econometric estimation of foresight tax policy and investment in the united states we develop a method for measuring the foresight agents have we first dichotomize an agent s information at current date t into knowledge up to date t 1 f and expectations after t 1 f we then form a residual based test statistic that allows us to compare prediction errors for econometric models based on different values of f we illustrate the method examining investment around tax reforms to measure the foresight firms have about tax policy in this illustration current investment appears to reflect currently available information but little foresight other than foresight of enacted policy changes

government debt government spending and private sector behavior comment in a recent issue of this review 1983 roger kormendi relied upon the work of martin bailey 1962 1971 and robert barro 1974 to develop an alternative approach to modeling private sector consumptionsaving behavior based on rational evaluation of the consequences of government fiscal policy p 995 briefly this approach involves determining to what extent government spending substitutes for private consumption and to what extent government debt is net wealth and thereby also affects private consumption this consolidated approach to examining private sector consumption is not only novel but appears at a time when there is widespread interest as well as controversy over the effects of government fiscal policy it therefore seems only appropriate to examine further the results obtained by kormendi not to criticize them but rather to explore their robustness this comment specifically explores the sensitivity of kormendi s results to alternative time periods of estimation to the differentiation between federal debt and state and local government debt and to the measurement of government debt particularly par vs market value

towards a vanishing middle competition in the world garment industry abstract the international garment industry falls broadly into two segments one which may be referred to as the fashion segment is governed by competition based on new product introduction and quality improvements the other segment comprising of mass produced garments is governed by price competition while there is some evidence that the fashion sector is growing in importance our concern in this paper will be the price competitive sector which has been and continues to be predominantly the main arena in which newly industrializing and developing countries participate

ricirms as a strategic tool for small and medium tourism enterprises abstract the small and medium tourism enterprises smtes which dominate the international tourism market face difficulties in gaining access to crss because of their size structural functional problems following a brief analysis of smtes based on research undertaken at the aegean islands greece it is proposed that regional integrated computer information reservation management systems ricirmss can be utilized as a strategic tool for the development of both the smte and the destination managed by a regional tourism committee the ricirms should attempt to maximize the long term business revenues for the smtes of the area satisfy the needs of the more demanding tourist and increase the benefits of tourism for the local area furthermore ricirmss may be utilized to integrate the tourism products of the destination diagonally and also to force smtes to cooperate with each other in order to achieve economies of scope synergies and system gains it is concluded that smtes and destinations which do not develop ricirmss may find themselves at a competitive disadvantage as they will be unable to satisfy the needs of tourism demand and supply for the next century

average cost pricing versus serial cost sharing an axiomatic comparison abstract a finite group of agents share a one output production function a cost sharing rule allocates the total cost among the users for every conceivable profile of output demands we investigate the space of possible cost sharing rules from an axiomatic perspective we provide two characterizations of average cost pricing one based on the axioms of additivity and monotonicity both with respect to the cost function and the other based on the axioms of additivity and a version of consistency we also provide a characterization of serial cost sharing based essentially on additivity and a free lunch axiom journal of economic literature classification numbers d63 d78 c79

the market value of outstanding government debt 1919 1975 abstract several new series on the market value of outstanding government debt are reported and their methods of construction described the new series on federal debt are compared with other existing estimates and are shown to be markedly superior to them

common trends the government s budget constraint and revenue smoothing abstract the requirement that the government s budget be balanced in present value terms is shown to be equivalent to the condition that government expenditures inclusive of interest tax receipts and seignorage be cointegrated the condition is in fact stronger requiring that the deficit inclusive of interest be stationary stationarity of the net of interest deficit is neither necessary nor sufficient for intertemporal budget balance however it does have implications for barro s tax smoothing hypothesis data for the period 1890 1986 are consistent with intertemporal budget balance but not with tax smoothing

the u s evidence on optimal taxation over time abstract this paper considers a tax rule in which a uniform tax rate over time becomes optimal its implications are that 1 changes in the tax rate should arise only when there are changes in permanent government expenditures and 2 no variable other than permanent government expenditures should be of any value in predicting the tax rate these implications are tested using u s data for 1937 82 empirical results of the tests reveal that in addition to responding to permanent government expenditures the tax rate also responds to temporary defense purchases the general price level and a time trend

the market value of u s government debt monthly 1942 1980 abstract the market value of outstanding united states treasury debt is calculated on a monthly basis using price and par value data from the treasury bulletin separate series for treasury bills bonds certificates of indebtedness notes and total treasury debt are presented along with estimates of privately held treasury debt and gross federal debt the calculated market value series is compared to par value and an existing annual market value series

the experience of some oecd economies on tax smoothing observed random walk behaviour of a tax rate does not necessarily support the tax smoothing hypothesis though the latter implies the former this article presents a direct test of tax smoothing by showing that if the tax smoothing hypothesis holds then the future tax rate should cointegrate with the current permanent government expenditure rate even though the tax rate is a random walk this test is a direct and robust test of a number of random walk models available in the literature this procedure also enables us to differentiate among strong tax smoothing weak tax smoothing and no tax smoothing all of which are consistent with the random walk behaviour of a tax rate application of this test to australia canada italy japan the netherlands new zealand the uk and the us show evidence in support of weak forms of tax smoothing

the behavior of treasury securities monthly 1942 1984 abstract the monthly market value statistics on outstanding united states treasury debt are reported for the 1981 1984 period in addition a monthly series on privately held gross federal debt is reported for the extended 1942 1984 period together with monthly security price indices for various federal debt aggregates examination of the stochastic structure of t bill prices indicates that the riskiness of t bills has increased dramatically in recent years

deficits government expenditures and tax smoothing in the united states 1929 1988 abstract barro s tax smoothing hypothesis tsh implies that the government runs a budget deficit whenever it anticipates the growth rate of national income to increase or the growth rate of its expenditure to decline we test this implication of the hypothesis by examining the implied cross equation restrictions on a vector autoregression var model using u s data for the period ranging from 1929 to 1988 our formal tests reject the hypothesis for the full sample period but cannot reject it for the post 1947 period further investigations show that the statistical rejection should be attributed to sharp differences in the statistical properties of the pre 1947 and the post 1947 data rather than the failure of the hypothesis itself

testing the positive theory of government finance researchers characterizing optimal tax policies for dynamic economies have reasoned that tax rates should follow a random walk we conduct a frequency domain examination of u s tax rates and reject the hypothesis that the first difference in the series is white noise the source of the rejection is pronounced activity of tax changes at an eight year cycle regression analysis confirms the finding that there is a cyclical component to tax changes corresponding to changes in political party administration the results suggest that the positive theory of government finance needs to be refined to incorporate features of political equilibrium

the marginal income tax rate schedule from 1930 to 1990 abstract although it is well known that marginal income tax rates vary with income few economists have studied the effect on real gdp of the distribution of marginal income tax rates this omission is probably because data on the distribution do not exist we remedy this shortcoming by providing a computer program that calculates marginal income tax rates for all income levels for the years 1930 to 1990 we conduct a preliminary empirical investigation into the effect of taxes on economic growth we find that lowering taxes significantly raises economic growth and that changing the tax rate schedule also has significant effects on economic growth

u s deficits since world war i the tax smoothing theory suggests that deficits would respond particularly to recession temporarily high government spending and anticipated inflation my empirical estimates indicate that a relation of this type is reasonably stable in the u s since at least 1916 in particular the statistical evidence does not support the idea that there has been a shift toward a fiscal policy that generates either more real public debt on average or that generates larger deficits in response to recessions further the deficits for 1982 3 and popular projections formed in 1984 for 1984 5 are consistent with the previous structure the high values of these deficits reflect the customary response to substantial recession interacting with big government and to expected inflation

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

the ricardian approach to budget deficits persistent budget deficits have increased economists interest in theories and evidence about fiscal policy this paper develops the ricardian approach and contrasts it with standard models the discussion considers from major theoretical objections to ricardian equivalence finite lifetimes imperfect capital markets uncertainty about future taxes and incomes and the distorting effects of taxation the paper then considers empirical evidence on interest rates consumption and saving and current account deficits the conclusion is that the ricardian approach is a useful first order approximation and that this approach will probably become the benchmark model for assessing fiscal policy this abstract was borrowed from another version of this item

fiscal policy over the real business cycle a positive theory this paper presents a political economy theory of the behavior of fiscal policy over the business cycle the theory predicts that in both booms and recessions fiscal policies are set so that the marginal cost of public funds obeys a submartingale in the short run fiscal policy can be pro cyclical with government debt spiking up upon entering a boom however in the long run fiscal policy is counter cyclical with debt increasing in recessions and decreasing in booms government spending increases in booms and decreases during recessions while tax rates decrease during booms and increase in recessions data on tax rates from the g7 countries supports the submartingale prediction and the correlations between fiscal policy variables and national income implied by the theory are consistent with much of the existing evidence from the u s and other countries

the fiscal role of conscription in the u s world war ii effort an often overlooked role of conscription is as a method of lump sum taxation in times of war conscription of military personnel allows the fiscal authority to minimize wartime government expenditure and hence minimize tax distortions associated with war finance this paper presents a simple dynamic general equilibrium model to articulate this view and calibrates the model to the u s world war ii experience analysis of the calibrated model indicates that the welfare value of conscription as a fiscal policy tool is quantitatively large despite the fact that the american involvement lasted only four years conscription is worth approximately 2 of annual aggregate consumption in perpetuity

budget balance through revenue or spending adjustments abstract the paper provides a historical perspective on the issue of whether budget deficits are typically eliminated by increased taxes or by reduced spending by examining u s budget data from 1792 1988 i conclude that about 50 65 of all deficits due to tax cuts and about 65 70 of all deficits due to higher government spending have been eliminated by subsequent spending cuts while the remainder was eliminated by subsequent tax increases in contrast to previous studies the empirical analysis uses error correction models in a way that the intertemporal budget constraint is imposed in the estimation stage

path dependence in regional development persistence and change in three industrial clusters in santa catarina brazil abstract the concept of path dependence is useful to understand why economic actors who face a fundamental change in the overall incentive structure behave in a way that would appear irrational to the external observer industrial clusters in the southern brazilian state of santa catarina gave an impressive performance in the closed market of the past it was perfectly rational for individual firms to try to internalize as many activities as possible for various reasons thus emerged an extremely noncooperative business culture which does not change easily even under the new conditions of an opening market and increasing competitive pressure firms try to adjust to the new conditions based on their established practices yet the comparison between different clusters reveals that under certain conditions the behavior of firms can change profoundly toward cooperation and collective efficiency these conditions include an existential crisis the presence of change agents and the existence of organizations they can use and the existence of a role model that shows a possible alternative path for the adjustment process the most important changes are attempts to stimulate cooperation between firms and attempts to shape the supporting environment most changes occur inside the business community the political administrative system at the municipal and state levels is much more resistant to change

cost sharing under increasing returns a comparison of simple mechanisms a technology with decreasing marginal costs is used by agents with equal rights each agent demands a quantity of output and costs are divided by means of a fixed formula several such mechanisms are compared for the existence of nash equilibrium demand profiles and for the equity properties of these equilibria among three mechanisms average cost pricing the shapley shubik cost sharing and serial cost sharing only the latter two possess at least one nash equilibrium on a reasonable domain of individual preferences only the serial cost sharing equilibria pass the equity tests of no envy and stand alone cost journal of economic literatureclassification numbers c72 d63

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

flexible specialization and small size the case of caribbean tourism abstract if export industrialization was fashionable in the 1960s and 1970s today flexible specialization is definitely in appealing to the very heart of the developing world traditional small scale and craft production flexible specialization has become the new passport to development this article cautions that the prescription of small scale flexible specialization piore and sable 1984 leads to a very dangerous kind of optimism in the developing world the danger lies in equating flexibility with small size this is because small size may not be necessary and certainly is not a sufficient condition for flexible specialization the keys to flexible specialization lie elsewhere in information technology applications networks synergies systems gains scope economies production and organizational flexibility not in small size this argument is developed with reference to the caribbean tourist industry a comparative analysis of jamaica s superclub hotel chain and italy s benetton textile company is undertaken this is done with a view to determining the factors in the success of their flexible specialization strategies implications for policy are drawn out

international evidence of tax smoothing in a panel of industrial countries a panel of industrial countries is examined for evidence of tax smoothing tax smoothing results when governments minimize tax distortions over time the model provides a positive theory of government debt and is due primarily to barro unit root tests are performed in panel data to test the null hypothesis of nonstationary tax rates panel regressions are then undertaken to test the null hypothesis that tax rate changes are unpredictable and test for evidence of an alternative hypothesis political and economic variables are examined for their ability to predict tax rate changes overall the results cannot reject the null hypotheses and support tax smoothing by national governments

government debt government spending and private sector behavior a current period tax reduction financed by issuing government debt shifts the timing of tax collection from the current period to the future if the future taxes implied by government debt are not fully perceived and discounted by the private sector there will be a net wealth effect that increases private sector consumption thus reducing capital accumulation and growth if on the other hand the implied future taxes are perceived and discounted by the private sector the current period tax reduction will be used to increase private saving to pay for the future taxes and government debt will be absorbed without any real effects on the economy the effects of government spending financed by current period taxation also depend upon private sector perceptions 2 if the benefits of government spending are ignored private sector consumption will decrease in accordance with the reduction in permanent disposable income to the extent that government spending is on consumption type goods that are perceived as substitutes for privately provided consumption goods there will be a relatively greater reduction in private sector consumption to the extent that government spending is on investment type goods yielding future goods and services that are perceived as substitutes for future privately provided consumption goods there will be a relatively smaller reduction in private sector consumption the standard approach to modeling private sector consumption saving behavior involves a rather asymmetric set of assumptions as to how the private sector perceives the various elements of government fiscal policy 3 current period taxes are assumed to be fully perceived but current period government spending is implicitly assumed to be completely ignored by the private sector in considering permanent personal disposable income the private sector is assumed to be forward looking in its assessment of income and taxation the stock of government debt is nevertheless included as part of the stock of private wealth the implicit assumption associate professor of economics graduate school of business university of chicago 1101 east 58th street chicago il 60637 i thank eugene fama levis kochin michael mussa paul evans and an anonymous referee for helpful comments i am particularly grateful to daniel benjamin for contributing many hours of discussion and laura lahaye who was a research assistant and valuable adviser on earlier drafts the theoretical debate on the burden of the debt has been long standing gerald o driscoll 1977 documents ricardo s nineteenth century position robert barro 1974 reopened the debate by introducing the fundamental issue of intergenerational transfers also discussed in merton miller and charles upton 1974 the empirical side of the debate was initiated by levis kochin s 1974 attempt to test for the effects of deficits on consumption and by martin feldstein s 1974 attempt to test for the effects of social security wealth on consumption other empirical contributions include jess yawitz and laurence meyer 1976 myself 1978 and j earnest tanner 1978 1979 with respect to the effects of government deficits and debt and barro 1978 michael darby 1979 and dean leimer and selig lesnoy 1982 with respect to social security wealth see also interesting recent papers by john seater 1982 who generates detailed tests of the effects of deficits and debt on consumption charles plosser 1982 who explores the effects of government spending and debt shocks on interest rates and feldstein 1982 who attempts tests similar to some in this paper see fn 29 2martin bailey s 1962 1971 development of the effects of government spending on private consumption and aggregate economic activity is the seminal contribution paul david and john scadding 1974 extend bailey s ideas and provide some supporting empirical evidence more recently willem buiter 1977 and myself 1978 developed models based on bailey s earlier work barro 1981 has an interesting paper on related issues see also david aschauer 1982 3the standard approach incorporates fiscal policy through the concept of personal disposable income and by including the stock of government debt as part of personal wealth see for example the empirical specification of albert ando and franco modigliani 1963 which has been the basis of most empirical consumption studies since and feldstein 1974 for one of the more influential papers based on the ando modigliani specification

econometric estimation of foresight tax policy and investment in the u s we develop a method for measuring the foresight agents have we first dichotomize an agent s information at current date t into knowledge up to date t 1 f and expectations after t 1 f we then form a residual based test statistic that allows us to compare prediction errors for econometric models based on different values of f we illustrate the method examining investment around tax reforms to measure the foresight firms have about tax policy in this illustration current investment appears to reflect currently available information but little foresight other than foresight of enacted policy changes

seigniorage and tax smoothing in the united states 1914 1986 abstract when monetary and fiscal authorities cooperate to minimize the distortionary costs of financing an exogenous stream of government expenditures barro s tax smoothing model implies a long run relationship between tax revenues and inflation previous empirical tests of this relationship are reinterpreted in light of recent work on cointegration and are shown to hold only when stochastic temporal variation in the excess burden of taxes and seigniorage is transitory in nature a new test that holds in the presence of nonstationary disturbances is developed and applied annual u s data from the period 1914 to 1986 reject the revenue smoothing hypothesis

the role of tax bases and collections costs in the determination of income tax rates seigniorage and inflation a growing theoretical literature on optimal taxation predicts that governments will set the tax rates on money holdings and on more traditional tax bases to minimize the deadweight losses of collecting government revenue under the presumption that relative collection costs and tax bases have not changed significantly over time the empirical time series seigniorage literature has focused on the theory s tax smoothing implication finding only weak support we show that changes in collections costs and tax bases played an important role in the determination of tax composition and find stronger support for tax smoothing when this is taken into account

towards a theory of innovation in services abstract the paper sets out some foundations for a theory of innovation in service industries and indicates the role that such innovation may play in the generation of growth cycles the discussion starts with the origins of a major new technology in the capital goods sector and its subsequent development according to the normal product cycle theory this is followed by a consideration of the transmission process by which the new technology is taken up in user industries within the consumer goods and services sector a reverse product cycle is then proposed to describe the innovation process which takes place in user industries such as services once the new technology has been adopted this cycle starts with process improvements to increase the efficiency of delivery of existing services moves on to process innovations which improve service quality and then leads to product innovations through the generation of new types of services finally the existence of two out of phase innovation cycles in the capital and consumer sectors deriving from a technology transmission process which causes disequilibrium in technical progress between the two is put forward as a mechanisms helping to create the long wave fluctuations in economic development associated with schumpeterian technological revolutions

optimal taxation and oecd labor taxes abstract we derive simple expressions for optimal labor taxes under different assumptions about government bond markets we use these to examine oecd labor taxes estimate the excess burden of taxation and assess the ability of optimal tax models to match the data optimal labor taxes are driven by i a term reflecting ramsey considerations which makes labor taxes vary positively with employment and ii a martingale component reflecting the excess burden of tax which shows persistent responses to shocks to the government s intertemporal budget constraint under complete markets when governments can issue a full set of contingent securities only the first factor is relevant we find substantial evidence that incorporating incomplete markets into the optimal taxation model is critical for empirical success however we find strongest support for the martingale component and only weak evidence for the ramsey component

on the uniqueness of equilibrium in cournot oligopoly and other games abstract in an average surplus sharing game such as a cournot oligopoly a group of agents share a production process each contributes an amount of input to the process and output is divided in proportion to the amount of input contributed uniqueness of the equilibrium is needed for any type of comparative static analysis however general uniqueness results for concave games have restrictive assumptions on preferences and technology specifically the conditions needed for uniqueness become more difficult to meet as the number of players increases a new theorem for uniqueness with easily interpretable conditions is given which is independent of the number of players journal of economic literature classification numbers c70 c72 d43

decreasing serial cost sharing under economies of scale we consider the problem of cost sharing in the presence of increasing returns to scale and potential strategic behavior on the part of consumers we show that any smooth and strictly monotonic mechanism for which a nash equilibrium exists for all profiles of convex and monotonic preferences must be dictatorial however we propose a cost sharing mechanism the decreasing serial mechanism for which an interesting domain restriction ensures existence of a noncooperative equilibrium for its cost sharing game a characterization theorem of the mechanism based on the strategic properties of existence uniqueness and efficiency of its noncooperative equilibrium is provided journal of economic literature classification numbers c70 c72 d70 cost allocation is a practical problem that organizations of all kinds face universities allocate computing costs among departments aviation authorities set landing fees for aircraft based on their size regulatory com missions set rates for electricity water and other utilities based on the costs of providing these services the common feature in all of these exam ples is that prices are not determined externally by market forces but are set internally by mutual agreement or administrative decision a simple situation where a cost sharing problem can emerge is when a set of users share a technology that transforms a single input into a single output we study this cost sharing problem when the cost function is increasing and concave examples include the division of costs incurred in setting telephone lines or a water supply system the assessment of fees to pay for a secretary or a gardener s services and so on the situations we have in mind are those of cooperative production or natural nonregulated monopolies for either of these situations there is no obvious answer to the question of how to divide the cost of producing the total output among the users

explaining u s federal deficits 1889 1998 i introduction seater 1993 attempted to provide a common basis for assessing empirical studies of the effects of deficit spending he concluded that evidence of the existence of appreciable effects of u s deficits on macroeconomic variables is questionable in other words the data do not allow for a confident rejection of ricardian equivalence in a world with no macroeconomic effects from deficit spending full information and no distinctions between political and economic markets fluctuations in deficits merely reflect government financing considerations of secondary importance in contrast to this view of the world deficits and surpluses are treated as an important topic in everyday affairs and discourse politicians talk about deficits and surpluses regularly when calling for higher or lower taxes more or less spending revisions in social security funding and other changes in public policy economists and political analysts continue to debate why deficits became a regular feature of federal fiscal management from the late 1960s into the 1990s these debates have spurred divergent theories and conjectures leading to different empirical hypotheses and variables of interest moreover existing empirical studies of the subject have utilized diverse econometric techniques and specifications as a result the competing hypotheses concerning deficit spending have not been tested against one another in a systematic fashion in this article our principal aim is to analyze the different explanations of u s federal deficits jointly estimating competing hypotheses about deficit fluctuations in a generalized reduced form empirical model to achieve this goal we collected and utilized a time series of data running from 1889 to 1998 the apparent paradox between the seemingly innocuous effects of deficits and the political preoccupation with them may owe its existence to one or more reasons limited and noisy information among voters differences between economic and political markets inaccuracy in the measured macroeconomic effects of deficits or other reasons we do not attempt an explanation of why deficits which seemingly exhibit no or small real effects ricardian equivalence could lead politicians and voters to treat deficits as if the ricardian hypothesis were rejected instead we treat explanations of deficits that stem from ricardian premises as one of several hypotheses to be tested ii competing hypotheses we first describe the leading explanations of deficit spending organizing them around common theoretical principles 1 tax smoothing the explanation of deficits which follows directly from a ricardian equivalence theory is the tax smoothing theory developed by barro 1979 2 if deficits generate no real macroeconomic effects and the influences of political institutions and politicians are ignored then optimal public financing considerations govern the use of deficit spending simply put fiscal authorities raise revenue to meet spending needs through income taxation but both spending and income the tax base are subject to uncertain and temporary movements minimization of the deadweight costs of raising a given amount of revenue requires keeping tax rates steady in the face of purely temporary changes in income or spending this is accomplished by running deficits when income is temporarily low or spending is temporarily high and running surpluses in the opposite case imposing a binding no ponzi game npg constraint leads to similar long term behavior of deficits as implied by optimal finance models the npg condition requires that the present value of taxes must equal the present value of spending plus the initial value of debt spending and revenue must share a long term common trend so that primary deficits will be stationary over a long time series deficits and surpluses will offset each other

u s federal indebtedness and the conduct of fiscal policy abstract this paper examines whether the conduct of u s fiscal policy since the 1920s has been influenced by constraints on the accumulated stock of outstanding federal debt the evidence is affirmative during most of the inter and post war period policy in effect stabilized the federal debt relative to gnp but after 1981 large debt and debt service costs failed to produce deficit reductions consistent with the pattern of previous decades

the market value of government of canada debt a comment on the importance of correct valuation of non marketable debt previous attempts to provide market value estimates for both u s and canadian government debt have included nonmarketable debt items specifically savings bonds as part of total marketable debt inclusion of nonmarketable debt items as part of marketable debt presents a significant valuation problem this article demonstrates that previous studies on the market value of canadian government debt used valuation methodologies that significantly underestimated the value of nonmarketable debt a more accurate valuation methodology is provided

finite horizons infinite horizons and the real interest rate finite horizons infinite horizons and the real interest rate using an overlapping generations model in which households may have either finite or infinite horizons i derive the implications of each horizon for the steady state real interest rate i then formulate an econometric model of the steady state real interest rate and devise tests that can distinguish between finite and infinite horizons these tests are applied to annual and quarterly u s data which span the period 1875 1988 the results are inconsistent with finite horizons and broadly consistent with infinite horizons i introduction in conventional macroeconomic analysis government budget deficits raise perceived wealth and stimulate aggregate demand because households are modeled as having finite horizons if households are instead modeled as having infinite horizons budget deficits need not stimulate aggregate demand and hence need not affect output employment interest rates and the price level the reason is that households with infinite horizons do not view the government debt as net wealth thus they may treat budget deficits i e future taxes and current taxes as equivalent ricardian equivalence is said to hold if households treat budget deficits as equivalent to current taxes 1 three reasons are typically advanced for assuming households have finite horizons first the individuals who comprise current households have finite lifetimes second some households face binding liquidity constraints either now or in the future 2 third boundedly rational households may choose to behave myopically acting as if their current decisions do not affect allocations occurring beyond some horizon 3 these three reasons however do not necessitate modeling households as having finite horizons first barro 1974 has shown that finite lifetimes need not imply finite horizons second hayashi 1987 and yotsuzuka 1987 have shown that lenders may impose liquidity constraints that vary one for one with the government debt in such an environment the government debt relaxes no liquidity constraints third because bounded rationality assumes fixed costs of decision making it may be able to explain why aggregate demand would respond to small short term budget deficits but cannot explain why aggregate demand would respond to large or long term budget deficits because logically consistent reasons can be adduced for modeling households as having either finite or infinite horizons the issue of which is the better modeling strategy should ultimately be decided by empirical analysis this paper offers such an analysis it investigates the implications of finite and infinite horizons for the steady state behavior of the real interest rate the evidence reported here is inconsistent with finite horizons and broadly consistent with infinite horizons the rest of the paper is organized as follows using barro s 1974 overlapping generations model i derive its implications for the steady state real interest rate in section ii these implications differ according to whether households have inoperative bequest motives and finite horizons or operative bequest motives and infinite horizons in section iii i formulate an econometric model that encompasses the implications of the theoretical model of section ii for both of these cases in sections iv v vi and vii i test these implications using u s data in section viii i investigate whether the real interest rate evidences any short term departures from ricardian equivalence finally in section ix i draw some tentative conclusions ii an overlapping generations model of the steady state in this section i lay out barro s overlapping generations model which is the simplest model in which one can derive the implications of finite and infinite horizons for the steady state real interest rate

model uncertainty and intertemporal tax smoothing in this paper we examine how model uncertainty due to the preference for robustness rb aects optimal taxation and the evolution of debt in the barro tax smoothing model 1979 we rst study how the government spending shocks are absorbed in the short run by varying taxes or through debt under rb furthermore we show that introducing rb improves the model s predictions by generating i the observed relative volatility of the changes in tax rates to government spending ii the observed comovement between government decits and spending and iii more consistent behavior of government budget decits in the us economy finally we show that rb can also improve the model s predictions in the presence of multiple shocks

clothing chips and competitive advantage the impact of microelectronics on trade and production in the garment industry abstract this paper presents the results of a research project which examined the impact of microelectronics on the nature of production and the patterns of international trade in the clothing industry empirical evidence is given on the effects of microelectronics related innovations currently being used by clothing manufacturers in the developed countries radical innovations have been introduced in the pre assembly stage which have revolutionized this phase of production in contrast the introduction of microelectronics into assembly technology is still limited as a result the clothing industry remains reliant on labor intensive techniques that place it at a competitive disadvantage compared to low wage developing countries hence the determinants of international competitive advantage in the industry remain largely unaltered however due to increasing concentration and major new r d efforts in the public and private sector it is argued that the preconditions are being laid for a fundamental structural and technological transformation of the industry in the north which could have very important implications for the competitive position of third world clothing exporters emphasis is also placed upon the continued restraining effects of protectionist barriers imposed by the main importing nations and on the differential impact of this on the ability of newer entrants to achieve rapid and sustained export growth

uniform labor income taxation and economic efficiency abstract this paper uses a two period representative agent optimal taxation model to characterize government tax policy when the interest rate is determined in equilibrium and is affected by policy choices it shows that dynamic tax smoothing may not be optimal and the response of the interest rate with respect to policy choices is extremely important in characterizing government s tax policy

testing a present value model of the current account evidence from us and canadian time series abstract this paper presents a simple model of current account determination based upon the permanent income hypothesis of private consumption behavior under rational expectations the model employs a representative national agent who is forward looking and can borrow and lend at a constant world interest rate a present value relationship for the current account is derived and its implications are tested on post war data for the united states and canada testing is done using the framework developed by campbell and shiller 1987 which allows the forcing variables in the model to be difference rather than trend stationary our empirical results indicate the most stringent restrictions of the present value model are strongly rejected by the us and canadian data however less formal procedures suggest the consumption smoothing model has some ability to track the dynamic behavior of the us current account jel f32

welfare bounds in the cooperative production problem a general model of lower bound individual rationality and upper bound axioms for fair allocation is proposed the unanimity welfare function associates to each individual utility function the highest equal utility feasibile when all agents share this utility if this function is a feasible lower bound resp upper bound then it is the highest lower bound of all resp the lower upper bound applying this to cooperative production of private goods we characterize when the unanimity welfare is a lower upper bound function and when the stand alone welfare is an upper or lower bound our approach unifies several familiar fairness properties

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

measuring the average marginal tax rate from the individual income tax the economic effects of taxation depend on the configuration of marginal tax rates we consider here the appropriate measure of a marginal tax rate for the federal individual income tax which has a graduated rate structure and allows for numerous legal and illegal deductions from total income our conclusion is that the explicit marginal rate from the tax schedule is the right concept for many purposes hence we construct approximately weighted averages of these marginal tax rates for 1916 80 when weighted by adjusted gross income the arithmetic average of marginal tax rates is 5 in 1920 2 in 1930 6 in 1940 20 in 1950 23 in 1960 24 in 1970 and 30 in 1980 we also discuss the dispersion of marginal tax rates as well as the behavior of average tax rates and deductions from taxable income one noteworthy result concerns the fraction of adjusted gross income that accrues to families that face a marginal tax rate of at least 35 this fraction quadruples from 1964 to 1980 this abstract was borrowed from another version of this item

the macroeconomic effects of war finance in the united states world war ii and the korean war during world war ii government expenditures were financed primarily by issuing debt during the korean war expenditures were financed almost exclusively by higher taxes reflecting president truman s preference for balanced budgets this paper evaluates quantitatively the economic effects of the different policies used to finance these two wars counterfactual experiments are used to explore the implications of financing world war ii like the korean war and financing the korean war like world war ii the author finds that using a korean war policy during world war ii would have resulted in much lower output and welfare relative to the actual policy copyright 1997 by american economic association

fiscal insurance and public debt management evidence for a large emerging economy abstract this paper is a contribution to the analysis concerning fiscal insurance and public debt management we built fiscal indicators and present empirical evidence for the effect of the public debt management on the fiscal insurance based on the brazilian economy the analysis is based on two steps the first builds fiscal indicators and analyzes their performance over time and the second presents regressions of the main variables regarding public debt management on the fiscal insurance indicators the findings denote that there was a reduction in the fiscal vulnerability but the public debt management was not effective in increasing fiscal insurance

debt and deficit fluctuations and the structure of bond markets we analyse the implications of optimal taxation for the stochastic behaviour of debt we show that when a government pursues an optimal fiscal policy under complete markets the value of debt has the same or less persistence than other variables in the economy and it declines in response to shocks that cause the deficit to increase by contrast under incomplete markets debt shows more persistence than other variables and it increases in response to shocks that cause a higher deficit data for us government debt reveals diametrically opposite results from those of complete markets and is much more supportive of bond market incompleteness

profit sharing in unique nash equilibrium characterization in the two agent case abstract two agents jointly operate a decreasing marginal returns technology to produce a private good we characterize the class of output sharing rules for which the labor supply game has a unique nash equilibrium it consists of two families rules of the serial type which protect a small user from the negative externality imposed by a large user and rules of the reverse serial type where one agent effectively employs the other agent s labor exactly two rules satisfy symmetry a result in sharp contrast with moulin and shenker s characterization of their serial mechanism as the unique cost sharing rule satisfying the same incentives property moulin h shenker s 1992 serial cost sharing econometrica 60 5 1009 1037 we also show that the familiar stand alone test characterizes the class of fixed path methods under our incentives criterion friedman e j 2004 strong monotonicity in surplus sharing econ theory 23 643 658

the tax smoothing hypothesis evidence from sweden 1952 1999 this paper tests barro s 1979 tax smoothing hypothesis using swedish central government data for the period 1952 1999 according to the tax smoothing hypothesis the government sets the budget surplus equal to expected changes in government expenditure when expenditure is expected to increase the government runs a budget surplus and when expenditure is expected to fall the government runs a budget deficit the empirical evidence suggests that the model provides a useful benchmark and that tax smoothing behavior can explain about 60 percent of the variability in the swedish central government budget surplus

u s states the medicaid program and tax smoothing this paper tests the tax smoothing theory by focusing on its implication that a change in permanent government spending should result in an equal sized change in the tax rate the effect of medicaid a state administered federal and state funded medical insurance program for the poor on state tax rates is investigated the medicaid program provides a natural experiment for this test as states are required to cover certain groups in order to receive federal matching money additionally during the 1980s a series of federal mandates greatly increased state medicaid expenditures two stage least squares is used on a panel of u s states 1978 1994 to test whether changes in permanent state medicaid expenditures resulted in equal sized tax rate changes tax smoothing as a positive theory of state government behavior is rejected additionally it is found that this rejection cannot be attributed to the stringency of balanced budget rules