not all price endings are created equal price points and asymmetric price rigidity abstract we document an asymmetry in the rigidity of 9 ending prices relative to non 9 ending prices consumers have difficulty noticing higher prices if they are 9 ending or noticing price increases if the new prices are 9 ending because 9 endings are used as a signal for low prices price setters respond strategically to the consumer heuristic by setting 9 ending prices more often after price increases than after price decreases 9 ending prices therefore remain 9 ending more often after price increases than after price decreases leading to asymmetric rigidity 9 ending prices are more rigid upward than downward these findings hold for both transaction prices and regular prices and for both inflation and no inflation periods

the incidence of personal income taxation evidence from the tax reform act of 1986 abstract this paper studies the short run incidence of personal income taxation in the us by examining how the wage structure shifted after the tax reform act of 1986 i calculate the marginal tax rate for the median worker of each occupation during the 1980s to determine the professions whose workers were most affected by the tax change when controlling for trends over time in the wage structure by occupation i find that individuals in occupations that experienced large decreases in their median marginal tax rates received lower pre tax wages after 1986 as the number of workers and the hours worked in those professions increased the results suggest that consideration of the wage effects of tax reforms is important when using these reforms to identify behavioral parameters and evaluating their distributional consequences

penny wise and pound foolish the left digit effect in price cognition through five experiments we provide a cognitive account of when and why nine ending prices are perceived to be smaller than a price one cent higher first this occurs only when the leftmost digits of the prices differ e g 2 99 vs 3 00 second the left digit effect also depends on the numerical and psychological distances between the target price and a competing product s price the closer the two prices being compared the more likely is the left digit effect third the left digit effect is not restricted to the domain of prices it also manifests with other multidigit numbers

round prices and price rigidity evidence from outlawing odd prices abstract this paper exploits a legal change in israel that banned the use of non zero digit price endings e g 6 99 to study the relationship between digit price endings and price rigidity we compare the propensity of product prices to change before and after the ban while distinguishing between products whose prices ended with a zero and products whose prices did not end with a zero digit before the ban we find that before the ban zero digit price endings were more likely to change typically upward compared with products with non zero digit price endings after the legal change these differences disappeared overall these findings support the price point theory blinder 1991

on the optimal income taxation and educational decisions abstract in this paper we consider three different ways of incorporating individuals educational choices into the design of optimal income tax policy in one variant of the model case 2 where an individual chooses his education before knowing his ability and after that education makes his labour supply decisions on the basis of known ability it is shown that qualitative features of the optimal income tax schedule are not similar to those of the standard optimal income tax model the marginal tax rate is generally not zero at the endpoints of distribution but is most likely negative using numerical methods some interesting features quite different from earlier numerical results are revealed especially in the second case for example the marginal tax rate is non decreasing in income for a substantial income range in addition our calculations support neither the traditional views on the egalitarian nature of equal education nor its disadvantageous consequences in the perfect utilitarian society

demand specification for municipal water management evaluation of the stone geary form to specify demand in most water allocation problems researchers face a tradeoff between flexibility and parsimony flexible forms are less constraining on elasticity estimates but require large parameter sets that tend to cause poor out of sample forecasts and computational difficulties using a five year panel of texas municipalities the parsimonious stone geary form yields estimated demand functions that are comparable to flexible form results the stone geary specification also provides an estimate of the portion of water use that may not be responsive to price and is useful in analysing price structures and designing conservation policies

an upper bound on optimal income taxes abstract the message of this paper is very simple a certain range of tax rates determined by supply and demand functions only can be disregarded in linear optimal taxation approaches before any interpersonal utility comparisons are made in particular no marginal tax rate above a certain level can be optimal with respect to pareto inclusive social orderings it is shown that is in general not larger than and sometimes strictly less than the minimal tax rate at which tax revenues are maximal conditions under which is the least upper bound are given and a comparison is made with tax rates obtained by the rawlsian maximin principle

why are prices sticky preliminary results from an interview study this paper reports preliminary results from a large research project on business pricing which is currently underway the idea is to use interviews with actual price setters to assess the validity of a dozen theories of price stickiness the rather unorthodox for economists methodology is defended the research design is described briefly and a few results based on the first 72 interviews out of a projected 200 are presented this sample suggests that the median firm changes its price annually and that price adjustments typically lag 3 4 months behind shocks to demand or cost this abstract was borrowed from another version of this item

optimal linear income taxation with general equilibrium effects on wages abstract the paper argues that the endogeneity of wages may make a considerable difference to optimal linear tax rates in this case there is not only the usual direct redistribution via the fiscal system but also the general equilibrium redistribution due to the change in wages depending on the elasticity of substitution of the production function and the labour supply elasticities these may be reinforcing or opposing it is shown that the general equilibrium effect may plausibly outweigh the direct effect so that net redistribution to the lower paid involves a wage subsidy financed by a lump sum tax

local politics and the demand for public education this paper expands on the school finance literature by using a political fragmentation index to calculate how political power affects educational spending in virginia usa the methodology allows the comparison of different political voices relative to each other and the consideration of the role of the distribution of political power political fragmentation is considered across several different dimensions including race age income and political parties using a demand for local public goods model it is found that along with traditional demand variables the interest group pressures dominated by the primary beneficiaries teachers and students increase educational spending while higher income and a larger percentage of african americans in the population reduce educational spending

choice of occupation tax incidence and piecemeal tax revision a model is presented where workers move between two different occupations in response to economic incentives which are distorted by an income tax wages assume equilibrium values which are affected by the tax parameters incidence and welfare effects of small tax revisions are analyzed with particular attention to the role of tax induced wage changes it is demonstrated that within the economic setting of the model such wage effects may be neglected in assessments of piecemeal tax revisions

fiscal and spending behavior of local governments identification of price effects when prices are not observed this paper analyzes local public fiscal andspending behavior in a setting where localgovernments represented by the dominantparty or coalition are treated as utilitymaximizing agents the econometricanalysis which is based on a modifiedversion of eles recognizes total spendingas well as total income as endogenousvariables identification of the priceeffects is achieved by utilizing data onenvironmental cost factors and localtastes the performance of the estimatedmodel is investigated by testing itsability to make out of sample predictionsof local government behavior

price stickiness empirical evidence of the menu cost channel abstract a leading explanation in the economic literature is that monetary policy has real effects on the economy because firms incur a cost when changing prices using a unique database of cost and retail price changes we find that variation in menu costs results in up to 13 3 fewer price increases we confirm that these effects are allocative and have a persistent impact on both prices and unit sales we provide evidence that the menu cost channel operates only when cost increases are small in magnitude which is consistent with theory and provides the first empirical evidence of boundary conditions

an empirical analysis of price endings with scanner data several consumer behavior theories have been offered to explain the preponderance of prices that end in the digit 9 this study attempts to incorporate these proposed behaviors into the implicit utility function of consumer choice models resulting in both a more accurate tool for managerial decision making and additional insights into how consumers actually behave toward price endings an attempt is made to compensate for both level effects those effects in which consumers may underestimate the value of a price and image effects those effects in which consumers may infer meaning from the right hand digits the models are estimated using scanner panel data for two frequently purchased products tuna and yogurt the results support the importance of accounting for the digits in consumer choice models providing evidence for both image effects and level effects

demographic variables in demand analysis in this paper the authors discuss five procedures for incorporating demographic variables into theoretically plausible demand systems translating scaling and the gorman reverse gorman and implicit prais houthakker procedures these five procedures are used to incorporate a single demographic variable the number of children in a household into the generalized ces demand system using household budget data for the united kingdom for the period 1966 1972 excerpt

the optimal public employment policy abstract this paper studies optimal public employment in a model with two types of labor unskilled and skilled and a single consumption good a linear income tax is used to redistribute income it is shown that if the income tax and public employment levels are optimal then there is less unskilled labor and more skilled labor in public production than is necessary to minimize costs at the prevailing gross wage rates the robustness of this result is investigated by examining a second model

sticky prices new evidence from retail catalogs this paper presents new results on the size frequency and synchronization of price changes for twelve selected retail goods over the past 35 years three basic facts about the data are uncovered first nominal prices are typically fixed for more than one year although the time between changes is very irregular second prices change more often during periods of high overall inflation third when prices do change the sizes of the changes are widely dispersed both large and small changes occur for the same item and the sizes of these changes do not closely depend on overall inflation

price endings when prices signal quality this paper provides a theoretical explanation for why firms behave as though they use round prices to signal quality by replacing the linear demand curve in bagwell and riordan s 1991 price as a signal of quality model with a kinked demand curve and analyzing what price endings firms are most likely to use the following observations can be made 1 firms that are using high prices to signal quality are more likely to set those prices at round numbers and 2 price endings themselves are not necessarily signals of quality a simulation was conducted to demonstrate that these findings generally hold true even in the presence of demand spikes at 9 ending prices e g schindler and kibarian 1996 finally empirical evidence is provided to demonstrate that firms tend to use more round prices for higherquality products and that this relationship is even stronger for product categories where consumers are less able to detect the true level of quality prior to purchase

price points and price dynamics abstract a standard model of price setting is extended to include an important role for price points as well as sticky information it makes empirically reasonable predictions about the frequency of price adjustments the sizes of price increases and decreases the shape of the hazard function the fraction of price changes that are price increases and the relationship between price changes and inflation when the model of price setting is integrated into a small scale dsge model it implies plausible aggregate effects of monetary policy in contrast to a model with a prominent role for price points but no information rigidities

poverty and urban public expenditures cities in the us bear a disproportionate responsibility for the public expenditures that grow out of poverty because they contain disproportionate numbers of the poor and because a substantial part

the linear expenditure system and the demand for municipal public services the median voter specification revisited following bergstrom and goodman 1973 this paper contributes to the set of studies estimating demand for publicly provided goods and services the main innovation in this paper is methodological as it uses a stone geary utility function to describe median voter preferences unlike in previous studies the local public expenditure function in a simplified linear expenditure system can be derived directly from the theoretical framework the translated expenditure function provides an estimate of the minimum required local public services in each municipality using cross sectional municipal data from france it is found to be at the most 30 per cent of the total per capita expenditure compared with the specification conventionally used in the literature linear and non linear expenditure systems show a greater sensitivity to price and income variations and reveal a greater number of significant variables

when little things mean a lot on the inefficiency of item pricing laws abstract item pricing laws ipls require a price tag on every item sold by a retailer we study ipls and assess their efficiency by quantifying their costs and comparing them to previously documented benefits on the cost side we posit that ipls should lead to higher prices because they increase the costs of pricing and price adjustment we test this prediction using data collected from large supermarket chains in the tri state area of new york new jersey and connecticut we find that ipl store prices are higher by about 20 25 per item on average as a control we use data from stores that use electronic shelf labels and find that their prices fall between ipl and no ipl store prices we compare the costs of ipls to existing measures of the benefits and find that the costs are an order of magnitude higher than the upper bound of the estimated benefits

inequality aversion and marginal taxes the concept of a lower bound on optimal linear taxes is analyzed a marginal tax rate is defined to be optimal if the corresponding state of the economy is a welfare maximum for some social welfare function reflecting at least a minimal aversion to inequality the lower bound on optimal tax rates is proved to be strictly positive this tax rate is also calculated in a numerical example based on swedish data the value obtained is 29 per cent

decision stages and asymmetries in regular retail price pass through we study the pass through of wholesale price changes onto regular retail prices using an unusually detailed data set obtained from a major retailer we model pass through as a two stage decision process that reflects both whether as well as how much to change the regular retail price we show that pass through is strongly asymmetric with respect to wholesale price increases versus decreases wholesale price increases are passed through to regular retail prices 70 of the time while wholesale price decreases are passed through only 9 of the time pass through is also asymmetric with respect to the magnitude of the wholesale price change with the magnitude affecting the response to wholesale price increases but not decreases finally we show that covariates such as private label versus national brand 99 cent price endings and the time since the last wholesale price change have a much stronger impact on the first stage of the decision process i e whether to change the regular retail price than on th

the median voter hypothesis evidence from general purpose local governments the median voter hypothesis mvh represents a much used as well as much criticized tool in the hands of public finance economists to evaluate the mvh this paper applies the cox specification test using data from general purpose municipal governments the cox test allows for possible simultaneous rejection of the mvh and all tested models thus providing stricter criteria than applied to date in empirical mvh analyses the test results reveal that the mvh is appropriate for explaining the aggregate behavior of municipal governments but not specific services further the single service and single tax base assumptions are not critical to the empirical mvh performance

end of 9 endings price recall and price perceptions prices that end with 9 also known as psychological price points are common comprising about 70 of the retail prices they are also more rigid than other prices we take advantage of a natural experiment to document an emergence of a new price ending that has the same effects as 9 endings in january 2014 the israeli government passed a new regulation prohibiting the use of non 0 ending prices bringing an end to 9 ending prices we find that seven months after 9 ending prices have disappeared 90 ending prices acquired the same status as 9 ending prices had before the new regulation was adopted thus 90 ending prices became the new psychological price points partially eliminating the regulation s intended effect

price points and price rigidity abstract we study the link between price points and price rigidity using two data sets weekly scanner data and internet data we find that 9 is the most frequent ending for the penny dime dollar and ten dollar digits the most common price changes are those that keep the price endings at 9 9 ending prices are less likely to change than non 9 ending prices and the average size of price change is larger for 9 ending than non 9 ending prices we conclude that 9 ending contributes to price rigidity from penny to dollar digits and across a wide range of product categories retail formats and retailers

patterns of rightmost digits used in advertised prices implications for nine ending effects analysis of the rightmost digits of selling prices in a sample of retail price advertisements confirmed past findings indicating the overrepresentation of the digits 0 5 and 9 the high cognitive accessibility of round numbers can account for the overrepresentation of 0 and 5 ending prices and suggests the existence of two effects that could account for the overrepresentation of 9 ending prices 1 a tendency of consumers to perceive a 9 ending price as a round number price with a small amount given back and 2 a tendency of consumers to underestimate a 9 ending price by encoding it as the first round number evoked during incomplete left to right processing analysis of the patterns of rightmost digits observed in the sample provides supportive evidence particularly for the second of these two 9 ending effects

the empirical analysis of fiscal illusion this paper examines the empirical analysis of the five main hypotheses subsumed under the generic term fiscal illusion after placing these hypotheses within a common theoretical framework the paper attempts to evaluate empirical research into the revenue complexity hypothesis the revenue elasticity hypothesis the flypaper effect renter illusion and debt illusion

optimum taxation with errors in administration abstract the paper compares the welfare levels which can be achieved by two distinct tax regimes lump sum taxation where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics and income taxation where characteristics are not observed but personal incomes are measured and taxed where there are no errors in classifying individuals lump sum taxation is superior but where mistakes are made in the allocation of lump sum grants or subsidies income taxation may be more attractive the level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of feldstein 1973 where there is strong aversion to inequality then income taxation becomes preferable at quite small errors in analysing income taxation it is shown that in the feldstein model with endogenous wages the marginal tax rate in optimum income taxation on the more skilled is negative and that on the less skilled is positive in contrast to the standard results see seade 1977 with exogenous wages