estimating the tax advantage of corporate debt this paper presents estimates of the effective tax value of incremental interest deductions for corporations taking into account that they may not be able to utilize all their interest deductions fully because of either insufficient taxable income or the availability of nondebt tax shields after describing particular features of the tax code which may drive a wedge between statutory and effective tax rates for debt finance we present estimates using the treasury corporate tax model of effective tax rates for a variety of industry groupings our estimates suggest that the after tax cost of debt varies widely across industries the magnitude of the effective tax advantage to debt finance has important implications for corporate financial behavior one issue which has been examined extensively in the corporate finance literature is whether the value of the firm is affected by the firm s leverage ratio in a recent contribution deangelo and masulis 3 have shown that financing decisions can affect the value of the firm if the effective tax advantage to debt finance varies among firms or is reduced by the presence of nondebt tax shields such as investment tax credits and depreciation deductions the effective tax advantage to debt is also an important determinant of leverage related costs gordon and malkiel 5 have recently used the statutory tax rate to estimate expected bankruptcy costs induced by the corporate tax when the firm is assumed to balance the marginal tax advantage to debt with marginal expected bankruptcy costs if however the effective tax rate for interest deductions falls short of the statutory rate the magnitude of these costs may be overstated this paper presents detailed estimates of the marginal effective tax advantage to debt finance our estimates based on data in the treasury 1978 corporate master statistical file and on simulations done with the treasury corporate tax model quantify the impact of increasing interest deductions without changing other items on the corporation s income statement 1 we simulate the impact of a change in a firm s capital structure holding its investment and production decisions constant this is an appropriate procedure for estimating the marginal

relative price variability and inflation abstract using italian data from 1954 to 1983 it is found that relative price variability and inflation are positively correlated only during the 1970s and the early 1980s when their relationship appears to be largely induced by movements in the oil price rather than by aggregate demand shocks this result is consistent with the findings of fischer 1981 fischer 1982 for the u s and germany although in contrast to the evidence for these two countries no relationship can be detected between unexpected inflation and relative price variability furthermore the comparison between the three countries provides substantial support for the hypothesis tentatively advanced by fischer 1982 that the correlation between relative price variability and inflation is enhanced by monetary accommodation of real shocks there is also evidence that in italy both variables have been considerably affected by exchange rate movements

on the anatomy of inflation the variability of relative commodity prices in argentina there is substantial evidence indicating that the inflationary process is not neutral with respect to the structure of relative prices a1though real variables also affect the distribution of commodity prices the variability of relative prices appears to be largely increased by monetary phenomena the general picture emerging from the empirical literature links the cross sectional variability of commodity prices to the variability of the aggregate rate of inflation over time to the rate of unexpected inflation and to the rate of monetary expansion 1 most studies however have dealt with low inflation countries for which it is more difficult to isolate real from monetary effects on relative price changes the purpose of this paper is to analyze in detail the characteristics of relative price behavior within the context of very rapid and variable inflation using disaggregated monthly data for argentina a number of specific aspects of that country s

inflation and relative price variability in the open economy this paper explores the determination of relative price variability in a small open economy operating under a fixed exchange rate a central ingredient of the model presented is the distinction made between traded and non traded goods this distinction leads to a decomposition of total variability into three components the variabilities within each set of goods and between the two sets the analysis also emphasizes the effects of expected versus unexpected inflation on the variability of relative prices the model is tested using annual data for mexico covering the 1951 76 period

selectivity bias and earnings differences by gender and race abstract the effect of selectivity bias on earnings differences due to labor force participation decisions is investigated using current population survey and census data the magnitudes of observed earnings differences by both race and gender are clearly influenced by the presence of selectivity bias

tax incentives and r d spending a review of the evidence abstract since 1981 u s firms have been allowed to claim a tax credit for r d spending in excess of some base amount this paper assesses the evidence gathered to date about the effectiveness of the r d tax credit in the united states there is considerable evidence that the r d tax credit has had some effect on the behavior of american firms in the early 1980s but it is not as yet clear how much of the initial response of firms to the credit is due to increases in total r d as opposed to increases in r d that is qualified for the r d credit moreover different empirical approaches produce substantially different estimates of the size of the effect of the r d credit analyses based on time series data imply that the credit has had a substantial effect on r d spending however indirect evidence based on estimates of the price elasticity of demand for r d as well as studies based on more direct evidence from survey data and corporate tax returns imply that the effect of the credit has been rather modest there are several ways in which these divergent estimates of the size of firms responses can be reconciled however each suggested reconciliation points toward using the more modest estimates to gauge the effects of a permanently enacted incentive for r d these estimates imply that had the incremental 25 percent r d credit been made permanent it would have stimulated between 0 35 and 0 93 of additional company funded r d spending per each 1 of tax revenue forgone

atheoretical macroeconometrics a critique abstract the spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the cowles commission this development which we call atheoretical macroeconometrics is summarized and evaluated in the current paper it is contrasted with an updated version of the cowles commission approach we conclude that while some of the exercises of atheoretical macroeconometrics are valid those that have attracted the most attention and appear the most innovative exogeneity testing impulse response analysis and policy analysis using estimated vector autoregressions are based on incorrect analysis

trends in earnings differentials by gender 1971 1981 this paper clarifies trends in relative earnings by sex over the decade 1971 1981 and decomposes these trends to determine which factors contributed to a decline and which to an increase our analyses are based upon data from the annual demographic files of the current population survey for 1972 and 1982 this study is unique in that it estimates earnings functions in each year which are corrected for selectivity bias it is found that such a correction markedly raises the progress of white women relative to men among blacks the impact of the selectivity bias correction was to substantially lower the relative earnings increase of women however the coefficients on the selectivity variable were not significant the findings suggest declining sex role specialization and discrimination as conventionally measured over the decade on the other hand contrary to expectations the total effect of variables reflecting the sex composition of the individuals occupation worked to widen the sex differential over the period the sex differential was also adversely affected by a decline in the relative return to education especially for whites authors modified

alternative models of earnings determination and labor market structures there are three distinct research traditions in the analysis of individual earnings determination human capital or earnings function analyses aggregate wage analyses and labor demand analyses an important and incongruous aspect of each is the treatment of geographical differences in labor markets this paper first investigates the magnitude and character of geographical wage differentials the sizable differences discovered there are then related to the existing and highly simplified models of labor market differences while the two major classes of models compensating differentials and labor demand differ significantly in assumptions and implications it is impossible to distinguish adequately between them there appears to be a clear need for more structural analyses of labor market operations

assessing the variability of inflation although there has been much argument over the impact of variable inflation rates upon economic performance there has been surprisingly little attempt to define the term variability of inflation carefully or to test proposed hypotheses connecting variability and the level of inflation precise definitions are given in the paper and a model is constructed showing that the level variability hypothesis may be formulated in terms of the presence of heteroscedasticity in a regression model this theoretical model is used to criticize existing studies while an empirical study with australian data illustrates the application of the approach

money and the dispersion of relative prices a price dispersion equation is tested with data from the german hyperinflation the equation is derived from a version of lucas s and barro s partial information localized market models in this extension different excess demand elasticities across commodities imply a testable dispersion equation in which the explanatory variable is the magnitude of the unperceived money growth in order to test this hypothesis a price dispersion series is constructed and a measure of the unperceived part of money growth is estimated the model receives support from the empirical analysis although it is evident that unincluded variables have important effects on price dispersion

how effective are fiscal incentives for r d a review of the evidence this paper surveys the econometric evidence on the effectiveness of fiscal incentives for r d we describe the effects of tax systems in oecd countries on the user cost of r d the current position changes over time and across different firms in different countries we describe and criticize the methodologies used to evaluate the effect of the tax system on

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

tax policy and investment in major u s macroeconomic econometric models abstract in an analysis of six major u s quarterly models the predicted results of tax incentives for investment are found to vary widely differences are traced to critical specifications in investment equations when appropriately revised investment equations are reestimated the role of tax parameters is much reduced particularly among the high outliers and the variance among the models is narrowed decidedly full model simulations of revised equations suggest that current and proposed incentives such as the investment tax credit and accelerated depreciation are not cost effective increases in investment approximate only half of static tax losses and budget deficits widen

price controls and the variability of relative prices recent literature that explains relative price variability within a partial inforrnation multimarkets framework typically assumes that prices in all markets are deterrnined by market clearing 1 however in many countries a certain number of prices is either directly set by the government or regulated by it in israel for example the government is directly involved in setting the prices of some basic foodstuffs fuels electricity public transportation and a number of other items 2 adjustments in the prices of these goods are made at discrete intervals and are widely and instantaneously disseminated by the media as a result individuals in all markets have up to date inforrnation on that component of the general price level which is set by the government in terrns of the islands paradigm this means that the component of the general price level which is confused with relative price movements is smaller than the same component in an economy in which all prices are freely deterrnined by the market the purpose of this article is to explore the implications of this modified inforrnation structure for relative price variability within a partial inforrnation framework

difference in earnings structures across local labor markets abstract this paper investigates whether workers encountered different earnings structures across local labor markets in the united states our analysis of human capital earnings models suggests that the u s is comprised of numerous distinct local labor markets as defined by a standard metropolitan statistical area

labor market discrimination against hispanic and black men h ispanic american men have lower average wage rates than white non hispanics in 1975 the average white non hispanic male wage earner in the united states earned 5 97 an hour mexican men earned 4 31 72 as much as white non hispanics puerto rican men earned 4 52 76 as much and cuban men earned 5 33 89 as much as white non hispanics by way of comparison black men s average wages in 1975 were 4 65 78 of the white male wage several possible reasons for the hispanics lower wages come to mind among them are age and education geographic location immigration language difficulties and discrimination for example as shown in table 1 mexicans and puerto ricans are younger on average than the white non hispanic population and earnings tend to rise with age hispanics have lower average levels of education than white non hispanics and wages are positively associated with education many mexican americans live in the southwest where prices are relatively low moreover hispanics are more likely to be recent immigrants and to lack fluency in english than white non hispanics and so to be at a disadvantage in the labor market in addition there is a widespread belief that hispanics suffer from employment discrimination and cannot obtain the wages that their human capital would command if they were non hispanic whites how much of the wage differentials described above are due to each of these factors and to other inter group differences in wage related characteristics in particular how much impact does labor market discrimination have on the average hispanic man s wage and how does this compare with discrimination against blacks this paper provides answers to these questions a few other efforts have been made to analyze the relative earnings of hispanic and white nonhispanic men using 1960 and 1970 census data fogel 1966 poston and alvirez 1973 poston alvirez and tienda 1976 long 1977 and gwartney and long 1978 we use more recent data from the 1976 survey of income and education this data set enables us to measure wage rates more accurately and to specify the wage function more completely than does the census unlike previous analysts in estimating the wage function we take account of possible selectivity bias due to the distinction between average wage offers and average observed wages thus we hope to obtain a more accurate and up to date measure of labor market discrimination against hispanic men section ii explains the method used to separate the minority white non hispanic wage differential into the portions due to differences in average characteristics and the portion due to differences in unobserved factors and discrimination taking into account the possibility of selectivity bias in the observed wage sample section iii describes the data used in the study and the specification of the wage equation the breakdown of the observed wage differentials into components due to differences in participation in the wage and salary sector local price levels average characteristics and discrimination are presented in section iv section v summarizes our findings and discusses their implications for efforts to improve the economic situation of hispanics in the united states

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