endogenous export prices and the taiwan us trade imbalance to explain the perplexing issue of why taiwan s trade imbalance with the us has persisted despite the depreciation of the dollar we estimate a four equation model to determine the direct pass through dpt and indirect cost adjustment ica effects of exchange rate changes on taiwan s export prices the ica effect is important in the case of taiwan because it imports mostly intermediate goods for the production of manufactured goods that are exported our findings support the view that dpt and ica effects reduce the effectiveness of exchange rate as a mechanism for international trade adjustment

de gustibus non est taxandum heterogeneity in preferences and optimal redistribution abstract the prominent but unproven intuition that preference heterogeneity reduces redistribution in a standard optimal tax model is shown to hold under the plausible condition that the distribution of preferences for consumption relative to leisure rises in terms of first order stochastic dominance with income given familiar functional form assumptions on utility and the distributions of ability and preferences a simple statistic for the effect of preference heterogeneity on marginal tax rates is derived numerical simulations and suggestive empirical evidence demonstrate the link between this potentially measurable statistic and the quantitative implications of preference heterogeneity for policy

policy intervention in debt renegotiation evidence from the home affordable modification program we evaluate the effects of the 2009 home affordable modification program hamp that provided intermediaries with sizable financial incentives to renegotiate mortgages hamp increased intensity of renegotiations and prevented a substantial number of foreclosures but reached just one third of its targeted indebted households this shortfall was in large part due to low renegotiation intensity of a few large intermediaries and was driven by intermediary specific factors exploiting regional variation in the intensity of program implementation by intermediaries suggests that the program was associated with a lower rate of foreclosures consumer debt delinquencies house price declines and an increase in durable spending

u s bilateral trade flows and exchange risk during the floating period abstract this paper tests for real exchange rate risk effects on u s bilateral trade flows during the floating period using several new as well as previously used risk measures significant negative effects occur in five of six u s import flows and in two of six u s export flows with one export flow showing a significant positive effect these results are consistent with several previous findings for aggregate u s trade two risk measures using the forward exchange rate and assuming a time varying risk premium provide marginally more significant results than the others

secular and cyclical responses of u s trade to income an evaluation of traditional models in the three decades since guy orcutt s 1950 classic paper evaluating empirical research on international trade flows most trade research has focused on the influence of prices in the decade since the benchmark study by houthakker and magee 1969 examination of the role of prices has accelerated although income is consistently the most significant explanatory variable in these studies it is typically introduced only as a background control variable rather than as a variable of central interest the few explicit studies of the link from income to trade either use proxies such as delivery lags and inventory ratios to investigate the dynamics of the link e g gregory 1971 and artus 1973 or decompose income into trend deviation from trend and in one instance change in deviation from trend in an attempt to separate the secular and business cycle components e g ball eaton and steuer 1966 khan and ross 1975 and dunlevy 1980 stephen magee 1975 pp 188 193 211 214 provides a persuasive rationale for at least the spirit of the second line of research arguing that trade flows respond differently to secular and business cycle income changes and that regression estimates with income in level form mix these effects time domain decomposition is now an established practice with the trend response identified with secular forces like comparative advantage hence could be positive or negative in either demand or supply the deviation from trend response with a business cycle keynesian mechanism hence is likely to be positive in demand and negative in supply and the change in deviation from trend response with a sneed of adjustment constraint hence is likely to be negative the most recent evidence bearing on these issues is provided by dunlevy 1980 who finds that the effect of the business cycle income proxy deviation fromtrend income on the supply of exports for the united states and the united kingdom is positive rather than negative evidence contradicting both theory and evidence in earlier capacity pressure studies in this paper we first evaluate traditional regression estimates of income elasticities of demand and supply for u s imports and exports from 1955 to 1979 then compare these estimates to cross spectral estimates of the secular and business cycle responses of trade to income the spectral technique is used because by definition the approach estimates separately the secular and business cycle links between trade and income if the response of trade to movements in income does differ over cycles regression estimates of income elasticities may reflect bias and instability due to cycle varying parameters regression elasticity estimates with income in trend and deviation from trend forms do provide separate estimates but the decomposition is useful only to the degree that the two variables are accurate proxies for secular and business cycle movements in income it should be emphasized that we are not using spectral analysis to detect lead lag properties since these are more directly obtained in the time domain and are relatively trivial for our sample the unique advantage of spectral analysis is that it isolates secular and business cycle components directly even when the time domain link is only contemporaneous the paper is organized as follows section ii presents and evaluates time domain estimates of standard demand and supply equations for u s imports and exports and presents caveats regarding interpretation of the trend and deviationfrom trend income variables section iii proreceived for publication march 4 1981 revision accepted for publication may 12 1982 university of oregon an earlier draft of this paper was presented at the fall 1980 north american meeting of the econometric society we acknowledge helpful comments from s y kwack john mutti and two anonymous referees we also thank john pippenger for supplying the spectral program specx68 and the university of oregon for a faculty research grant remaining errors are solely ours i application of spectral methods to investigate trade income links was first suggested by ball eaton and steuer 1966 p 503 they were unable to use the technique however because the data series available at that time were too short

the failure of government sponsored cartels and development of federal farm policy even today most important enduring monopolies or near monopolies in the united states rest upon government policies the government s support is responsible for fixing agricultural prices above competitive levels for the exclusive franchises of public utilities and radio and tv channels for the single postal service the list goes on and on george j stigler 1993 399 i introduction it is often believed that the coercive power of government can overcome the negotiation and enforcement problems that plague private cartels 1 this claim is made in standard microeconomics text books such as hirshleifer s 1984 262 and it is an integral part of the economic theory of regulation stigler 1971 posner 1974 regulation can have the same effect as a successful cartel it raises prices above competitive levels indeed posner 1974 344 46 argues that it may be less costly for industries with large numbers of firms to obtain supportive government regulation than to privately form a carte 2 by capturing regulatory agencies industry can use the state for its own purposes 3 although broadly correct the view that government sponsorship is an effective mechanism for the successful formation of cartels neglects the costs of organizing the industry into an effective lobby group and the costs that politicians face as they attempt to define and enforce total output levels and individual quotas especially in those cases where the industry is large and heterogeneous and hence most needing of government assistance are these costs likely to be significant under these circumstances the industry will lack a consensus on total production targets and firm quotas where the cuts must be large in order to reach price setting goals quota definition and enforcement will be controversial and political opposition will be intense these conditions provide incentives for politicians to modify cartel goals and to seek alternative ways of raising industry prices and incomes accordingly classic government sponsored cartels may not emerge even though the industry has sought state intervention to augment private collective action this point is supported by research in other settings where private negotiations among heterogeneous parties to address common pool problems have failed the usual problem is disagreement over the distribution of costs and benefits and the parties often turn to the state for a solution yet as johnson and libecap 1982 have shown for fisheries and libecap and wiggins 19851 for oil field unitization the distributional problems encountered in private contracting spill over to the political arena causing delays and modifications of regulations in the case of fisheries regulatory authorities adopt policies that maintain status quo rankings of heterogeneous fishermen and expand the stock through fish hatcheries for instance and politically controversial quotas to reduce harvest typically are not introduced until the fishery is seriously depleted in the case of oil field unitization politicians also are unable to resolve conflicts over the definition of unit shares or quotas the same issue that blocks private agreement as a result government imposed unitization generally does not occur until late in the life of the field after many of the common pool losses have already been inflicted even then the unitization rules leave many margins for dissipation uncontrolled 4 this paper argues that the organization costs facing a heterogeneous industry and the political costs facing politicians in responding to its demands for regulation must be given more attention to explain the actual policies that emerge and to predict when agency capture and government sponsored cartel formation will be successful the argument is illustrated by examining the development of new deal agricultural regulation where initial cartel efforts were gradually modified in response to the political opposition of certain farm groups

optimal progressive labor income taxation and education subsidies when education decisions and intergenerational transfers are endogenous abstract we quantitatively characterize the optimal mix of progressive income taxes and education subsidies in a model with endogenous human capital formation borrowing constraints income risk and incomplete financial markets in addition to the distortions of labor supply progressive taxes weaken the incentives to acquire education the latter distortion can potentially be mitigated by an education subsidy we find that the welfare maximizing fiscal policy is indeed characterized by a substantially progressive labor income tax code and a positive subsidy for college education both the degree of tax progressivity and the education subsidy are larger than in the current us status quo

positive and normative judgments implicit in u s tax policy and the costs of unequal growth and recessions calculating the welfare implications of changes to economic policy or shocks requires economists to decide on a normative criterion one approach is to elicit the relevant moral criteria from real world policy choices converting a normative decision into a positive inference as in the recent surge of inverse optimum research we find that capitalizing on the potential of this approach is not as straightforward as we might hope we perform the inverse optimum inference on u s tax policy from 1979 through 2010 and argue that the results either undermine the normative relevance of the approach or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations

how successful was the new deal the microeconomic impact of new deal spending and lending policies in the 1930s the new deal during the 1930s was arguably the largest peace time expansion in federal government activity in american history until recently there had been very little quantitative testing of the microeconomic impact of the wide variety of new deal programs over the past decade scholars have developed new panel databases for counties cities and states and then used panel data methods on them to examine the impact of new deal spending and lending policies for the major new deal programs in most cases the identification of the effect comes from changes across time within the same geographic location after controlling for national shocks to the economy many of the studies also use instrumental variable methods to control for endogeneity the studies find that public works and relief spending had state income multipliers of around one increased consumption activity attracted internal migration reduced crime rates and lowered several types of mortality the farm programs typically aided large farm owners but eliminated opportunities for share croppers tenants and farm workers the home owners loan corporation s purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers the reconstruction finance corporation s loans to banks and railroads appear to have had little positive impact although the banks were aided when the rfc took ownership stakes

political intervention in debt contracts this paper develops a dynamic general equilibrium model of an agricultural economy in which poor farmers borrow from rich farmers because output is stochastic we allow for idiosyncratic and aggregate shocks there may be default ex post we compare equilibria with and without political intervention intervention takes the form of a moratorium and is decided by voting when bad economic shocks are highly likely state contingent debt moratoria always improve ex post efficiency and may also improve ex ante efficiency moreover the threat of moratoria enhances efficiency when adverse macro shocks are unlikely state contingent moratoria always improve ex ante welfare by completing incomplete debt contracts

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

a fairness justification of utilitarianism differences in preferences are important to explain variation in individuals behavior there is however no consensus on how to take these differences into account when evaluating policies while prominent in the economic literature the standard utilitarian criterion is controversial according to some interpersonal comparability of utilities involves value judgments with little objective basis others argue that social justice is primarily about the distribution of commodities assigned to individuals rather than their subjective satisfaction or happiness in this paper we propose and axiomatically characterize a criterion named opportunity equivalent utilitarian that addresses these claims first our criterion ranks social alternatives on the basis of individuals ordinal preferences second it compares individuals based on the fairness of their assignments opportunity equivalent utilitarianism requires society to maximize the sum of specific indices of well being that are cardinal interpersonally comparable and represent each individual s preferences

marginal tax rates and income new time series evidence this paper estimates the dynamic effects of marginal tax rate changes on income reported on tax returns in the united states over the 1950 2010 period after isolating exogenous variation in average marginal tax rates in structural vector autoregressions using a narrative identification approach i find large positive effects of tax cuts in the top 1 of the income distribution in contrast to earlier findings based on tax return data i also find large effects in other income percentile brackets a hypothetical tax reform cutting marginal rates only for the top 1 leads to sizeable increases in top 1 incomes and has a positive effect on real gdp there are also spillover effects to incomes outside of the top 1 but top marginal rate cuts lead to greater inequality in pre tax incomes

on the optimal timing of capital taxes for many kinds of capital depreciation rates change systematically with the age of the capital consider an example that captures essential aspects of human capital both regarding its accumulation and its depreciation a worker obtains knowledge in period 0 then uses this knowledge in production in periods 1 and 2 and thereafter retires here depreciation accelerates it occurs at a 100 rate after period 2 and at a lower perhaps zero rate before that the present paper analyzes the implications of non constant depreciation rates for the optimal timing of taxes on capital income the main finding is that under natural assumptions the path of tax rates over time must be oscillatory oscillatory tax rates are optimal when depreciation rates accelerate with the age of the capital as in the above example and provided that the government can commit to the path of future tax rates but cannot apply different tax rates in a given year to different vintages of capital

why do farmers fail farm bankruptcies 1910 78 econometric analysis of aggregate time series farm sector data suggests that prior to world war ii the farm bankruptcy rate appears to be associated with financial risk variables while postwar data show a strong association with business risk variables there does not appear to be any evidence that agricultural support payments since world war ii have induced deferred or reduced farm failures

unequal societies income distribution and the social contract this paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political fundamentals can sustain such different systems of social insurance fiscal redistribution and education finance as those of the united states and western europe with imperfect credit and insurance markets some redistributive policies can improve ex ante welfare and this implies that their political support tends to decrease with inequality conversely with credit constraints lower redistribution translates into more persistent inequality hence the potential for multiple steady states with mutually reinforcing high inequality and low redistribution or vice versa

technical change wage inequality and taxes this paper considers the normative implications of technical change for tax policy design a task to talent assignment model of the labor market is embedded into an optimal tax problem technical change modifies equilibrium wage growth across talents and the substitutability of talents across tasks the overall optimal policy response is to reduce marginal income taxes on low to middle incomes while raising those on middle to high incomes the reform favors those in the middle of the income distribution reducing their average taxes while lowering transfers to those at the bottom jel d31 h21 h23 h24 j31 o33

taxation of human capital and wage inequality a cross country analysis wage inequality has been significantly higher in the united states than in continental european countries ceu since the 1970s moreover this inequality gap has further widened during this period as the us has experienced a large increase in wage inequality whereas the ceu has seen only modest changes this paper studies the role of labor income tax policies for understanding these facts we begin by documenting two new empirical facts that link these inequality differences to tax policies first we show that countries with more progressive labor income tax schedules have significantly lower before tax wage inequality at different points in time second progressivity is also negatively correlated with the rise in wage inequality during this period we then construct a life cycle model in which individuals decide each period whether to go to school work or be unemployed individuals can accumulate skills either in school or while working wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks progressive taxation compresses the after tax wage structure thereby distorting the incentives to accumulate human capital in turn reducing the cross sectional dispersion of before tax wages we find that these policies can account for half of the difference between the us and the ceu in overall wage inequality and 76 of the difference in inequality at the upper end log 90 50 differential when this economy experiences skill biased technological change progressivity also dampens the rise in wage dispersion over time the model explains 41 of the difference in the total rise in inequality and 58 of the difference at the upper end

the taxation of superstars how are optimal taxes affected by the presence of superstar phenomena at the top of the earnings distribution to answer this question we extend the mirrlees model to incorporate an assignment problem in the labor market that generates superstar effects perhaps surprisingly rather than providing a rationale for higher taxes we show that superstar effects provide a force for lower marginal taxes conditional on the observed distribution of earnings superstar effects make the earnings schedule convex which increases the responsiveness of individual earnings to tax changes we show that various common elasticity measures are not sufficient statistics and must be adjusted upwards in optimal tax formulas finally we study a comparative static that does not keep the observed earnings distribution fixed when superstar technologies are introduced inequality increases but we obtain a neutrality result finding tax rates at the top unaltered

education and optimal dynamic taxation the role of income contingent student loans we study the optimal design of integrated education finance and tax systems the distribution of wages is endogenously determined by the costly education decisions of heterogeneous individuals before labor market entry consistent with empirical evidence this human capital investment decision is risky we find that an integrated education and tax system in which the government provides education loans to young individuals coupled with income contingent repayment can always be designed in a pareto optimal way we present a simple empirically driven application of the framework to us data in which individuals make a college entry decision we find the optimal repayment schemes for college loans can be well approximated by a schedule that is linearly increasing in income up to a threshold and constant afterwards so although the full optimum could lead to complicated non linear schedules in theory very simple instruments can replicate it fairly well the welfare gains from income contingent repayment are significant

education policy and intergenerational transfers in equilibrium this paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation we build an overlapping generations life cycle heterogeneous agent incomplete markets model with education labor supply and consumption saving decisions altruistic parents make inter vivos transfers to their children labor supply during college government grants and loans as well as private loans complement parental transfers as sources of funding for college education we find that the current financial aid system in the u s improves welfare and removing it would reduce gdp by two percentage points in the long run any further relaxation of government sponsored loan limits would have no salient effects the short run partial equilibrium effects of expanding tuition grants especially their need based component are sizeable however long run general equilibrium effects are 3 4 times smaller every additional dollar of government grants crowds out 20 30 cents of parental transfers

trade liberalisation the peso and mexico s commodity trade flows with the united states abstract we assess the effects of real peso devaluations as well as the effects of gatt and nafta on mexico s in payments and out payments with the united states for 102 industries we find that relatively few trade flows are sensitive to changes in the real exchange rate probably due to production sharing and intra industry trade but devaluations affect mexican imports more than exports trade liberalisation has had a larger impact particularly on imports of intermediate goods and exports of certain manufactures many affected export industries are ones that have previously been shown to have economies of scale

how sensitive are malaysia s bilateral trade flows to depreciation in an attempt to assess the impact of currency depreciation on the trade balance recent studies are employing disaggregated trade data to avoid aggregation bias however since import and export prices are not available at disaggregated level recent studies are using export and import values rather than their volumes so that they can establish direct relation between inpayments and the exchange rate as well as between outpayments and the exchange rate this study explores the experience of malaysia bilateral inpayments and outpayments models are estimated between malaysia and her 14 trading partners using quarterly data and bound testing approach to cointegration the results show that while real depreciation of the ringgit has short run effects in the long run it increases malaysia s inpayments from only five trading partners

how should tax progressivity respond to rising income inequality we address this question in a heterogeneous agent incomplete markets model featuring exogenous idiosyncratic risk endogenous skill investment and flexible labor supply the tax and transfer schedule is restricted to be log linear in income a good description of the us system rising inequality is modeled as a combination of skill biased technical change and growth in residual wage dispersion when facing shifts in the income distribution like those observed in the us a utilitarian planner chooses higher progressivity in response to larger residual inequality but lower progressivity in response to widening skill price dispersion reflecting technical change overall optimal progressivity is approximately unchanged between 1980 and 2016 we document that the progressivity of the actual us tax and transfer system has similarly changed little since 1980 in line with the model prescription

the incredible holc mortgage relief during the great depression this paper examines the relief provided by the home owners loan corporation holc a new deal program that purchased and refinanced over 1 million distressed residential mortgages i document that the holc paid relatively high prices for its mortgages most likely in an effort to encourage lender participation and stimulate the housing market the consequence was that lenders were able to remove poorly performing assets from their balance sheets at attractive prices while this meant the holc s ability to seek principal reductions was somewhat limited borrowers still received significant relief through the terms of the holc s more modern and forgiving mortgage contracts

u s japanese bilateral trade and the yen dollar exchange rate an empirical analysis the united states has recently experienced unprecedented balance of trade deficits the merchandise trade deficit reached an all time high of over 61 billion in 1983 and for 1984 was 108 billion japan is often singled out as the major contributor to this deficit in 1984 roughly one third of the u s merchandise trade deficit and over one half of the u s manufacturing trade deficit was with japan moreover since shifts in trade balances are widely regarded as a function of changes in exchange rates there has been a tendency to focus on the general depreciation of the yen in terms of the dollar which began in 1978 in explaining the u s trade deficit this paper explores empirically the response of the u s japanese trade balance in manufacturing to movements in the yen dollar rate the analysis based on both structural and reduced form approaches provides a test of the conventional view that the weak yen has been a major factor explaining the japanese penetration into the u s manufacturing sector while japanese protectionism has effectively insulated japan s markets from u s competition our analysis does not support this view we find u s imports from japan essentially insensitive to exchange rate movements but u s exports to japan highly exchange rate elastic since u s manufacturing imports from japan dominate corresponding exports 58 billion to 8 billion in 1984 we conclude that even a sustained appreciation of the yen in terms of the dollar is unlikely to reduce significantly the u s manufacturing trade deficit in section ii of this paper we specify structural and reduced form models explaining u s bilateral manufacturing trade with japan in section iii we present and evaluate struc

the new deal race and home ownership in the 1920s and 1930s many federal government housing policies began during the new deal of the 1930s many claim that minorities benefited less from these policies than whites we estimate the relationships between policies in the 1920s and 1930s and black and white home ownership in farm and nonfarm settings using a pseudo panel of repeated cross sections of households in 1920 1930 and 1940 matched with policy measures in 460 state economic areas the policies examined include fha mortgage insurance holc loan refinancing state mortgage moratoria farm loan programs public housing public works and relief and payments to farmers to take land out of production

on the optimal provision of social insurance progressive taxation versus education subsidies in general equilibrium in this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk but distort the education decision of households optimally chosen tertiary education subsidies mitigate these distortions we highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits we also argue that a full characterization of the transition path is crucial for policy evaluation we find that optimal education policies are always characterized by generous tuition subsidies but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium

how sensitive is commodity trade flows between us and india to currency depreciation previous studies that investigated the impact of real depreciation of the rupee on indian trade balance used aggregate trade data and provided no support for real depreciation to be effective in improving india s trade balance in this article we disaggregate the indian trade data by commodity and consider the sensitivity of each industry s inpayments export value and outpayments import value to real rupee dollar exchange rate annual data over the period of 1962 to 2004 from 40 industries that trade between the two countries as well as bounds testing approach are used to show that while in half of the industries real depreciation of rupee has short run effects on inpayments and outpayments the short run effects do not last into the long run in majority of the cases

taiwan s exports and trade imbalance against us and japan an empirical analysis the persistence of the bilateral trade surplus between taiwan and the usa and the bilateral trade deficit between taiwan and japan despite the significant appreciation or depreciation of the nt dollar during the early 1980s to the mid 1990s renewed interest to seek explanations for these phenomena to assess the above proposition a polynomial distributed lag pdl method is imposed on the impact of changes in the real exchange rate on the bilateral trade structure particularly export demand and trade imbalance between taiwan the usa and japan from 1981 to 1998 the empirical findings show that 1 the real income factors have important effects on the real exports in both cases 2 the real exchange rates and the real imports are not major determinants of the export demand from taiwan to the usa but they do play an important role on the real exports from taiwan to japan 3 the real exchange rate has significant effect on the real trade surplus with the usa and on trade deficit with japan but the real

consumption inequality and income uncertainty this paper places the debate over using consumption or income in studies of inequality growth in a formal intertemporal setting it highlights the importance of permanent and transitory income uncertainty in the evaluation of growth in consumption inequality we derive conditions under which the growth of variances and covariances of income and consumption can be used to separately identify the growth in the variance of permanent and transitory income shocks household data from britain for the period 1968 1992 are used to show a strong growth in transitory inequality toward the end of this period while younger cohorts are shown to face significantly higher levels of permanent inequality

the macroeconomic implications of rising wage inequality in the united states in recent decades american workers have faced a rising college premium a narrowing gender gap and increasing wage volatility this paper explores the quantitative and welfare implications of these changes the framework is an incomplete markets life cycle model in which individuals choose education intrafamily time allocation and savings given the observed history of the u s wage structure the model replicates key trends in cross sectional inequality in hours worked earnings and consumption recent cohorts enjoy welfare gains on average as higher relative wages for college graduates and for women translate into higher educational attainment and a more even division of labor within the household

us bilateral trade equations forecasts and structural stability in this paper actual recent us trade values are compared with out of sample forecasts using a standard specification for real bilateral trade value equations though fairly accurate on average there are large bilateral errors a battery of coefficient stability tests indicates significant instability more often for imports over the forecast period and more often for exports over the latter part of the estimation period thus standard bilateral trade equations appear to violate the basic regression assumption of stability and may be of little use for forecasting

taxing top earners a human capital perspective we assess the consequences of substantially increasing the marginal tax rate on u s top earners using a human capital model we nd that 1 the peak of the model laer curve occurs at a 52 percent top tax rate 2 if human capital were exogenous then the top of the laer curve would occur at a 66 percent top tax rate and 3 applying the theory and methods that diamond and saez 2011 use to provide quantitative guidance for setting the top tax rate to model data produces a tax rate that substantially exceeds 52 percent

tax and education policy in a heterogeneous agent economy what levels of redistribution maximize growth and efficiency this paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy such redistributive policies entail distortions to labor supply and savings but also serve as partial substitutes for missing credit and insurance markets the resulting tradeoffs for growth and efficiency are explored both theoretically and quantitatively in a model that yields complete analytical solutions progressive education finance always leads to higher income growth than taxes and transfers but at the cost of lower insurance overall efficiency is assessed using a new measure that properly reflects aggregate resources and idiosyncratic risks but unlike a standard social welfare function does not reward equality per se simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude resulting in plausible values for the optimal rates aggregate income and aggregate welfare provide only crude lower and upper bounds around the true efficiency tradeoff

taiwan s exports and trade imbalance against us and japan an empirical investigation based on error correction model this study employs recent advances in time series analysis cointegration and error correction model to examine the long run and short run determinants of the exports and trade imbalance between the usa japan and taiwan the unit root tests reveal nonstationary in most of the variables the cointegration tests affirm positive the long run associations are between the exchange rate changes and the exports as well as the trade imbalance once these long run effects are accounted for it is found that there are evidences of short run relationship between these variables

consumption and labor supply with partial insurance an analytical framework we develop a model with partial insurance against idiosyncratic wage shocks to quantify risk sharing closed form solutions are obtained for equilibrium allocations and for moments of the joint distribution of consumption hours and wages we prove identification and demonstrate how labor supply data are informative about risk sharing the model estimated with us data over the period 1967 2006 implies that i 39 percent of permanent wage shocks pass through to consumption ii the share of wage risk insured increased until the early 1980s and iii preference heterogeneity is important in accounting for observed dispersion in consumption and hours jel e21 e23 e31 e52

how progressive is the u s federal tax system a historical and international perspective this paper provides estimates of federal tax rates by income groups in the united states since 1960 with special emphasis on very top income groups we include individual and corporate income taxes payroll taxes and estate and gift taxes the progressivity of the u s federal tax system at the top of the income distribution has declined dramatically since the 1960s this dramatic drop in progressivity is due primarily to a drop in corporate taxes and in estate and gift taxes combined with a sharp change in the composition of top incomes away from capital income and toward labor income the sharp drop in statutory top marginal individual income tax rates has contributed only moderately to the decline in tax progressivity international comparisons confirm that is it critical to take into account other taxes than the individual income tax to properly assess the extent of overall tax progressivity both for time trends and for cross country comparisons the pattern for the united kingdom is similar to the u s pattern france had less progressive taxes than the united states or the united kingdom in 1970 but has experienced an increase in tax progressivity and has now a more progressive tax system than the united states or the united kingdom

u s bilateral trade balances and the dollar abstract u s bilateral export and import values with seven large trading partners are tested for real exchange rate effects over 1975 1985 the results suggest that dollar devaluation would have the most favorable impact on the u s trade balance in the case of japan and the least favorable in the case of canada

us indonesia trade at commodity level and the role of the exchange rate previous studies that assessed the impact of currency depreciation on inpayments and outpayments of indonesia with her major trading partners did not find much significant results especially in the trade with the united states we wonder whether insignificant link between the real rupiah dollar rate and indonesia s inpayments and outpayments with the united states is due to aggregation bias to answer this question we disaggregate the trade flows between the two countries by commodity and consider the sensitivity of inpayments of 108 us exporting industries and outpayments of 32 us importing industries from indonesia we find that most industries respond to exchange rate changes in the short run in the long run however 32 inpayments schedule and 17 outpayments schedule are significantly affected a 1 real depreciation of the dollar was found to improve us trade balance by 1 8

optimal taxation and human capital policies over the life cycle this paper derives optimal income tax and human capital policies in a life cycle model with risky human capital the government faces asymmetric information regarding agents ability its evolution and labor supply when the wage elasticity with respect to ability is increasing in human capital the optimal subsidy involves less than full deductibility of human capital expenses on the tax base and falls with age income contingent loans or a deferred deductibility scheme can implement the optimum numerical results suggest that full deductibility of expenses is close to optimal and that simple linear age dependent policies perform very well

trade balance adjustment with imported intermediate goods the japanese case he purpose of this paper is to analyze the behavior of the japanese trade balance for the period of 1966 80 using a conventional elasticities approach however unlike previous works in this area our approach emphasizes the following key features of japan s foreign trade a almost all exports more than 95 in 1975 are manufactured goods b except for foods 15 2 of imports imports are either used as inputs in the manufacturing sector or manufactured goods which compete with home products consequently by concentrating on the behavior of the manufacturing sector we can explain most of the components of exports and imports in view of this we estimate a model of the manufacturing sector in which firms in the sector use imported fuels and raw materials as inputs and produce outputs sold in both foreign and domestic markets the demand for fuels and raw materials and the supplies of output or output prices in the domestic and foreign markets are all derived from a profit maximizing behavior of the manufacturing sector thus imports of fuels and raw materials are treated as derived demands the most important advantage of such an approach is that we shed light on interactions between domestic and foreign markets on the one hand and between exports and imports on the other this is in sharp contrast to the traditional demand for imports supply of exports approach which estimates each component of the trade balance separately another advantage of our approach is that on the exports side a simultaneous equation estimation method is adopted that is we estimate an export supply or export price equation as well as an export demand equation the importance of this method has been recognized by for example goldstein and khan 1978 these advantages of the approach enable us to capture a number of important features of japan s foreign trade in the analysis of exchange rate effects on the trade balance the following aspects are emphasized first a depreciation of the exchange rate may be partially offset by a change in export price in the opposite direction the magnitude of this offsetting effect is determined by the impacts on export price of competitors price and prices of imported intermediate goods second the impact of depreciation on the trade balance may also be weakened because depreciation raises the price of domestic manufactured goods and decreases people s incentive to switch from foreign to domestic manufactured goods third as stated above imports of fuels and raw materials are derived demands therefore price elasticities of these may not be very large in the short run among other variables affecting the trade balance we focus on cyclical variables such as domestic and foreign incomes there are direct effects of domestic income on the imports of intermediate goods and of foreign income on exports in addition we are especially interested in testing whether or not a domestic recession creates a pressure to increase exports such a possibility has been studied in the literature on the capacity pressure hypothesis see for example dunlevy 1980 in the following we first explain the framework of the analysis and estimate equations for the components of the trade balance the estimates are then used to assess quantitatively the importance of each of the mechanisms discussed above it is shown that all these interrelationships between various components of the trade balance are important we then proceed to present some simulation results that show the effects of exchange rate cyclical variables and input prices on the trade balance they indicate that exchange rate changes exert a quick but not very large impact on the trade balance an increase in the price of fuels leads to an immediate and significant worsening of the trade balance most important cyclical variables have crucial effects on the trade balance it is received for publication april 5 1982 revision accepted for publication december 10 1982 osaka universitv this paper is a substantially revised version of the first half of chapter 4 of the author s ph d dissertation at m i t the author would like to thank stanley fischer anonymous referees of this review and the participants in seminars at the university of tokyo the bank of japan economic planning agency and the ministry of international trade and industry japan for useful comments on earlier versions of the paper

the political economy of the us mortgage default crisis we examine the effects of constituents special interests and ideology on congressional voting on two of the most significant pieces of legislation in us economic history representatives whose constituents experience a sharp increase in mortgage defaults are more likely to support the foreclosure prevention act especially in competitive districts interestingly representatives are more sensitive to defaults of their own party constituents special interests in the form ofhigher campaign contributions from the financial industry increase the likelihood of supporting the emergency economic stabilization act however ideologically conservative representatives are less responsive to both constituent and special interests jel d72 g21 g28

the risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

the economic effects of a borrower bailout evidence from an emerging market this paper studies the credit market implications and real effects of one the largest borrower bailout programs in history enacted by the government of india against the backdrop of the 2008 2009 financial crisis the study finds that the stimulus program had no effect on productivity wages or consumption but led to significant changes in credit allocation and an increase in defaults post program loan performance declines faster in districts with greater exposure to the program an effect that is not driven by greater risk taking of banks loan defaults become significantly more sensitive to the electoral cycle after the program suggesting the anticipation of future credit market interventions as an important channel through which moral hazard in loan repayment is intensified