an integrative submarket can fundamentally alter an industry s market structure and the character of innovation which is applied to explain historical developments in the evolution of various innovative industries

does inflation targeting make a difference in developing countries we evaluate the treatment effect of inflation targeting in thirteen developing countries that have adopted this policy by the end of 2004 using a variety of propensity score matching methods we show that on average inflation targeting has large and significant effects on lowering both inflation and inflation variability in these thirteen countries however the effectiveness of inflation targeting on lowering inflation is found to be quite heterogeneous the performance of a given inflation targeting regime can be affected by country characteristics such as government s fiscal position central bank s desire to limit the movements of exchange rate its willingness to meet the preconditions of policy adoption and the time length since the policy adoption

forced saving redistribution and nonlinear social security schemes this paper studies the design of nonlinear social security schemes when individuals differ in productivity and in their degree of myopia myopic individuals may not save enough for their retirement the welfare function is paternalistic the rate of time preference of the farsighted is used for both types we show that the solution does not necessarily imply forced savings for the myopics paternalistic considerations are mitigated by incentive effects numerical results suggest that as the proportion of myopic individuals increases there is less redistribution and more forced saving and the desirability of social security increases

sectoral systems of innovation and production the concept sectoral system of innovation and production provides a multidimensional integrated and dynamic view of sectors it is proposed that a sectoral system is a set of products and the set of agents carrying out market and non market interactions for the creation production and sale of those products a sectoral systems has a specific knowledge base technologies inputs and demand agents are individuals and organizations at various levels of aggregation they interact through processes of communication exchange co operation competition and command and these interactions are shaped by institutions a sectoral system undergoes change and transformation through the co evolution of its various elements 2002 elsevier science b v all rights reserved

on optimal taxation of housing abstract this paper studies the question of optimal taxation of housing when the set of tax instruments at the government s disposal is not artificially restricted there are two groups of persons who differ in earning abilities and in tastes and two types of housing goods high and low quality the paper characterizes the pareto efficient allocations that are attainable through the tax policy it demonstrates that optimality calls for differential tax treatment of housing and that the required tax rates are nonlinear it derives conditions under which consumption of housing by the poor must be subsidized it also notes the circumstances under which taxation rather than subsidization is the required policy

trend inflation indexation and inflation persistence in the new keynesian phillips curve purely forward looking versions of the new keynesian phillips curve nkpc generate too little inflation persistence some authors add ad hoc backward looking terms to address this shortcoming we hypothesize that inflation per sistence results mainly from variation in the long run trend component of inflation which we attribute to shifts in monetary policy we derive a version of the nkpc that incorporates a time varying inflation trend and examine whether it explains the dynamics of inflation when drift in trend inflation is taken into account a purely forward looking version of the model fits the data well and there is no need for backward looking components jel e12 e31 e52 in this paper we consider the extent to which guillermo calvo s 1983 model of nominal price rigidities can explain inflation dynamics without relying on arbitrary backward looking terms in its baseline formulation the calvo model leads to a purely forward looking new keynesian

inflation and the distribution of relative prices the role of productivity and money supply shocks this paper examines the role of aggregate productivity and money supply shocks in determining the relationship between inflation and the distribution of relative commodity prices i estimate a restricted var that includes aggregate variables and individual commodity prices and compute the cross sectional distribution of the dynamic responses of commodity prices to these aggregate shocks the findings indicate that both shocks lead to positive correlation between inflation and the dispersion of relative prices and that the response of prices across commodities is not uniform even in the long run

the gains from pension reform we classify social security pension systems in three dimensions actuarial versus non actuarial funded versus unfunded and defined benefit versus defined contribution systems recent pension reforms are discussed in terms of these dimensions shifting to a more actuarial system reduces labor market distortions although limiting the scope for redistribution shifting to a funded system may increase saving redistribute income to future generations and distort contermporary labor supply a partial shift to a funded system helps individuals diversify their pension assets a shift from a defined benefit to a defined contribution system means that income risk will be shifted from workers to pensioners

capital income taxation when inherited wealth is not observable this paper extends the atkinson stiglitz model of direct and indirect taxation to a dynamic setting with two unobservable characteristics productive ability and inherited wealth bequests are motivated by the joy of giving a child s inheritance is a random variable with a probability distribution that depends on his parent s investment in a bequest technology public borrowing is assumed and implies the modified golden rule we study the optimal tax policy when two instruments are available a non linear wage income tax and a proportional tax on capital income we show that the second instrument ought in general to be used but that the tax rate is not necessarily positive however a positive tax rate is more likely when there is a positive correlation between inherited wealth and innate ability

term structure views of monetary policy under alternative models of agent expectations abstract term structure models and many descriptions of the transmission of monetary policy rest on the empirical relevance of the expectations hypothesis small differences in the perceived policy reaction function in var models of agent expectations strongly influence the relevance in the transmission mechanism of the expected short rate component of bond yields mean reverting or difference stationary characterizations of interest rates require large and volatile term premiums to match the observable term structure however short rate descriptions that capture shifting perceptions of long horizon inflation evident in survey data support a more substantial term structure role for short rate expectations

estimating the federal reserve s implicit inflation target a state space approach abstract existing estimates of the federal reserve s implicit inflation target typically rely on the assumption that it is constant for the duration of the period of analysis this paper relaxes this assumption and estimates the implicit inflation target using a time varying parameter model and the kalman filter in applying this method to the volcker greenspan period it finds significant time variation in the implicit target that is consistent with hypotheses about opportunistic disinflation and the recent deflation scare

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