common agency and coordination general theory and application to government policy making we develop a model of common agency with complete information and general preferences with nontransferable utility and we prove that the principals nash equilibrium in truthful strategies implements an efficient action we apply this theory to the construction of a positive model of public finance where organized special interests can lobby the government for consumer and producer taxes or subsidies and targeted lump sum taxes or transfers the lobbies use only the nondistorting transfers in their noncooperative equilibrium but their intergroup competition for transfers turns into a prisoners dilemma in which the government captures all the gain that is potentially available to the parties

monetary policy and real wage cyclicality this article points to the potential role of monetary policy in affecting the degree of real wage cyclicality we show that the degree and direction of real wage cyclicality is determined by the interaction of i the returns to scale in production ii the nature of aggregate shocks and iii monetary policy given that production technology is fairly constant in the short run we suggest that variations in the real wage output covariance depend largely on the combination of the latter two identifying well documented monetary policy phases in six major organization for economic co operation and development oecd countries and accounting for both aggregate demand and supply shocks we provide empirical evidence to support our main theoretical claim

macroeconomic stability and the short run federal reserve reaction function 1969 1979 this paper examines the dynamic stability of a situation in which monetary policy is implemented by means of short run control of interest rates using a simple dynamic model it is shown that such procedures may lead to instability unless the central bank allows the controlled interest rate to adjust sufficiently to economic developments the theoretical model is then used to guide an empirical examination and evaluation of federal reserve behavior for the period 1969 1979 evidence is presented that on average over this period the federal reserve s control of the federal funds rate could have been a destabilizing factor

the state of the federal budget and the state of the economy further evidence simultaneous monetary and fiscal policy reaction functions are derived and estimated for the 1969 2 1984 3 period the results suggest that the reagan administration has abandoned fiscal policy as a stabilization tool furthermore although the average money growth rate declined in the reagan administration variation in the rate of money growth indicates that monetary policy has been used to combat unemployment finally monetary and fiscal policies were not coordinated during this period rather monetary and fiscal policy appear to be set by a nash equilibrium in a non cooperative game in a nash equilibrium the policy chosen by each authority maximizes its payoff given the policy choice of the other authority

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

unit roots and granger causality in the ems interest rates the german dominance hypothesis revisited abstract the aim of this paper is twofold first it shows that a sufficient conditions for unit roots found in ar systems to persist in var systems amount to granger non causality in any direction among the variables involved this implies that a necessary condition for the disappearance of one unit root in a var system implies granger causality in at least one direction b for first order models with non explosive variables granger causality is also sufficient for cointegration and c causality and cointegration inference are strongly affected by the omission of an important causing variable second our new analytical framework allows us to formulate and test several new variations of the so called german dominance hypothesis in a unified cointegrating framework which we define as strong semi strong and weak types 1 and 2 german dominance in addition we allow for the possibility that the dominant player may lie outside the ems so that we introduce and test the us dominance hypothesis

the ems and the dollar the ems and the dollar francesco giavazzi and alberto giovannini this paper examines the behaviour of exchange rates prior to and since the inception of the european monetary system ems movements in bilateral european exchange rates tend to be associated with fluctuations in the dollar in particular the mark tends to appreciate against other european currencies when the dollar depreciates further most realignments of currencies in the ems have generally occurred after sharp movements in the dollar conventional explanations relying on portfolio diversification by investors do not seem to explain the facts fully a more satisfactory explanation is provided by the existence of capital controls these limit the mobility of assets and ensure an asymmetric response by european currencies to movements in the dollar these capital controls are in the absence of coordinated monetary policy essential to the smooth working of the ems however at the same time they limit the scope for the further integration of european capital markets thus the ems is not a step on the road to greater financial integration indeed it is a cul de sac

the determinants of the treasury security yield curve investors security demands and two points on the yield curve are jointly determined using a disaggregated structural model of the u s treasury securities market the empirical results indicate that the structural model is capable of accurately explaining treasury yields and that changes in a variety of nonyield variables affect the yield curve among these nonyield variables are treasury security supplies which are found to have significant but somewhat volatile impacts depending on investors wealth flows the within sample predictions from the structural model are also compared to those of a naive model most empirical studies of the term structure of interest rates have relied on single equation models of interest rate determination to identify the underlying determinants of long term bond yields the methodologies used in these studies may be grouped into two broad classifications first researchers have frequently specified yield curve relationships based predominately on the expectations hypothesis associated with hicks 23 and lutz 26 and found that current and past short term interest rates provide accurate within sample forecasts of longterm interest rates see for example meiselman 28 wood 54 and dobson sutch and vanderford 8 within this framework modigliani and sutch 33 34 and modigliani and shiller 32 have additionally examined the potential effects resulting from changes in relative asset supplies due to the market segmentation effects suggested by culbertson 7 and risk premiums as a whole the empirical research using the expectations hypothesis as a starting point indicates that nonyield variables are not significant determinants of longterm bond yields furthermore in tests involving the significance of lagged changes in short term interest rates hamburger and latta 21 and elliott and baier 11 among others have found that only contemporaneous changes in shortterm interest rates significantly influence changes in long term bond yields second other researchers have used unrestricted reduced form equations based on loanable funds or liquidity preference theories of interest rate determination see for example okun 35 scott 48 sargent 46 pierson 39 feldstein and

interjurisdictional capital mobility fiscal externality and a corrective subsidy abstract recent studies emphasize that local property taxation may result in inefficiently small amounts of local public spending this paper shows that the inefficiency can be traced to a fiscal externality when one jurisdiction increases its taxes it causes a flow of capital to other jurisdictions that increases their tax revenues the inefficiency can be corrected with a subsidy that internalizes the externality key empirical parameters determining the magnitude of the externality are identified illustrative calculations indicate that subsidy rates on the order of 40 might be required to achieve efficiency

exchange rate variability and monetary policy under rational expectations some euro american experience 1973 1979 abstract we analyze the sources of changes in nominal and real rates of exchange between six european currencies and the u s dollar we conclude that over the period 1973 1979 unexpected changes in the price of oil together with unanticipated monetary shocks at home or in the u s were the most important causes of changes in exchange rates a multi state kalman filter technique is used to compute empirical proxies for unanticipated changes in the exogenous variables since both oil price shocks and changes in u s monetary trends effect the european currencies in different degrees it follows that differential domestic rates of inflation are not the only reason why arrangements to restrict exchange rate fluctuations such as the european monetary system may run into trouble

the effect of monetary policy actions on exchange rates under interest rate targeting abstract we specify a theoretical model of the exchange rate response to u s monetary policy actions that is capable of explaining a wide range of recent empirical results we show that the response pattern of spot and expected future exchange rates depends on the predictability of federal reserve actions the persistence of shocks to the economy and the reaction of foreign central banks to the us monetary policy shock we also show that the movements of spot and expected future exchange rates in anticipation of a monetary policy change can outweigh the immediate responses at the time of the change

the spillover effects of good governance in a tax competition framework with a negative environmental externality we investigate the impact of a political regime shift affecting consumers business interests and lobby contributions when countries engage in tax competition in capital and a polluting resource when consumers have more influence than resource owners the resource tax rate and public spending rise while environmental damages lobbying contribution and the capital tax rate fall this response can spillover to other countries leading to lower welfare capital tax harmonization improves welfare of consumers and resource owners resource tax harmonization and governance harmonization both reduce the influence of lobbying and improve consumer welfare but resource owners are worse off

longevity age structure and optimal schooling the mechanism stating that longer life implies larger investment in human capital is premised on the view that individual decision making governs the relationship between longevity and education this relationship is revisited here from the perspective of optimal period school life expectancy obtained from the utility maximization of the whole population characterized by its age structure and its age specific fertility and mortality realistic life tables such as model life tables are mandatory because the age distribution of mortality matters notably at infant and juvenile ages optimal period school life expectancy varies with life expectancy and fertility the application to french historical data from 1806 to nowadays shows that the population age structure has indeed modified the relationship between longevity and optimal schooling

exchange rate stabilization in the erm identifying european monetary policy reactions abstract we develop the structural var models for european countries france denmark and germany during the erm period to examine the monetary policy reactions especially the within erm exchange rate stabilization in addition to analyzing the impulse responses and variance decomposition we present the full monetary reaction function in an interpretable manner without introducing additional assumptions the results suggest some asymmetry in exchange rate stabilization non german exchange rate stabilization is stronger than german exchange rate stabilization but do not support the hypothesis that german monetary policy was independent of the erm

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

corruption income and the environment an empirical analysis abstract in response to the recent growth of a largely theoretical body of literature analysing the linkages between corruption and pollution this paper subjects the corruption pollution relationship to a detailed empirical examination a distinction is drawn between the direct impact of corruption on pollution and the indirect impact which operates through corruption s impact on per capita income and the resultant impact of income on pollution using data for 94 countries covering the period 1987 2000 both direct and indirect impacts of corruption on air pollution emissions are estimated for both sulfur dioxide and carbon dioxide corruption is estimated to have a positive direct impact on per capita emissions indirect effects are found to be negative and larger in absolute value than direct effects for the majority of the sample income range as a result the total effect of corruption on emissions is negative for all but the highest income countries in the sample

transmission of u s monetary policy to europe and asymmetry in the european monetary system abstract this paper deals with the issues of the transmission of interest rates changes from the united states to europe and of the degree of asymmetry of the european monetary system i e of the extent of german leadership in determining the monetary policy of the ems zone if the transmission from the u s and the asymmetry of the ems are strong countries like france have almost no degree of freedom since both the short term and long term interest rates result from foreign influences and policies the authors try to answer those questions by estimating a model for the determination of the short term and long term interest rates in france and germany and of the dm exchange rate it appears that the assumption of asymmetrical functioning of the ems is confirmed that the dependence of long term rates on short term rates is weak in european countries and that the overall impact of changes in u s interest rates on european rates is limited

factors affecting monetary policy in an era of inflation abstract a money supply reaction function is developed and estimated within the context of an is lm framework to test the responsiveness of the federal reserve to the government budget restraint and certain parameters of the model the results reveal that a large portion of the recent expansion of the monetary base may be attributed to increases in government debt and provide an essential first step in quantifying the inflationary impact of deficits the monetary base is also expanded in response to increases in inflationary expectations and previous increases in the monetary base but is not statistically correlated to changes in the unemployment rate or potential national income or to rises in interest rates caused by sources other than higher inflationary expectations previous monetary policy or the treasury borrowing requirement

trade policy reform endogenous lobby group formation and environmental policy abstract this paper explores the effects of trade liberalization on environmental policy outcomes when collective action is endogenous the polluting industry s ability to undertake lobbying is shown to depend on the degree of competition in the product market establishing a new link between trade and environmental policies if trade liberalization causes industry collective action to become harder to sustain the stringency of the environmental policy is likely to rise these results highlight the role of trade liberalization on product market competition and its consequent impact on the incentive to lobby for less stringent environmental policies

corporate lobbying and commitment failure in capital taxation this paper investigates the effects of lobbying by corporations when investments are irreversible and government cannot commit to tax policies we show that industries which rely more heavily on sunk capital lobby more vigorously and are generally more successful in obtaining tax breaks thus lobbying can mitigate the capital levy problem nevertheless these industries invest less in long run equilibrium than more flexible ones we then consider the effects of relaxing legal restrictions on corporate lobbying when the deadweight costs of lobbying fall taxes on sunk capital tend to fall but political contributions may rise as lobbyists compete more intensively for political favors on balance a ban of lobbying may therefore cause investment to rise or fall this abstract was borrowed from another version of this item

the international linkage of real interest rates the european us connection abstract in this paper we present evidence on several questions regarding the movement in short term real interest rates in eight countries have ex ante real estates in the united states and europe been high during recent years has there been a link between us real rates and those in other countries can this link be quantified the basic finding in this paper is that real rates have climbed dramatically from the 1970s to the 1980s in both the european countries and the united states there is also strong evidence that there is a positive association between movements in us real rates and those in europe however european real rates typically do not move one for one with us real rates still leaving open the possibility that european monetary policy can influence domestic economic activity

trade capital mobility and tax competition this paper examines a system of governments national state or local that finance public expenditures with taxes on mobile capital e g a property tax unlike previous research on tax competition explicit consideration is given to the general equilibrium determination of the prices at which goods are traded between regions the analysis identifies inefficiencies in government behavior that are not apparent in models in which the terms of trade are exogenously given capital taxation is shown to create an inefficient distribution of public good outputs across regions accompanied by an inefficient pattern of trade a model is presented in which the chosen levels of public good outputs differ across regions containing identical residents and production possibilities there is a wasteful diversity of public good supplies

vertical tax competition and consumption externalities in a federation with lobbying abstract we consider a federation with two layers of government in which leviathan policy makers levy an excise tax on a consumption good that generates a negative externality and that is produced in an imperfectly competitive market when both layers of government are allowed to tax policy choices are affected also by vertical tax competition in this setting tax policy in general is not efficient we then examine how special interest groups may influence tax policy by lobbying the policy makers we find that depending on market structure and on the level of the externality lobbying can improve efficiency and that tax base sharing by two layers of government can be more efficient than taxation by a single layer

european integration and asymmetry in the ems abstract the empirical literature offers conflicting views of german dominance in the european monetary system we examine the validity of the german dominance hypothesis gdh by analyzing the responses of european central banks and money markets to monetary innovations originating both in europe european asymmetry and abroad international asymmetry our results reconcile the conflicting views in the literature the gdh is confirmed when the analysis is conducted with intervention rates before german unification results support european asymmetry with short rates before 1990 but not international asymmetry after 1990 the gdh is not supported by either set of rates