on unemployment inflow and outflow in urban china wu z and yao s 2006 on unemployment inflow and outflow in urban china regional studies 40 811 822 as the largest transitional economy in the world china s labour market has a number of characteristics distinctively different from that of the developed economies such as the uk or the usa this paper aims to identify the determinants of unemployment inflow and outflow in urban china with empirical data for 29 provinces over 1989 99 it is found that rural urban migration ownership diversification industrial structural change international trade international competitiveness product wages and age structure are key determinants of unemployment flows the results suggest that due to market imperfections unemployment inflow and outflow are two asymmetric processes with respect to the concerned predetermined variables wu z et yao s 2006 sur l afflux et la fuite du chomage dans la chine urbaine regional studies 40 811 822 en tant que l economie en voie de transition la plus grande du monde

expected inflation and the real rates of interest on taxable and tax exempt bonds this paper analyzes the impact of inflation on rates of return on taxable corporate bonds and tax exempt municipal bonds the paper considers a differential tax system where the tax rate depen ds on both the identity of the investor and the source of income it also consid ers the possibility that inflation may induce investors to switch from holding one asset to holding another it is demonstrated that while inflation should increase the pre personal tax real rate of interest on taxable bonds it should reduce the real rate of interest on tax exempt bonds copyright 1987 by ohio state university press

rates of return to human capital a test using el salvador data most of the empirical work on human capital has been confined to conditions in developed countries this is probably due to difficulties in obtaining data for other countries it would be interesting to see how robust the theory and its associated models are in conditions regarded as typical for developing countries this will be considered here using a large data set describing the el salvador labor market two questions will be examined namely a how well does the earnings function of the human capital theory explain earnings distribution in el salvador and b does the return to training called experience here approximate the return to school as is often assumed in human capital research the latter issue is of course related to the notion of overtaking the point in the experience profile when the flat earnings stream is intersected from below by the earnings stream affected by postschool investments

entrepreneurial human capital and the long run survival of firms in india abstract this paper analyses the characteristics of entrepreneurs that contribute to firms survival in less developed countries ldcs the study which relies on data collected in a 1971 survey of entrepreneurs in south india and a follow up survey of surviving firms in 1993 finds that entrepreneurial human capital greatly influences firm survival the results indicate that firms founded by older entrepreneurs in higher castes are most likely to survive but that increased education of the founding entrepreneur reduces survival these results provide evidence that opportunities of entrepreneurs outside the firm ignored in most theories are important in firm survival

capital taxation and accumulation in a life cycle growth model almost all of the serious economic work on savings decisions within the past decade has relied on some variant of the life cycle hypothesis in which savings arise out of individual choices of an optimum lifetime consumption path this paper reexamines the incidence and welfare consequences of capital income taxes within a realistic life cycle model the results suggest that the elimination of capital income taxation would have very substantial economic effects for example a complete shift to consumption taxation might raise steady state output by as much as 18 percent and consumption by 16 percent the long run welfare gain from such a shift would for plausible parameter values exceed 150 billion annually stated somewhat differently shifting to consumption taxation would raise the lifetime utility of the representative consumer by the equivalent of about six years income in the new steady state these estimates dwarf estimates of the static welfare cost of taxation and significantly exceed even extreme previous estimates of the dynamic loss this study departs from earlier analyses of the effects of taxes on capital income in several respects probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving it is shown below that the common two period formulation of saving decisions yields quite misleading results a more realistic model of life cycle savings demonstrates that for a wide variety of plausible parameter values savings are very interest elastic this implies that shifting away from capital income taxation would significantly increase capital formation making possible long run increases in consumption many studies of the welfare effects of capital income taxation have ignored the general equilibrium effects of increased capital formation in an economy with life cycle savings there is no presumption that the undistorted growth path corresponds to any sort of social optimum as peter diamond has shown life cycle savings can lead to a steady state capital intensity either greater or less than the golden rule level more generally it is clear that there is no reason to believe that a life cycle economy will maximize any particular intertemporal social welfare function a fundamental tenet of welfare evaluation is that preexisting distortions must be considered in evaluating the consequences of tax changes the results presented in this paper take explicit account of the nonoptimal character of the no tax steady state this explains in large part why such a sizeable welfare effect of capital taxes is found in an economy far from the golden rule level of capital intensity there are substantial gains in steady state consumption achievable through increased capital formation section i of the paper examines the aggregate savings function in a continuous time life cycle framework the second section clarifies the differences between wage and consumption taxes an aggregate production function is added to complete the model in the third section the effects of changes in capital taxes on both steady state incidence and welfare are considered within a general equilibrium framework the final section of the paper discusses some implications of the results and suggests areas which appear to warrant further study assistant professor of economics massachusetts institute of technology and research analyst national bureau of economic research i am grateful to alan auerbach martin feldstein laurence kotlikoff to the participants in the nber workshop on business taxation and to the harvard public finance seminar for useful discussions james poterba and james buchal performed the numerical calculations

a critical evaluation of rate of return analysis since the development of the concept of human capital schultz i 96 i becker i964 analysis of rates of return has been a standard means of assessing education the conventional way of measuring the return to education is to take a snap shot view of the earnings of people with differing educational experiences it is then possible to calculate the average income earned at different stages of a working life the rate of return to education can then be calculated as the internal discount rate which equates the discounted increment to average earnings to the costs involved in obtaining education both private and social rates of return can be calculated provision of education is often subsidised so that the private cost is lower than the social cost and this will tend to raise the private return above the social return taxation of the private benefit of education offsets this at least partly however ziderman i 973 records that in developed countries private returns normally exceed social returns this pattern is confirmed by psacharopoulos i985 in many cases it is not possible to calculate a full rate of return but one can look at the incremental effect of schooling on earning power thus denison i 967 suggests that in the united states each year of education raises earning power by an average of around 5 6 with the effect tending to rise with the duration of education card and kruger i992 identify effects of similar magnitude it need not be the case that education goes on raising earning power overeducation is clearly possible rudd i990 suggests that in the social sciences education beyond degree level is very damaging to earnings prospects tarsh i992 questions aspects of rudd s study but agrees that higher education graduates do suffer some pay disadvantage rate of return calculations can form the basis for policy decisions in principle social returns to investment in human capital could be compared with those on physical capital so as to give a basis for the allocation of resources between the two types of investment estimates of social rates of return to different types of education could also be used to guide expenditure decisions between these different types however there are many possibly offsetting biases entering into the calculations of rates of return and it is perhaps concern with these that has

if we knew ability how would we tax individuals abstract the suggestion to tax people on earnings capacity instead of earnings has been around for a long time and is attractive in terms of economic efficiency in this paper we reflect on the feasibility of such a system and give an exploratory empirical implementation we apply the leyden welfare function of income a survey based measure of an individual s welfare associated with income to derive implications for ability taxation under the assumption that iq and schooling reflect earnings capacity we derive the tax functions using different criteria to distribute the utility loss due to taxation

effects of family background on earnings and returns to schooling evidence from brazil we investigate whether omitted family background variables are responsible for high returns to schooling estimated in brazil returns to schooling fall by about one third when parental schooling is added to wage equations surprisingly the schooling of fathers in law has larger effects on wages than the schooling of fathers on the basis of a model of assortative mating we interpret this as evidence that parental characteristics represent unobservable worker attributes rather than nepotism in the labor market we conclude that the family background bias in returns to schooling is modest and need not imply returns to family connections

the impact of inflation on the aggregate debt asset ratio this paper demonstrates that contrary to the results of previous studies the impact of inflation on the aggregate debt asset ratio cannot be determined theoretically however it is shown that inflation is likely to increase this ratio when personal income tax schedules are indexed to the price level and or when leverage related costs are relatively high and the personal tax rate on income from holding common stocks is relatively low studies concerning the effect of inflation on firms capital structure conclude that inflation enhances debt financing jaffe 9 modigliani and cohn 16 and modigliani 15 argue that nominal interest payments consist in part of true interest payments and in part of a compensation for the reduction in the real value of the principal the fact that firms are allowed to deduct their entire interest expense including the portion that is a return of principal reduces their cost of debt capital gordon 6 concludes that the equilibrium debt capital ratio rises when the inflation rate rises he argues that an increase in the nominal interest rate induced by inflation increases the tax advantage of debt financing thus debt financing becomes more attractive and a rise in leverage related costs is necessary to restore equilibrium gordon asserts that the increase in leveragerelated costs is brought about by an increase in the debt equity ratio all these studies however focus primarily on the tax benefits of debt financing to the corporation and implicitly assume that each firm has a unique optimal structure which may change with inflation in contrast miller 14 in a world without inflation concludes that firms are indifferent to their capital structure and that the aggregate debt equity ratio is determined by the ratio of the wealth of investors who for tax reasons choose to hold bonds to the wealth of those who choose to hold stocks this paper explicitly incorporates tax considerations of both investors and firms into the analysis of the effect of inflation on the aggregate corporate debtasset ratio it is demonstrated that the effect of inflation on the aggregate debtasset ratio cannot be determined theoretically however inflation is likely to increase this ratio when personal income tax schedules are indexed to the price level and or when leverage related costs are relatively high and the tax on income from holding common stocks is relatively low we consider an economy in which investors are subject to a progressive tax system income from corporate bonds

school supply constraints and children s educational outcomes in rural ghana abstract studies of school attainment often fail to acknowledge the possibility that prices for all schooling levels affect the decision to attend any one schooling level in developing countries the assumption that schooling costs are constant throughout the education cycle is manifestly untrue this paper concentrates on the empirical implications of introducing schooling costs that increase with schooling level the results suggest that the cost of advanced levels of education influences decisions at the primary school level the relative magnitude of the cross price elasticities suggests that cross price effects should not be ignored when designing educational user fees

household saving out of different types of income revisited the purpose of this paper is to test for two hypotheses about household consumption and saving behaviour namely the substitution hypothesis according to which changes in corporate retained earningshave an offsetting effect on household savingand the hypothesis that consumption and saving out of different types of income vary cross country evidence from 13 oecd countries over the period 1963 80 lies very well in accordance with both of these hypotheses moreover results are robust to alternative specifications of consumption function to additional variables and to estimation methods

earnings functions for the self employed comment abstract the standard human capital earnings model is applied to data from a 1975 socioeconomic survey conducted in tehran iran results show that the returns to schooling for the self employed not including street vendors canvassers and newsvendors are statistically equivalent to those of wage and salary workers thus in contradiction to conclusions drawn from a study by chiswick 1976 the high rates of return to schooling found in many studies of less developed countries do not appear to be the result of the systematic exclusion of the self employed from the estimating samples in other words when wage and salary workers are compared with the self employed in similar occupations their earnings profiles are similar

bibliography of franco modigliani s publications 1944 1985 ed in the c f a digest the institute of chartered financial analysts vol 11 no 4 fall 1981 pp 15 16 166 financial markets the decades ahead an m i t perspective proceed ings of a symposium for senior executives the industrial liaison program of the massachusetts institute of technology june 1980 167 utility analysis and aggregate consumption functions an attempt at integration with richard brumberg the collected papers of franco modigliani the life cycle hypothesis of saving vol 2 ed a abel m i t press cambridge ma 1980 pp 128 97 168 the trade off between real wages and employment in an open economy belgium with jacques h dreze c o r e universite catholique de louvain discussion paper no 7947 1980 reprinted in european economic review 15 1981 pp 1 40 169 the stucture of financial markets and the monetary mechanism with lucas papademos controlling monetary aggregates iii conference series number 23 federal reserve bank of boston 1980 170 a new look at the monetary mechanism the 1980 w a mackintosh lecture queen s university discussion paper no 447 kingston ontario canada 1981 171 uma nova abordagem do mecanismo monetario e sue relacao com a estrutura financeira the monetary mechanism revisited and its relation with the financial structure revista de econometria sociedade brasileira de econometria 1 1 april 1981 pp 5 30 172 comment on scale of macro econometric models and accuracy of fore casting by g fromm and l r klein in j kmenta and j b ramsey eds large scale macro econometric models north holland 1981 pp 393 4 173 comment on where have all the flowers gone economic growth in the 1960s by robert m solow in j a pechman and n j simler eds economics in the public service papers in honor of walter w heller ww norton co inc 1981 pp 75 83 scand j of economics 1986 this content downloaded from 157 55 39 141 on mon 18 jul 2016 05 30 52 utc all use subject to http about jstor org terms

where did all the saving go a look at the recent decline in the personal saving rate the inadequacy of aggregate saving is often cited as an explanation of the low levels of capital accumulation and productivity growth in the united states aggregate saving is low in large part because of the steep decline in the personal saving rate that has occurred since 1975 this paper uses a modified life cycle model to analyze the determinants of this recent decline in the personal saving rate the empirical results do not support the hypothesis that the decline in the saving rate was the result of a reduction in the real rate of return the reduction in the rate of growth of income and the changing demographic profile of the labor force are the most important factors in accounting for the fall in the personal saving rate

wage structure as implicit insurance on human capital in developed versus underdeveloped countries abstract this paper explores the role of wage structure as implicit insurance on human capital it illustrates how smaller wage differentials in the developed world can be welfare enhancing by acting as implicit insurance while larger wage differentials in underdeveloped countries make investments in human capital riskier in other words with smaller wage differentials the students in a developed country are insured against poor educational outcomes through the existence of well paid alternative employments which are not present in the economy of a less developed country this result arises as multiple equilibria in a general equilibrium model when there are no insurance markets for human capital

risk sharing on the labour market and second best wage rigidities the starting point of the analysis is that a significant proportion of the labour force is not covered by efficient labour contracts in particular the non existence of forward labour contracts limits the opportunity of efficient risk sharing through private arrangements among young labour suppliers and capital owners in such a context state dependent labour taxes and employment subsidies would be required to achieve ex ante pareto efficiency in the absence of employment subsidies a certain limited degree of downward wage rigidity is in general pareto superior to full wage flexibility at the second best optimum so defined productive efficiency is sacrificed in some states in order to achieve greater efficiency in risk sharing thus the unemployment associated with wage rigidity is inefficient though voluntary due to the levels of benefits and second best efficient a limited degree of wage discrimination by hiring date is typically part of the second best policy

choosing a monetary instrument the case of supply side shocks abstract this paper examines the monetary instrument choice problem in models with an explicit supply sector and endogenous prices and price expectations we use the popular linear quadratic certainty equivalence framework to obtain analytic solutions the results indicate that interest rate policies generally are better able to insulate the real sector from unanticipated supply shocks we also show that at this level of abstraction the optimal choice of an instrument is independent of the specification of expectations e g rational vs adaptive price expectations the paper then reports empirical evidence from two experiments on the large nonlinear mit penn ssrc econometric model the evidence is consistent with the hypothesis that interest rate policies are preferable if the supply sector is the major source of uncertainty

fiscal policy and the current account deficits and trade jose vinals does the balance of payments act as an external constraint on the design of domestic economic policy in practice most governments believe it does yet popular discussion is sometimes confused this paper begins by evaluating the nature of the external constraint and the extent to which it can adequately be measured by the current account of the balance of payments it is often argued that a fiscal expansion will increase employment it is also widely held that a fiscal expansion necessarily leads to a deterioration of the current account while these propositions may hold in specific circumstances neither is generally true the theoretical basis of the two propositions is examined and compared with recent international experience when important changes in fiscal stance occurred the popular presumptions are confirmed by recent experience in the us the uk and germany but france is a counterexample to the first and spain to the second the important policy implication is that one can identify both in theory and in practice clear circumstances in which expansionary fiscal policy is appropriate and will not be thwarted by external considerations

evidence of financial leverage clienteles estimates of the marginal ordinary tax rates of investors obtained from responses to a survey about their incomes were found to be only slightly negatively correlated with the debt ratios of the firms whose stock they held klm s failure to observe a strong negative correlation raises doubts concerning the existence of financial leverage clienteles the purpose of our study is to provide new evidence concerning financial leverage clienteles based on a different estimator of tax rates of shareholders the evidence indicates that personal tax rates tend to be highly negatively correlated with financial leverage providing support for the existence of financial leverage clienteles in the following section we discuss the miller and klm models of financial leverage clienteles section ii contains a description of the procedures used for estimating personal tax rates and a description of the data used to test the hypothesis of leverage clienteles results and implications of the tests are presented in section iii and section iv contains the summary

returns to education a further international update and implications this paper updates evidence on the returns to investment in education by adding estimates for new countries and refining existing estimates to bring the total number of country cases to over 60 the new cross country evidence confirms and reinforces earlier patterns namely that returns are highest for primary education the general curricula the education of women and countries with the lowest per capita income the findings have important implications for directing future investment in education which for efficiency and equity purposes should concentrate on these priority areas

a portfolio model of korean household saving behavior 1962 1976 in his recent paper on korea s saving and capital accumulation experience over the 1962 76 period williamson challenges development economists to improve on the simplistic models of saving behavior that have come to characterize studies of surplus mobilization in less developed countries he warns that we can no longer be satisfied with single equation ordinary least squares estimated models that ignore the simultaneous nature of the saving investment decision he further suggests that saving studies have been overly concerned with modeling total domestic saving flows and have consequently bypassed important issues relating to changes in sectoral saving patterns and within sectors changes in the composition of saving others have had similar criticisms mikesell and zinser and leff and sato complain that the specifications of total and sectoral saving functions in ldc macro studies have been unimaginative and not well grounded in theory 2 they acknowledge those household saving studies that have utilized theoretically appealing specifications based on wealth stock adjustment and life cycle saving models but they suggest that many studies have been ad hoc in nature and have tended to place excessive emphasis on current disposable income nia definition as the leading and in some cases the only explanatory variable preoccupation with simplistic keynesian saving models that emphasize current nia income is unfortunate since from a purely theoretical standpoint permanent and or capital gains adjusted income measures would be more appropriate explanatory variables to use along with expected real rate of return variables in household wealth accumulation studies indeed studies that have used permanent income and life cycle variables have yielded interesting results 3 mikesell and zinser and williamson point out that measuring the effect on saving of changes in interest rates has been handled in a

on the existence of an optimal capital structure theory and evidence one of the most contentious issues in the theory of finance during the past quarter century has been the theory of capital structure the geneses of this controversy were the seminal contributions by modigliani and miller 18 19 the general academic view by the mid 1970s although not a consensus was that the optimal capital structure involves balancing the tax advantage of debt against the present value of bankruptcy costs no sooner did this general view become prevalent in the profession than miller 16 presented a new challenge by showing that under certain conditions the tax advantage of debt financing at the firm level is exactly offset by the tax disadvantage of debt at the personal level since then there has developed a burgeoning theoretical literature attempting to reconcile miller s model with the balancing theory of optimal capital structure e g deangelo and masulis 5 kim 12 and modigliani 17 the general result of this work is that if there are significant leverage related costs such as bankruptcy costs agency costs of debt and loss of non debt tax shields and if the income from equity is untaxed then the marginal bondholder s tax rate will be less than the corporate rate and there will be a positive net tax advantage to corporate debt financing the firm s optimal capital structure will involve the trade off between the tax advantage of debt and various leverage related costs the upshot of these extensions of miller s model is the recognition that the existence of an optimal capital structure is essentially an empirical issue as to whether or not the various leverage related costs are economically significant enough to influence the costs of corporate borrowing the miller model and its theoretical extensions have inspired several timeseries studies which provide evidence on the existence of leverage related costs trczinka 28 reports that from examining differences in average yields between taxable corporate bonds and tax exempt municipal bonds one cannot reject the miller hypothesis that the marginal bondholder s tax rate is not different from the corporate tax rate however trczinka is careful to point out that this finding does not necessarily imply that there is no tax advantage of corporate debt if the personal tax rate on equity is positive indeed buser and hess 1 using a longer time series of data and more sophisticated econometric techniques estimate that the average effective personal tax rate on equity is statistically positive and is not of a trivial magnitude more importantly they document evidence that is consistent with the existence of significant leverage related costs in the economy

intermediation and cost determinants of large bank liability composition abstract a translog profit function is estimated for an aggregate of large u s money center banks over 1970 1975 estimates of liability substitution elasticities and own price elasticities of demand are obtained and contrasted with results from earlier partial equilibrium studies statistical analyses led to the rejection of two commonly held propositions in banking 1 that the aggregation of all bank debt to obtain a debt equity ratio is valid and 2 that asset structure can be ignored when liability composition is being determined a mixed full information maximum likelihood estimation technique was used in estimation

doing well by doing good green office buildings this paper provides the first credible evidence on the economic value of the certification of green buildings in the commercial sector value derived from impersonal market transactions rather than engineering estimates we match publicly available information on the addresses of energy star and leed rated office buildings to a commercial data source detailing the characteristics of u s office buildings and their rental rates we analyze the micro data on 694 certified green buildings and on 7489 other office buildings located within a quarter mile of the certified buildings we find systematic evidence that rents for green offices are about two percent higher than rents for comparable buildings located nearby effective rents i e rents adjusted for the occupancy levels in office buildings are about six percent higher in green buildings than in comparable office buildings nearby at prevailing capitalization rates conversion of the average non green building to an equivalent green building would add more than 5 million in market value these results are robust to the statistical models employed

a reexamination of the empirical relationship between investment and financing decisions several studies see 7 15 9 and 16 have attempted to ascertain the empirical relationships that exist between the financing and investment decisions of firms the primary impetus for these efforts was provided by modigliani and miller mm 20 21 when they demonstrated that under the assumption of perfect capital markets the optimal investment decisions of a firm are separable from its financing decisions in the presence of market imperfections interdependencies between these decisions that violate the basic mm propositions may exist therefore the studies referred to above have essentially focused upon determining whether market imperfections have been of sufficient magnitude to lead to joint determination of investment and financing decisions though the original mm propositions were introduced more than two decades ago the nature of the empirical relationship between investment and financing decisions remains a controversial issue the fact that this matter is still unresolved is not attributable to a lack of attention for the original propositions have been examined in the presence of taxes bankruptcy costs and agency costs with no clear consensus emerging

intergenerational earnings mobility inequality and growth abstract we examine a model in which per capita income inequality intergenerational mobility and returns to education are all determined endogenously individuals earn wages depending on their ability which is a random variable they purchase an education with transfers received from their parents and are subject to liquidity constraints in the model multiple steady state equilibria are possible countries with identical tastes and technologies can reach differing rates of mobility inequality and per capita income equilibria with higher levels of output also have lower inequality higher mobility and more efficient distribution of education

the choice among monetary aggregates as targets and guides for monetary policy difficulties in meeting its monetary targets led the federal reserve in october 1979 to adopt a new operating procedure to achieve firmer control over monetary aggregates yet the inflationary environment has fostered financial developments that affect the behavior of the traditional monetary aggregates and that raise questions whether different aggregates may not be better this paper compares the various monetary aggregates for their usefulness as guides for monetary policy in the light of recent financial developments the criterion of usefulness is the ability to influence and predict gnp growth this ability is tested in two ways first by the stability of the velocities of the monetary aggregates and second by the advance information they provide of gnp growth it is presumed that the aggregates with the most stable velocities make the best targets for monetray policy and that those containing the most advance information make the best guides for policy the paper has three main sections the first discusses the criteria for using monetary aggregates as targets and guides the second two sections describe and report tests of the various monetary aggregates as targets and guides a summary of findings is presented as a final section

saving out of different income categories in greece abstract the aim of the present paper is to investigate whether in the case of greece and within the framework of the existing national accounting system significantly different marginal propensities to save are attached to different income categories we establish that the marginal propensity to save out of property income is significantly higher in fact double than the marginal propensity to save out of agricultural income and income from wages and salaries of the other sectors of the economy

the propensities to consume labour and property incomes in the commonwealth caribbean this article outlines theoretically the aggregate savings implications of differences in business and personal savings propensities time series empirical tests for two developing economies generate the conclusion that the marginal business savings rate is much higher than the marginal personal savings rate for double log consumption functions differences in the personal propensity to consume labour and property incomes are substantial and statistically significant

wage functions and occupational selection in a rural less developed country setting economists are just beginning to develop empirical knowledge about the basic relationships that determine the distribution of incomes and allocation of resources in the poor rural regions of the world understanding interactions between agriculture and the rest of the economy is particularly important in this context this paper empirically investigates the allocation of human resources between farm work and other jobs and the compensation received by individuals for their work in agriculture and elsewhere specifically two related tasks are undertaken in this paper 1 the estimation of wage functions and 2 the estimation of functions determining the allocation of time among occupations there have been a series of papers which estimate the earnings function using data from poor countries for examples see blaug 1974 chiswick 1977 and valdes 1971 however this study focuses not on total earnings but on the wage rates a person may earn in labor market work because the wage rate is the relevant price of time for many allocative decisions for example in dividing the work year between self employed farming and work as an employee off the farm a key price is the potential wage rate the person can earn in the labor market for discussion and evidence on this issue see sumner 1978 recently a few studies have appeared which illustrate the importance of understanding potential wage variations across individuals in less developed countries rosenzweig 1978 uses wage estimates from aggregate indian data in a model determining the impact of land reform bardhan 1979 develops wage functions from a sample survey in rural india as a step in estimating labor supply for rural households kusnic and davanzo 1980 use wage functions to impute potential incomes and to measure the full income distribution these previous studies illustrate the importance of understanding the determinants of market wages the present paper develops wage functions in more detail focusing especially on industrial differentials in many rural areas employment opportunities may be usefully categorized into 1 self employment mainly on small farms 2 work for wages on large farms and 3 work for wages in non farm industries the combination of selfemployment and work as an employee is also important in many rural areas in both rich and poor countries this paper examines the impact of personal characteristics on the choice to participate in work for wages and on the choice of industry these estimates also form a basis for studying industrial wage differentials tentative estimates of the dependence of participation on expected wages are also presented below the empirical analysis in this paper is based on a 1974 sample of five villages in central guatemala see corona 1978 and stein 1978 one village petapa is larger richer and more urban than the others it lies south of guatemala city within commuting distance of the capital the other villages are outside the capital city region the population sampled is almost exclusively ladino spanish culture as opposed to indian data are available on the earnings hours of work industry age schooling literacy and village of 1 005 male heads of households approximately one third of the sample work as both self employed farmers and hired workers and most of these men work on fincas large plantations another quarter of the sample work as self employed farmers and do no work for wages the suburban village has mostly nonagricultural workers whereas the four other villages have predominantly farmers and farm employees in received for publication june 21 1979 revision accepted for publication december 31 1980 north carolina state university research on this paper began while i was a rockefeller foundation supported post doctoral fellow in the labor and population group of the economics department of the rand corporation and continued at north carolina state university supported by the agricultural research service at rand robert newman served as my research assistant and at n c state james cochell provided able assistance i have benefited from the comments of colleagues at both institutions and from members of the labor economics workshop at the university of north carolina at chapel hill i also thank two anonymous referees for useful suggestions this is paper number 6558 of the journal series of the north carolina agricultural research service raleigh n c

optimal inflation with corporate taxation and financial constraints abstract how does inflation affect the investment decisions of financially constrained firms in the presence of corporate taxation inflation interacts with corporate taxation via the deductibility of i capital expenditures and ii interest payments on debt through the first channel inflation increases firms taxable profits and further distorts their investment decisions through the second expected inflation affects the effective real interest rate and stimulates investment when debt is collateralized the second effect dominates therefore present a tax advantage to debt financing positive long run inflation enhances welfare by mitigating or even eliminating the investment distortion

gary becker s contributions to economics from his first published work gary becker has consistently strived to extend the domain of economic analysis his interest is in social science broadly defined and he is convinced that economic theory in its established neoclassical form provides the best set of tools for analysing social science questions when he finds an interesting problem on the borderland of what is conventionally thought of as economics and that is where he is looking for his problems he is not worried that he is trespassing on the traditional grounds of sociologists political scientists lawyers anthropologists or biologists on the contrary he clearly delights in showing how economic theory can be brought to bear on such problems he is of course not alone in trying to extend the borders of economics many other scholars have contributed to the movement which some have characterized as economic imperialism becker is one of the most outstanding of the imperialists this review of his work is organized in accordance with the main topics on which becker has worked chronologically his work on the economics of discrimination which grew out of his doctoral dissertation comes first next in order come his fundamental contributions to human capital theory he was also one of the founders of the so called new theory of consumption which is no longer so new and he has made important contributions to the economic study of crime and punishment and to the economics of political decision making some of his most original work is in the economics of the family where he provides economic explanations of such questions as marriage divorce and procreation after the topic by topic review of becker s contributions i will try to provide a more general evaluation of his work and to characterize it more fully in terms of research traditions and methodological attitudes

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

effects of shorter hours on employment in disequilibrium models abstract in this paper the employment effects of a wage compensated and non compensated reduction of standard working time are examined in the context of disequilibrium theory in disequilibrium models with exogenous working time noncompensated shorter standard hours increase employment in both regimes keynesian and classical unemployment wage compensation reduces the employment response at a regime dependent rate if working time is endogenized by taking into account overtime effects the employment response of shorter hours is positive in keynesian unemployment and negative in classical unemployment wage compensation increases the employment effect in the keynesian regime and decreases it in the classical regime a model is presented that allows for hours as well as capital stock adjustment and integrates non competitive price setting

banks firms and the relative pricing of tax exempt and taxable bonds abstract the traditional analysis of the relative pricing of tax exempt and taxable debt is a habitat theory of the term structure of interest rates in the traditional analysis the preferences of investors for particular maturities of debt lead to unique pricing relations at every point on the yield curve which are indicative of investor marginal tax brackets recent work by fama 1977 suggests that banks are potential arbitrageurs across tax exempt and taxable bond markets which force a particular equilibrium on the pricing of short term bonds miller 1977 suggests that the choice of debt or equity financing by firms in the aggregate forces a similar equilibrium on the pricing of all tax exempt and taxable bonds this paper exploits the institution of regulation q and its effects on the banking system to bring evidence to bear on the predictions of these three models

the levered p e ratio a vast literature examines the role of debt in corporate valuation but most of these works proceed from the vantage point of corporate finance i e ascertaining the effects of adding debt to a previously unlevered company the investment analyst however confronts an already levered company with already levered return parameters the analyst s challenge is to estimate the stock s theoretical value by inferring the company s underlying structure of returns this shift in vantage point leads to results about the effect of leverage that are surprisingly different from the results of studies from the corporate finance angle whereas corporate finance studies find only a moderate effect of leverage when viewed from the analyst s perspective a company s value has such a high degree of sensitivity to the leverage ratio that it can significantly alter the theoretical p e valuation moreover from the analyst s vantage point leverage always moves the p e toward a lower value than that obtained from the sta

debt taxes and international equilibrium abstract this paper employs an extended miller model to analyze capital structure decisions of individual firms in a two country setting miller equilibria are generally not consistent with an international equilibrium if the tax subsidy of debt differs across countries the most obvious reason for differential tax subsidies is differences between national corporate tax rates we also identify differential tax subsidies of debt if inflation rates differ across countries for both cases we examine the adjustment process from national equilibria to an international equilibrium without and with barriers to international investment we derive the relationship between the equilibrium yields on debt and equity in the two countries and discuss the fisher hypothesis that real returns do not depend upon inflation in a two country miller world

the bank capital decision a time series cross section analysis this paper seeks to explain the dramatic decline in capital to asset ratios in u s commercial banks during the last two decades it is hypothesized that the rise in nominal interest rates during this period might have contributed substantially to the fall in capital ratios time series cross section estimation supports the hypothesis regarding the interest rate bank capital is the sum of equity plus debt subordinated to deposits capital provides a cushion that protects the bank from insolvency when the value of its assets falls a bank can meet its obligations to depositors as long as losses on its asset portfolio do not exceed its capital the ratio of capital to total assets in u s commercial banks has fallen dramatically in the last two decades dropping from 11 7 percent in 1961 to 5 7 percent in 1978 the lowest level since world war ijj1 figure 1 shows the decline in the ratio of capital to noncash assets these figures suggest that the federal deposit insurance corporation fdic and uninsured depositors are being exposed to increased probabilities of losses from bank insolvencies however relatively little empirical research has been devoted to the determinants of the bank capital decision further the existing work see for example peltzman 24 mingo 20 or mayne 17 18 uses only cross sectional data and therefore does not necessarily explain the decline in capital to asset ratios over time previous empirical research has also focused on book values rather than market values of debt and equity although market values provide better estimates of the protection afforded by capital this practice might be partly justified by the attention paid to book values by bank regulators however the increasing use of qualitative factors as well as book ratios in capital regulation indicates that regulators are aware of the deficiencies in book values many of the so called qualitative considerations are precisely the factors that distinguish market from book value 6 pp 78 80 finally difficulties arise over the proper measure of capital the empirical studies cited above treat equity and debt capital symmetrically both equity and assistant professor of finance economics boston university school of management this paper was originally written as part of a doctoral dissertation at m i t helpful suggestions from robert mcdonald richard schmalensee larry summers and edward j kane are gratefully acknowledged l these statistics are based on the market values of capital and assets the methods used to construct the market value series are described in the appendix capital asset ratios based on book values also have fallen over the period in question although not as severely

incentives allocation and labour market reforms during transition the case of urban china 1986 1990 has the reform process in china resulted in the introduction of incentives directed at a more efficient allocation of resources using data on individual earnings in urban liaoning province for the period 1986 1990 and a wage equation approach we address this issue in the context of labour market reforms focusing specifically on returns to education our results indicate that failure to address the issue of endogenous selection of more able individuals into state owned enterprises soes can severely bias returns downwards unlike in soes returns in collective owned enterprises coes increased the latter having been allowed to grow out of the plan more quickly and subject to more competition in factor and product markets we conclude that decentralization without competition is unlikely to result in the introduction of an efficient incentive mechanism the more administratively determined regular wages are one avenue for increased returns we find evidence of differentiated bonuses in coes but

a stock flow consistent macro econometric model of the uk economy part i this paper is the second of a series of two which describe the estimation and simulation of a stock flow consistent macro economic model of the uk economy the first part davis 1987 surveyed the theoretical literature on stock adjustment dynamics criticized existing uk forecasting models for omitting many potential stock flow interactions and gave an outline of the model which is constructed here the estimation and simulation results suggest that variables encapsulating such stock flow effects are frequently significant in the estimation of key equations and that their inclusion may make a sizeable difference to the simulation properties of a model

the value of the tax subsidy on risky debt the effect of corporate taxes on the market value of a levered firm continues to be a central issue in recent contributions in finance theory e g miller 1977 deangelo and masulis 1980 kim 1982 modigliani 1982 in these and other studies e g krause and litzenberger 1973 scott 1976 brennan and schwartz 1978 kim 1978 the relationship between market value and capital structure is established by formulating a tax subsidy function that specifies the partial effect of debt on the expected tax savings at the corporate level under the existing u s tax code a working assumption in most of these studies is that both principal and interest are tax deductible this assumption is made in the spirit of the original modigliani and miller 1963 formulation in which debt is taken to be perpetual and riskless indeed it is well known that the tax shield provided by the deduction of principal in a singleperiod framework has the same value as the tax shield from interest deductions in the case of perpetual and riskless debt under this assumption it is shown that in the absence of non debtthis paper examines the relationship between leverage and the value of the firm when non debt related tax shields are available and the corporate tax is levied as an income tax in a previous paper de angelo and masulis argue that in the presence of nondebt related tax shields the relationship between debt and firm value is concave resulting in an interior optimal capital structure when there is a tax induced differential in the cost of corporate debt their result derives from the fact that they assume the payment of debt principal and non debt related depreciation charges are deductible however the former deduction is consistent with a wealth tax while the latter is consistent only with an income tax we show that if the interest alone is deductible the debt firm value function is convex resulting in corner solutions to the capital structure problem the authors wish to thank richard castanias richard green lemma senbet and especially an anonymous referee for helpful comments and richard green and robert dammon for computational assistance

changes in the returns to education in costa rica abstract i document patterns in the returns to education in costa rica from 1976 to 1992 the most important change during this period was that from the late 1970s to the mid 1980s the return to education fell by about one fourth i construct demand and supply indices within a fixed manpower requirements framework to estimate demand and supply shifts i find a significantly positive relationship between measures of demand for education and a significantly negative relationship between measures of supply for education these findings suggest that calculations based on the returns to education such as the returns to social investments in education must take into account future changes in the returns to education as supply and demand conditions develop

asymmetries in the union wage premium in ghana the article uses a matched employer employee data set for ghana and adopts a quantile regression approach that allows the effects of unionization to vary across the conditional wage distribution it is shown that if there are intrafirm differences in unionization there does appear to be a premium among poorer paid workers in the formal sector although this cannot be given a causal interpretation it suggests important issues about how unions may affect one part of the labor market

taxation portfolio choice and debt equity ratios a general equilibrium model this paper explores the portfolio behavior of investors differing with respect to both tax rates and risk aversion emphasizing the role of constraints on individual and firm behavior in ensuring the existence of and characterizing portfolio equilibrium under certain conditions on the securities available in the market which also are necessary for shareholders to be unanimous in supporting firm value maximization investors will be segmented by tax rate into two groups one specialized in equity and the other in debt though the relative wealths of the two groups determine the aggregate debt equity ratio each firm will be indifferent to its financial policy

corporation tax finance and the cost of capital this paper examines the influence of corporate tax exhaustion on the firm s financial and investment decisions a dynamic programming model is used to establish effective marginal tax rates in the presence of a tax system that permits the carry forward of losses to future periods the paper demonstrates that internal optimal financial structures may result which do not require the imposition of external constraints the cost of capital is highly sensitive to the current taxable earnings of the firm and the implications of this for such tax transfer activities as leasing are discussed

modelling companies debt and dividend decisions with company accounts data reliable empirical models of company financial decisions have proved hard to construct using aggregate data this paper uses company specific data drawn from the published accounts of a large sample of uk companies to estimate a model of debt and dividend decisions an attempt is made to assess the relative importance of costs of funds the tax system the balance sheet and profitability of the company and of statutory controls in determining these key financial decisions diversity of behaviour is analysed by allowing for unobserved company specific effects and by examining subsets of the full sample

the critical implicit tax rate and capital structure in a miller world firms are indifferent between debt and equity when the tax rate that isimplicitly used to price a bond is equal to the statutory corporate tax rate in this paper we derive the implicit tax rate that makes a firm marginally indifferent between debt and equity when debt related tax savings are uncertain we analyze the functional relationship between this critical tax rate and the amount of debt issued by a firm and discuss the implications for a firm s optimal capital structure

the trade off between real wages and employment in an open economy belgium abstract the purpose of this paper is twofold first we discuss the nature and quantitative order of magnitude of the trade off between real wages and employment in the small open economy belgium second we draw policy conclusions from our positive analysis and compare income policies with alternative approaches to employment stimulation including shorter working hours and currency depreciation to study the trade off between real wages and employment we treat external balance as a binding constraint on demand management an exogenous increase in real wages affecting adversely the competitiveness of domestic producers on the export and import markets impairs external balance the impact of the wage increase on output and employment is evaluated through the reduction in domestic demand required to restore external balance at the empirical level we endeavour to evaluate separately the influence on exports and imports of domestic costs at unchanged capacity levels and of capacity levels themselves and we endeavour to evaluate the influence of real wages on capacity levels through scrapping and investment all evaluations rely on the foreign trade equations of econometric models of the belgian economy the conclusions from our empirical investigation are first that estimates of the trade off between real wages and employment in belgium are subject to considerable imprecision second that the short run elasticity of employment with respect to real wages keeping capacity constant is probably quite small like 0 2 and definitely less than unity in absolute value third that the corresponding medium run elasticity taking into account capacity adjustments is probably sizeable like 2 and definitely larger than unity in absolute value and fourth that exchange rate adjustments might not make too much difference in either the short run or the medium run turning to a discussion of policy we shall argue that these conclusions give support to a policy of constant real labour incomes of comprehensive efforts to redistribute work through shorter working hours or related schemes and of selective efforts to slow down capacity scrapping

heterogeneity in returns to schooling econometric evidence from ethiopia this paper investigates whether returns to schooling in ethiopia vary across the wage distribution of individuals to do so it adopts an instrumental variables quantile regression framework that allows for both endogeneity of schooling resulting from unmeasured ability and possible heterogeneity in the impact of schooling the empirical estimates indicate that education contributes more to the earnings of individuals at a lower end of the income distribution

poverty and the political economy of public education spending evidence from brazil a large body of literature has emphasized the elite capture of democratic institutions as the explanation for the low levels of spending on public education in many low income democracies this paper provides an alternative to that longstanding hypothesis motivated by new cross country facts and evidence from brazilian municipalities we hypothesize that many democratic developing countries might invest less in public education spending because poor decisive voters prefer the government to allocate resources elsewhere one possible explanation is that low income voters could instead favor redistributive programs that increase their incomes in the short run such as cash transfers to test for this possibility we design and implement an experimental survey and an incentivized choice experiment in brazil the findings from both interventions support our hypothesis

taxation corporate financial policy and the cost of capital the cost of capital plays an important role in the allocation of resources among competing uses in a decentralized market system the purpose of this paper is to organize and present what is known and what is hypothesized about the effects of taxation on the incentive to invest via the cost of capital taking full account of important issues that arise independently from the question of taxation included in the analysis is a discussion of empirical findings about the interaction of inflation and taxation in influencing the incentive to invest and a treatment of taxation and uncertainty this abstract was borrowed from another version of this item

the capital structure puzzle revisited corporate finance researchers have long been puzzled by low corporate debt ratios given debt s corporate tax advantage this article recognizes that firm value typically reflects a growing stream of earnings while current debt reflects a nongrowing stream of interest payments debt to value is therefore a distorted measure of corporate tax shielding even with very small debt related costs this may explain the observed magnitude and cross sectional variation of debt ratios since this variation may be independent of tax shielding debt ratios provide an inappropriate framework for empirically examining the trade off theory of capital structure article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

wage gaps factor shares and real wages the relationships which link real wages capital intensity and factor shares are tested as a prelude to tests of the relationship between wage rigidities and labour market institutions evidence from seven countries indicates that the evolution of factor shares is well explained by changes in capital intensity which is itself well explained by product wages and technical progress a key implication is that changes in full employment capital labour ratios have been the dominant reason for the longer run decline of profit shares in europe and japan relative to the united states it follows that changes in cyclically adjusted factor shares provide little or no information regarding the gap between the actual real wage and its full employment value

mm past present future one of the most productive days in my life was the day in 1956 when it was agreed that merton miller then a shy and retiring young man would you believe it would sit in my graduate course in money and macroeconomics at carnegie institute of technology it was an exciting course with excellent students it took a broad view of the subject one issue that was covered was the cost of capital as a determinant of the rate of investment i had been intrigued by the subject ever since attending a national bureau conference on business finance at which i gave a fairly conventional paper modigliani and ziman 1952 but mostly i listened to a paper by david durand 1952 in which the possibility that financial structure would not affect the market valuation or the cost of capital was suggested only to be rejected as not relevant to the actual capital markets in preparing my lecture dealing with the cost of capital i was able to provide for a world of no taxes a sort of proof of proposition i based on arbitrage i reported the result to my class the next day adding that i didn t really believe my result and there probably was something wrong but miller was instantly captured by the result because he said he knew of a recent paper allen 1954 which provided empirical support for the result even though it lacked a convincing rationale we thus formed

the determinants of corporate capital structure japanese evidence this paper features a cross sectional regression analysis of the determinants of the company debt to value ratios of a sample of 125 japanese industrial and commercial companies for the period 1980 1983 inclusive the regression equations include a set of dummy variables designed to capture industry effects and a number of other variables acting as proxies for likely determinants of debt ratios suggested in the empirical literature such as profitability non debt tax shields risk etc the results are consistent with the existence of industry effects and suggest that paralleling recent american findings profitability is the most significant determinant of japanese company debt ratios

an examination of wage determination in china s rural industrial sector under traditional chinese socialist ideology labour is not considered as a commodity and wages are not viewed as the price of labour market oriented economic reform initiated in the late 1970s however has brought some changes to this politically sensitive area pricing and allocation of labour especially in the rural industrial sector are now much more sensitive to market pressures the performance of labour markets are examined in china s rural industrial sector after 10 years of economic reform when modified to reflect the peculiar circumstances of the chinese rural labour market can conventional models of wage determination be used to explain variations in wages in this sector of china it is found that after only a decade of change the pattern of wage determination in rural china has many parallels with wage determination in western countries

risks and rewards gary becker s contributions to economics gary becker is one of the most original and influential economists of our age his originality lies in extending the frontiers of economics and broadening the range of important social science problems that are amenable to economic analysis he has gone against the grain of establishment thinking in the economics profession invariably choosing to work on problems that were considered beyond the boundaries of modem economics yet this work made close contact with many of the great economists of the past and many of the concepts he invented and developed are now widely if not routinely used in modem economics several of the approaches to problems he pioneered have evolved into fields and specialities in their own right that becker has had an immense intellectual impact and influence in the economics profession is supported empirically by the voluminous citations to his work over the years and in other ways obviously citation counts have well known difficulties and cannot prove anything by themselves but if used in conjunction with more fundamental evidence they do have the virtue of being quantifiable marshall medoff s 1989 1 recent citation study is one of the best available because citations are weighted by the importance of the journals in which articles appear among non nobel prize economists working in u s universities under 65 years of age becker ranks first in total citations over the 1971 85 period to which medoff s study refers and he is first by a very wide margin though the study is limited to economists in the united states it is clear that becker would rank at or very close to the top of any worldwide list furthermore becker s work is virtually all substantive economic analysis hardly any of it is devoted to the development of methodological tools or to surveys both of which gamer citations more easily and many concepts

education experience and earnings in the labor market of a developing economy the case of urban khartoum abstract this paper examines the relevance of the human capital approach to explaining the variance in workers productivity and earnings in the labor market or urban khartoum the analysis produces two principal findings first the rate of return to education in sudan is relatively low compared with the rate of return in other developing countries perhaps a reflection of poor quality of education in the sudan second while returns to primary education are lower than average returns to college education are higher this creates an interesting paradox because the sudan educates a higher percentage of children at the secondary and tertiary levels than most sub saharan african countries the most likely explanation is that the emigration of skilled manpower to other arab states combined with an influx of unskilled labor into khartoum has created a situation where skilled manpower is relatively scarce the paper also examines the temporal relationship between education and the labor market and identifies how sudan s rapid expansion of the education system has led to the filtering down of the educational qualifications and job competition a process that may well stimulate dynamic growth throughout the economy

stockholder tax rates and firm attributes abstract this paper develops a rigorous theoretical model to assess when investor clienteles may be empirically identified using ex dividend day data and what firm attributes these clienteles should respond to it then presents empirical results for the period 1963 1977 suggesting that 1 tax based investor clienteles do exist and are reasonably stable over time and 2 these clienteles are strongly influenced by the dividend price ratio but insignificantly by direct measures of risk and other firm characteristics

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

wage inequality and the distribution of education abstract this paper analyzes the relationship between education and wage inequality in metropolitan brazil the study is based on data from ten brazilian annual household surveys pnads which are available for the period 1976 1986 the universe of analysis is limited to occupied prime age males the inequality measure used was theil s second measure which is analytically convenient for a study of the determinants of inequality it is shown that there exist sharp differences in wage inequality across metropolitan areas to identify whether these large regional differences in inequality are directly associated with differences in educational levels or with differences in the steepness of the wage education profiles some simulations are conducted the results indicate that regional differences in the distribution of education are not able to explain much of the regional differences in wage inequality as a matter of fact the differences in wage inequality were shown to be intrinsically associated with differences in the steepness of the wage education profiles

schooling and earnings distributions with endogenous labour force participation marital status and family size this paper investigates the impact of various schooling investment strategies on family and per capita earnings within a framework that integrates effects on earnings family size marital status and labour force participation data are from a 1977 1978 survey of urban nicaraguan women aged 15 45 excerpt

inflation the interest rate and the required return on equity miller has analyzed capital structure in the presence of both corporate and personal taxes the present work investigates the effect of inflation on both interest rates and equity re turns when the miller equilibrium condition is employed in a loanable funds model both an interest rate effect and a redistribution effect are derived the interest rate effect forces the responsiveness of the interest rate to the inflation rate to be below that hypothesized by darby however the redistribution effect may change this responsiveness in either direc tion i introduction the number of academic studies concerning inflation has grown in tandem with the price level researchers have considered the effect of the rate of infla tion on the interest rate the simplest models show that without taxes a 1 per cent rise in the rate of anticipated inflation increases nominal interest rates by 1 percent recently the effect of taxation on the relationship between interest rates and inflation has been investigated for example darby 5 has pointed out that a 1 percent increase in the inflation rate should increase the after tax interest rate by 1 percent imply ing a greater movement in pre tax interest rate this result has been confirmed and extended by gandolfi 13 feldstein 8 and others however empirical evidence has not supported the theoretical work mentioned above beginning with irving fisher many researchers have found that a 1 percent increase in the inflation rate yields less than a 1 percent increase in the pre tax interest rate the results of feldstein eckstein 9 and fama 7 suggest a one to one relationship to our knowledge there is no convincing evidence of a greater than one to one relationship in addition to the lack of empirical validation there is at least one conceptual shortcoming in past studies of inflation and interest rates most theories of corporate capital structure are not suitable to macroeconomic models for university of pennsylvania philadelphia pa 19104 this paper has benefited from the com ments of m flannery g gerber r papetti a santomero and an anonymous jfqa referee

credit constraints and human capital accumulation in the open economy abstract this paper analyzes the implications of capital market imperfections for understanding the causes and consequences of international trade credit constraints in financing education and exogenous income distribution affect patterns of comparative advantage and are crucial in determining the impact of international trade unlike the standard results in the trade literature in the model here trade liberalization in a skill scarce country leads to higher investments in human capital

distribution and growth cross country evidence an endogenous growth model is presented to examine the determinants of economic growth and income distribution and their relationship three major findings from a cross country analysis of 45 countries are 1 a higher level of educational attainment of the labour force has an equalizing effect on income distribution while the larger the dispersion of schooling among the labour force the greater the income inequality 2 human capital investment as well as physical capital investment are significant factors contributing to economic growth and 3 income inequality has a negative effect on economic growth supporting the existence of a complementary relationship between equity and growth

modelling consumers expenditure the purpose of this paper is to model the dynamics of consumers response to changes in the relevant variables wealth and inflation effects on aggregate consumption expenditure are investigated real capital losses or gains due to inflation are accounted for in providing a more appropriate definition of income in a situation of rising prices empirical results for italy show that once the dynamic structure of the model is carefully specified consumption expenditure can be explained in terms of a limited number of variables income and wealth some evidence is found moreover in favour of redefining income while additional inflation effects appear to be not significant

education earnings and the canadian g i bill canadian second world war veterans benefited from an extensive educational pro gram similar to the u s g i bill because of differences in military enlistment rates how ever a much lower fraction of quebec men were eligible for these benefits than men from other provinces building on this fact we analyse inter cohort patterns of education and earnings for english speaking men from ontario using french speaking men from quebec as a control group we find that the instrumental variables estimates of the return to school ing are typically as big or bigger than the corresponding ols estimates jel classification j24 i21

returns to investment in education a global update the author updates compilations of rate of return estimates to investment in education published since 1985 and discusses methodological issues surrounding those estimates some key patterns among the three main levels of education primary education continues to exhibit the highest social profitability in all world regions private returns are considerably higher than social returns because of the public subsidization of education the degree of public subsidy increases with the level of education which is regressive social and private returns at all levels generally decline by the level of a country s per capita income overall the returns to female education are higher than those to male education but at individual levels of education the pattern is more mixed the returns to the academic secondary school track are higher than the vocational track since unit cost of vocational education is much higher and the returns for those who work in the private competitive sector of the economy are higher than in the public noncompetitive sector and the returns in the self employment unregulated sector of the economy are higher than in the dependent employment sector controversies in the literature are discussed in the light of the new evidence the undisputable and universal positive correlation between education and earnings can be interpreted in many ways the causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education given the fact that moral and pragmatic considerations prevent the generation of such pure data researchers have to make do with indirect inferences or natural experiments some have been attempted the author looks at the research on overeducation or surplus schooling the conclusions reinforce earlier patterns they confirm that primary education continues to be the number one investment priority in developing countries they also show that educating females is marginally more profitable than educating males that the academic secondary school curriculum is a better investment than the technical vocational tract and that the returns to education obey the same rules as investment in conventional capital that is they decline as investment is expanded