public employment and the welfare state in sweden this is a nontechnical summary of a much longer study which will appear with the same title in richard freeman birgitta swedenborg and robert topel eds forthcoming i am especially indebted to henry ohlsson and birgitta swedenborg and to stan engerman vic fuchs assar lindbeck stephen lundgren and agnar sandmo for comments on initial drafts i alone am responsible for the views expressed here

taxation government spending and labor supply a diagrammatic exposition the effects of a change in the level of taxation on labor supply are examined under the assumption that the government budget balances the government spends tax revenues either on redistributions which are assumed to have an income effect on labor supply or on other government goods which are assumed not to influence labor supply in order for a rise in the tax rate to increase the quantity of labor supplied it must be that i the labor supply function bends backward and ii sufficiently little of the increased tax revenues are redistributed the quantity of labor supplied must fall if all marginal tax revenues are redistributed

factor productivity and income inequality a general equilibrium analysis economic growth over the past two decades has failed to reduce income inequality we contend that major reasons for this are the slowdown and bias in technological change productivity growth given the complexity of the many interactions that take place this phenomenon is best addressed in a general equilibrium context for this purpose we have developed a computable general equilibrium cge model with advanced features relating to income distribution we perform a series of simulations based on recent overall productivity changes but under various forms of technological change bias factor mobility and government budgetary balance we find the labour augmenting technological change cases to be most consistent with recent experience

income distribution in agriculture a unified approach this paper develops a class of partial equilibrium models capable of analyzing in a unified way a number of market transmitted distributional consequences of a variety of exogenous shocks in agriculture the shocks include technical change neutral or biased changes in the supply of agricultural inputs or in the demand for agricultural outputs and government interventions the models accommodate more than two primary factors of production and more than one region with or without constraints on factor mobility

distortionary taxes and the provision of public goods economists have long been concerned with finding an efficient level of public expenditure the classic statement of the problem was given by paul samuelson 1954 an optimal level of expenditure is where the sum of the marginal rates of substitution between the public good and a reference good equals the marginal rate of transformation between the public good and the reference good mrs mrt however samuelson s formula assumes that all of the revenue needed to finance public goods can be raised with lump sum taxes since this is not generally possible the formula must be modified to account for the distortionary effects of the tax system an appropriate modification is to multiply the cost side of the equation by a term that is commonly called the marginal cost of public funds mcf in the case of samuelson s formula where government is entirely financed with lump sum taxes the mcf would be exactly 1 0 in the traditional view of economists distortionary taxes cause the mcf to be greater than one thus raising the cost of providing public goods in this paper we discuss some cases where the mcf may be less than one we will illustrate this possibility using numerical examples for labor taxes

sexual orientation and labour supply this is the first study of the effects of sexual orientation on labour supply after discussing various reasons to expect that labour supply could differ by sexual orientation the 2001 current population survey is used to test for differences in both labour supply and labour market status part time full time and not employed it is found that gay men supply less labour than married and unmarried heterosexual men with regard to women it is found that lesbians supply more labour and are more likely to be employed full time than either married or unmarried heterosexual women extensive controls are used and links to the discrimination literature are found

the economics of small business finance the roles of private equity and debt markets in the financial growth cycle abstract this article examines the economics of financing small business in private equity and debt markets firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle we show the sources of small business finance and how capital structure varies with firm size and age the interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment we also analyze a number of research and policy issues review the literature and suggest topics for future research

vanishing children from high unemployment to low fertility in developed countries during the last four decades the average total fertility rate in oecd countries witnessed a dramatic fall from 2 9 in 1960 to 2 0 in 1975 and then to 1 6 in the late 1990s reaching 1 25 in southern europe with the exception of the united states all advanced countries now have fertility rates well below the replacement rate of 2 1 in the absence of either sharp changes in fertility behavior or large inflows of immigrants their populations are set to shrink particularly in europe still within this generalized fall cross national differences in fertility behavior have remained significant by 2000 fertility rates ranged from 2 1 in the united states and over 1 8 in france and norway to less than 1 3 in greece italy and spain most standard accounts attribute the fall in fertility rates to a shift in personal preferences over the size of the family due to either changes in religious beliefs or growing female participation in the labor market yet even though the ideal number of children for men and women 20 34 years old has declined it is fairly similar across the european union at around the replacement level of 2 1 eurostat 2001 hence the sources of cross national variation in fertility behavior must lie somewhere else as women have joined the labor force fertility rates have adjusted as a function of the institutional structures that shape the job market and determine its long run unemployment rate exploiting the considerable variation of fertility rates and employment conditions across industrial countries this paper shows that the current demographic transition is ultimately associated with the constraints of the labor market where fertility decisions are taken

the economic consequences of productivity changes a computable general equilibrium cge analysis cutler h and davies s the economic consequences of productivity changes a computable general equilibrium cge analysis regional studies this paper uses a data intensive cge model to examine sector specific impacts of increases in total factor productivity and labour and capital productivity it focuses on the importance of a sector s output in household consumption and firms intermediate input demand the importance of labour and capital in value added and the impact on the city s consumer price index cpi as factors influencing the transmission mechanism the general equilibrium effects result in unambiguous increases in household migration for total factor productivity and capital productivity but not for the labour case this analysis emphasizes the impact on household income and tax revenue per new household cutler h et davies s les consequences economiques des changements de productivite une analyse egc regional studies cet article utilise un modele d equilibre general calculable egc

valuing lost home production of dual earner couples using a life cycle model in which women divide their time between home and market work we establish a link between retirement wealth and the value of forgone home production we use data from the health and retirement study to estimate the model s parameters and adjust the growth rate of gdp to reflect reductions in non market output we find that the value of forgone home production is modest about 25 percent of women s measured earnings

the marginal welfare cost of public funds theory and estimates abstract we derive a general analytic formula for the marginal welfare cost mwc of public funds without imposing restrictive assumptions on preferences or technologies the framework encompasses the various special cases previously considered and reconciles the disparities among the reported estimates of mwc unresolved differences in existing estimates are fully explained by appropriate interpretations of intended thought experiments and alternative assumptions about the elasticity of labor supply with respect to public spending further progress in measuring mwc requires empirical estimation of labor supply functions that include government spending as an explanatory variable

the nature of government expenditures and the shape of the laffer curve abstract the existence of a negatively sloped section on the tax revenue tax rate relationship is shown to crucially depend on the nature of government expenditures it is proved that a sufficient condition for existence is that the government expenditures should take the form of cash transfers to consumers rather than being used to provide a government good

central local government relations in transition the case of swedish child care the provision of subsidized child care has grown to become asizeable economic activity in sweden during recent decades this paper examines the changed financial relation betweencentral and local governments and the impact of child caregrants on local government behaviour we find that during anearlier regime with a system of matching grants localgovernments responded strongly to the incentives of the rules this resulted in both intended and unintended outcomes aswell as a distortion of information to the central government experiences from a recent transition of regime towards a kindof closed block grant system illustrates new types ofadaptive behaviour but also the problem of finding a formulafor a fair allocation of resources among local governments when designing a block grant system a distinction must be madebetween expenditures and resource needs cost expenditure datado not necessarily reflect resource needs in cases where thereare national categorical equity goals related to socialservices of a merit want character

the effect of income taxation on labor supply in the united states the effect of income taxation on the labor supply of prime age married men and women in the united states is examined using econometric methods similar to those used in the influential work of jerry hausman male labor supply is found to be relatively invariant to the net wage and virtual income in all specifications estimated the estimated impact of taxation on the labor supply of married women depends critically on the method used to estimate the labor supply function estimated net wage and virtual income elasticities are considerably larger when data on nonparticipants are included than when the estimation is conducted conditional on hours being greater than zero

the econometrics of kinked budget constraints in the last several years a branch of applied econometrics has developed which is devoted to the development of techniques for the estimation of demand and other functions when the budget constraint is piecewise linear or kinky that is when the constraint consists of a number of segments joined together at kink points such constraints most frequently arise from government tax and transfer programs for example the federal income tax imposes a piecewise linear schedule by the use of constant marginal tax rates within brackets a problem analyzed by hausman 1981 the payroll tax in the social security system likewise generates a kinked schedule inasmuch as the marginal tax rate on earnings is zero above a certain earnings maximum federal and state transfer programs for the poor result in piecewise linear constraints because transfer benefits are taxed in the sense of a negative income tax as income rises and because that tax rate falls to zero at the kink point where an individual or family loses eligibility for the benefit altogether many government transfer programs impose additional nonlinearities by altering this tax rate by discrete amounts over the range of positive benefits as well but kinked constraints sometimes arise in nongovernment contexts a well known example being the block pricing schedule commonly set by utilities and volume discounting in general kinked budget constraints create two difficulties that have several interesting facets one difficulty is that changes in tax and transfer schedules can have unexpected effects that can be exactly the opposite in sign to those expected from economic theory examples of this phenomenon are given below the second difficulty that with which this paper is mostly concerned relates to the implications of kinked budget

a taste for taxes minimizing distortions using political preferences abstract we conduct an experiment with online workers to assess whether the distortionary effect of a tax is sensitive to the ideological match between taxpayer and tax expenditures we find that among self identified political moderates the labor supply elasticity with respect to the net of tax wage is significantly smaller when individuals pay taxes to a favored government agency as compared to an unfavored one while the tax has a significant distortionary effect in the latter case with a point estimate for the labor supply elasticity of approximately 0 77 the elasticity point estimate is close to zero when taxes go to a favored agency there is also an increase in total output for the matched population among moderates there is no evidence that these effects hold for self identified liberals or conservatives

women prefer larger governments female labor supply and public spending the increase in income per capita is accompanied in virtually all countries by two changes in the structure of the economy an increase in the share of government spending in gdp and an increase in female labor force participation this paper suggests that these two changes are not just overlapping in time they are causally related this paper develops a growth model with endogenous fertility labor force participation and government size that illustrates this causal link economic development is accompanied by an increase in the female market wage thus increasing the opportunity cost of staying at home if government spending decreases the time cost of performing household chores including but not limited to child rearing and child care it makes sense for women to enter the labor market and demand higher government spending financed by increased taxation as women make the decision to work outside the home they increase their demand for services typically provided by the government such as education and health care which in turn decrease the cost of home and family activities that are overwhelmingly performed by women using a wide cross section of data for developed and developing countries we show that higher rates of female participation in the labor market are indeed positively associated with larger governments furthermore we investigate the causal link between the two variables using as instrumental variables for female labor force participation newly collected data on the relative price of home appliances as well as the fertility rate we find evidence of a causal link between female labor force participation and government size a 10 percent rise in female participation in the labor market leads to a 7 to 8 percent rise in government size this effect is robust to the country sample time period and a set of controls in the spirit of rodrik 1998

assessing empirical approaches for analyzing taxes and labor supply recent surveys on the labor supply responses of men document a divergence in the estimates of substitution and income effects obtained using various estimation approaches generally studies accounting for nonlinear tax schedules in a static setting via a piecewise linear approach produce estimates that typically imply higher substitution and lower income responses than are suggested by empirical work applying other approaches this paper demonstrates that maximum likelihood estimation of a consumer choice problem with nonlinear budget sets implicitly relies on the satisfaction of inequality constraints that translate into behaviorally meaningful restrictions these constraints arise not as a consequence of economic theory but instead as a requirement to create a properly defined statistical model in the analysis of piecewise linear budget sets the implicit constraints required by maximum likelihood in estimation amount to imposition of slutsky conditions at all wage income combinations associated with kink points in the analysis of differentiable budget sets the tacit constraints invoked by maximum likelihood also involve inequality restrictions on slutsky terms the empirical work presented in this study supports the contention that these implicit constraints play a major role in explaining the discrepancies in estimates found in the literature on men s labor supply

tax effects versus budget effects on labor supply this paper analyzes the effects on labor supply of parallel changes in taxes and public spending of various types a number of important recent developments in the labor supply behavior of households are highlighted by such a study of various types of budget effects rather than isolated tax effects this comes out in particular when considering cross substitution effects on labor supply of changes in public spending on goods and services or of the subsidization of goods and services provided by private markets moreover the income effects of tax changes are often mitigated or possibly even removed by the income effects of the accompanying expenditure changes

interpreting income distributions in a welfare state the case of sweden abstract it is shown in this paper that the distribution of purchasing power and hence probably also economic well being in a welfare state like sweden is not tightly connected with the contribution of households in the production system moreover economic inequality is drastically exaggerated when income statistics are not adjusted for differences in working time and in the time profile of income over life however it is also shown that some important inequalities are not removed even by the very ambitious tax and welfare state system in sweden and that some new inequalities are in fact introduced the paper also tries to highlight the wide wedges which in an advanced welfare state are necessarily driven between factor costs for firms and factor rewards for households all this holds in particular for annual income

lending to small businesses the role of loan maturity in addressing information problems we investigate what determines the maturity of lines of credit to small businesses our results provide strong support for the hypothesis that shorter loan maturities serve to mitigate the problems associated with borrower risk and asymmetric information that are typical of small business lending we find that maturity is shorter for firm owners that have poor credit histories are older and less experienced and for firms that are more informationally opaque supporting the notion that collateral and maturity are substitute mechanisms in mitigating agency problems we also find strong evidence that maturity increases with collateral pledges that personal collateral is associated with longer maturities than business collateral and that collateral types that better mitigate agency problems reduce the sensitivity of loan maturity to informational asymmetries and risk finally while it is argued that relationship lending may mitigate information asymmetry we find no relation between loan maturity and stronger firm creditor ties

welfare effects of alternative forms of public spending the paper analyzes welfare effects in a second best world of public spending of three different types transfer payments public consumption and public investment it is shown how these effects d

costly external finance corporate investment and the subprime mortgage credit crisis abstract we study the effect of the recent financial crisis on corporate investment the crisis represents an unexplored negative shock to the supply of external finance for non financial firms corporate investment declines significantly following the onset of the crisis controlling for firm fixed effects and time varying measures of investment opportunities consistent with a causal effect of a supply shock the decline is greatest for firms that have low cash reserves or high net short term debt are financially constrained or operate in industries dependent on external finance to address endogeneity concerns we measure firms financial positions as much as four years prior to the crisis and confirm that similar results do not follow placebo crises in the summers of 2003 2006 nor do similar results follow the negative demand shock caused by september 11 2001 the effects weaken considerably beginning in the third quarter of 2008 when the demand side effects of the crisis became apparent additional analysis suggests an important precautionary savings motive for seemingly excess cash that is generally overlooked in the literature

out of space regulation and technical change in communications satellites regulatory practices by the federal communications commission fcc have the effect of rationing the use of a particular resource required for communications satellite technology the electromagnetic spectrum spectrum or the airwaves is the medium over which communications signals such as tv telephone and radar travel federal government allocation of spectrum among competing services has long been implemented to mitigate the interference that can arise between nearby signals hence for instance the assignment of radio stations to unique regions along the am and fm dials that government regulation can and probably does fail to allocate spectrum efficiently for all the usual economic reasons has been attested to criticized and in turn the subject of proposed reformation in an economics literature both historic radio spectrum regulation inspired coase s theorem and growing including work which dates from harvey levin 1971 and references cited therein to most recently stanley besen et al 1984 left unaddressed however have been the implications of inefficient spectrum regulation for the pace and direction of technical change specifically the problems of static resource misallocation may be compounded by inefficiency in induced innovation v kerry smith 1974 1975 koji okuguchi 1975 wesley magat 1976 if fcc allocations incorrectly signal the true economic scarcity of spectrum innovation to augment spectrum and other inputs on the basis of relative scarcity may be misdirected and the overall rate of r d spending may be distorted accordingly the effect of government regulation on innovation in communications satellite technology merits particular attention for several reasons first a recent fcc ruling will increase the cost of future satellites by requiring them to operate at fcc mandated minimum levels of intensity of spectrum use on top of rationed quantities of spectrum see federal register 1983 para 69 second unlike other uses of spectrum there is a large public sector component to satellite r d spending that is also likely to be affected by fcc regulation undertaken by nasa current research expenditures on advanced communications satellite technology have been justified in large part by a perceived need to develop methods that use spectrum more intensively see nasa 1984 and u s congress house 1984 third and again distinguishing satellites from other users of spectrum the inherently global nature of satellite technology renders satellite spectrum allocations a contentious international issue in particular developing countries not currently using satellite technology have expressed serious concern about future spectrum availability in response technical change economizing on spectrum is frequently endorsed by regulators and moral suasion is accordingly brought to bear on industry as an appropriate solution see fcc 1985 and u s congress 1982 1 this paper proceeds as follows section i tailors a model of induced innovation de

differentiated payroll taxes unemployment and welfare abstract this paper investigates the impact of payroll taxes on unemployment and welfare in a two sector economy characterised by imperfect competition in product and labour markets the two sectors differ in market competitiveness it turns out that only the relative tax pressure affects unemployment and welfare unemployment can be reduced by having the less competitive sector pay higher taxes moreover differentiated payroll taxes will in general improve efficiency which sector to tax relatively more is however not clear the government faces a trade off in the sense that unemployment is reduced only at the expense of reduced efficiency in the output mix

marginal cost of public funds for different tax instruments and government expenditures the marginal cost of public funds that is the size of the direct and indirect excess burden costs for marginal tax revenues is examined in this paper for an open economy with a savings response and using swedish 1979 data the marginal cost of public funds spent on transfer payments is estimated to vary from 1 47 for a distributionally neutral tax on labor and capital to 7 20 for a more progressive tax where average and marginal labor taxes increase by the same rates for changes in the most important tax instrument the marginal cost of public funds varies from 0 98 for expenditures on infrastructure to 2 27 for transfer payments

the effect of taxes on male and female labor supply in sweden this paper estimates labor supply functions for married men and women in sweden using data from 1980 taking account of the complete form of individuals budget constraints both linear and quadratic supply functions are estimated with and without random preferences a novel feature is that for women the wage rate and labor supply functions are estimated simultaneously using a full information maximum likelihood method this method yields substantially larger wage and income elasticities than does the previously used two step methods another result is that the quadratic supply function wage elasticities for men and women are virtually the same if the elasticities are evaluated at the same net wage rate and hours of work for men and women the estimated functions are used to calculate the effect of tax reforms

money for nothing universal child care and maternal employment abstract the strong correlation between child care and maternal employment rates has led previous research to conclude that affordable and readily available child care is a driving force both of cross country differences in maternal employment and of its rapid growth over the last decades we analyze a staged expansion of subsidized child care in norway our precise and robust difference in differences estimates reveal that there is little if any causal effect of subsidized child care on maternal employment despite a strong correlation instead of increasing mothers labor supply the new subsidized child care mostly crowds out informal child care arrangements suggesting a significant net cost of the child care subsidies

the marginal cost of raising tax revenue and redistributing income we present analytic formulas for calculating marginal welfare costs when taxes are levied against the wages of a heterogeneous population of households and marginal tax revenue finances either the supply of a public good or lump sum transfers the formulas are applied to explain the wide discrepancy between estimates of marginal welfare costs for redistribution previously obtained through computer simulation procedures our calculations reveal that these procedures introduced lump sum transfers that were not specified as part of the reforms to be simulated but explain most of the differences between their estimates we also show that welfare cost estimates are quite sensitive to the elasticity of labor supply with respect to exhaustive public spending

where do financial constraints originate from an empirical analysis of adverse selection and moral hazard in capital markets despite the voluminous and growing literature on financial constraints the origins of the constraints are hardly ever empirically analyzed this paper offers such an analysis we study in particular the empirical prevalence of adverse selection and moral hazard in capital markets using a unique survey data on finnish small and medium sized enterprises smes the survey data suggest that adverse selection is empirically more prevalent than moral hazard in the capital markets that the smes face we also find that of the variables indicating the presence of adverse selection and moral hazard the former has more explanatory power in regressions modeling the availability of external finance to the smes than the latter finally we document that our proxies for adverse selection and moral hazard are inversely related to the age of firms just like peter diamond s 1989 model predicts

productivity and the embodiment of technical progress this survey of the issues involved in the embodiment hypothesis that technical change and productivity can be explained by changes in the quality of inputs into the production process treats the interrelationships of technical change and productivity presents some empirical findings on this subject and discusses some fundamental issues in further studies of embodiment topics covered include the nature of the embodiment hypothesis the vintage model of capital and embodiment in other inputs the use of the embodiment hypothesis to study productivity trends the embodiment hypothesis and the productivity slowdown in the 1970s and 1980s and potential future applications of the embodiment hypothesis

on the marginal welfare cost of taxation this paper develops a rigorous partial equilibrium analysis of the determinants of margin al welfare cost mwc of taxes on labor earnings it shows that four key parameters interact to determine the magnitude of mwc using aggregate data and plausible ranges of values for the parameters mwc can vary from under 10 percent to more than 300 percent of marginal tax revenue intermediate parameter values sugge st mwc is in the 25 50 percent range however the more extreme estimates cannot be ruled out on the basis of available evidence suggesting that mwc cannot yet be copyright 1987 by american economic association

long term debt maturity and financing constraints of smes during the global financial crisis we use the recent financial crisis to investigate financing constraints of private small and medium sized enterprises smes in belgium we hypothesize that smes with a large proportion of long term debt maturing at the start of the crisis had difficulties to renew their loans due to the negative credit supply shock and hence could invest less we find a substantial variation in the maturity structure of long term debt firms which at the start of the crisis had a larger part of their long term debt maturing within the next year experienced a significantly larger drop in investments in 2009 this effect is driven by firms which are ex ante more likely to be financially constrained consistent with a causal effect of a credit supply shock to corporate investments we find no effect in placebo periods without a negative credit supply shock

tax rates and labor supply in fiscal equilibrium tax rates and labor supply in fiscal equilibrium i introduction if the government changes the tax on wage income what happens to aggregate labor supply this question is at the core of debates between proponents of supply side and keynesian approaches to government fiscal policy it is unfortunate therefore that previous attempts to resolve the issue have obscured decisive assumptions regarding the preference relation between leisure and public spending one argument exposited recently by gwartney and stroup 1983 1986 and ehrenberg and smith 1988 179 80 descends from an older literature represented by the works of friedman 1949 1954 goode 1949 scitovsky 1951 and bailey 1954 and emphasizes the importance of a balanced budget framework for addressing the question this approach reveals the presence of an income effect caused by the change in government spending that must accompany the tax change at optimum according to this view this income effect exactly offsets the income effect of the tax change so that only the substitution effect of the tax remains as a consequence a balanced budget increase in the wage tax unambiguously decreases economy wide labor supply provided the increase in public spending is valued the same as the forgone private spending a different approach was initiated by winston 1965 and subsequently elaborated upon by lindbeck 1982 fullerton 1982 hanson and stuart 1983 bohanon and van cott 1986 and gahvari 1986 this approach stresses the importance of the preference relation between public spending and private spending rather than the role of the public spending income effect in determining the change in aggregate labor supply as a special example gahvari 1986 assumes a preference structure which implies that public spending does not have any influence on labor supply so there is only the partial equilibrium effect of the tax however the general conclusion of this line of reasoning is that the theoretical ambiguity of the labor supply response arises from both tax and spending effects in this paper a simple formal model is used to develop a careful accounting of the various income and substitution effects the model is sufficiently general to permit a rigorous comparison of earlier studies and to expose implicit assumptions responsible for their conclusions we show that the two approaches outlined above are associated respectively with the focal cases of compensated independence and ordinary independence between leisure and public spending the pan of the paper is as follows section ii contains a model of labor supply in the presence of wage taxation and public spending in section iii the effect on aggregate labor supply of a balanced budget change in wage taxation is analyzed section iv provides an interpretation of several previous analyses of these issues section v contains a summary of our results ii the model consider an economy with n identical consumers who derive utility from leisure l a pure private good x which serves as numeraire and a publicly provided good z the utility function u l x z is assumed to be twice continuously differentiable and strictly quasi concave everyone is endowed with t units of time which are allocated either to labor market work or leisure nonmarket activities the marginal product of labor in producing the private good is the constant real gross of tax wage rate w because agents are identical we can confine attention to allocations of equal consumption as a consequence the production possibilities frontier assumed to be linear can be expressed in per capita terms as wl x p n z wt 1 where p is the constant marginal cost of z with identical agents and only two goods not publicly provided it may be assumed without loss of generality that public spending is financed by a wage tax with constant marginal and average ad valorem rate t

does the public sector implode from baumol s cost disease i introduction the origin of the baumol cost disease is lower none productivity growth for services than for manufactures the progressive sector see baumol and brown 1966 and baumol 1967 the public sector in most countries is an important provider of tax financed services such as health education and care the baumol cost disease is accordingly often taken to have fatal consequences for the public sector putting it on an unsustainable trajectory baumol 1993 in one version the argument runs as follows the relative costs of providing services increase and hence more and more resources are needed if the supply of services should match the supply of manufactured goods this leads to an ever increasing tax rate compare lindbeck 2006 and van der ploeg 2007 in another version the tax rate is considered given productivity increases enhance income and thus the tax base leaving more tax revenue however under baumol s cost disease this revenue gain is absorbed by increasing costs just to maintain an unchanged supply of public services an increasing gap between public provision of services and private consumption of manufactures thus evolves which in turn will leave the population increasingly dissatisfied with the public sector this reasoning is often encountered in analyses of fiscal sustainability the aim of such analyses is to assess the financial viability of tax financed welfare arrangements these analyses often make trajectories under the baumol assumption showing that it leads to ever increasing financial problems calling for reforms see for example imf 2014 adding increasing demands for services in particular health services when material living standards increase further adds to these problems 1 see for example hall and jones 2007 and oecd 2013 this appears to leave policy makers in a conundrum either the tax burden is ever increasing leading to an eventual collapse of the economy or the supply of public services would have to be restrained leaving an increasing gap between aspired and realized levels of public service provisions this article takes outset in the baumol assumptions concerning productivity differences baumol growth and asks whether the doomsday implications expounded in the literature and in policy debates are justified this article does not challenge the premises of the baumol argument on differences in productivity growth between manufactures and services 2 but the implications when accounting explicitly for service provision from both the private and public sectors a further starting point is the observation that simple predictions based on baumol growth rely on fixed proportions between private consumption and public service provision as well as neglecting labor supply although the baumol problem has a technological origin its implications cannot be seen independently of preferences and thus private responses as well as the optimal provision of public services this article accordingly differs from the standard literature in three aspects first explicit account is taken of service provision from both the private and public sectors 3 not all services are provided via the public sector and many of the examples used to exemplify the baumol problem are services in private production second a very general formulation of preferences is adopted to capture how technological changes map into changes in key variables and affect the scope for tax financed service provision finally public service provisions and thus taxes are endogenous to analyze how policies respond to the changes induced by the baumol process 4 to focus on the basic implications the model is kept as simple as possible and because no essential intertemporal margins are important the model is static see for example buera and kaboski 2012 rogerson 2008 the main finding of the article is that under baumol growth the doomsday implications for the public sector do not hold

why do europeans work so little market work per person is roughly 10 higher in the united states than in sweden however if we include the work carried out in home production the total amount of work only differs by 1 i set up a model and show that differences in policy mainly taxes can account for the discrepancy in both labor supply and home production between sweden and the united states these results are independent of the elasticity of labor supply

the determinants of the maturity of corporate debt issues we document the determinants of the term to maturity of 7 369 bonds and notes issued between 1982 and 1993 our main finding is that large firms with investment grade credit ratings typically borrow at the short end and at the long end and of the maturity spectrum while firms with speculative grade credit ratings typically borrow in the middle of the maturity spectrum this pattern is consistent with the theory that risky firms do not issue short term debt in order to avoid inefficient liquidation but are screened out of the long term debt market because of the prospect of risky asset substitution traditionally capital structure research has focused on how much of a firm s future cash flows should be paid out to debtholders instead of equityholders an equally important issue is when future cash flows should be paid out to debtholders a firm that finances its projects with short term debt risks serious financial difficulty if the debt cannot be extended similarly a firm that finances its activities with long term debt can sacrifice profits by needlessly risking mismanagement of resources after cash flows are returned from investments but before they are due to debtholders this study investigates the factors that firms consider when choosing the maturity of their liabilities we document the determinants of the maturity of 7 368 public debt issues made by u s corporations between 1982 and 1993 our empirical tests are based on existing theoretical models that relate the maturity of a firm s borrowings to the riskiness of its cash flows the time until investments pay off the quality of information held by outsiders the expected

unions wages and the common interest three models have dominated recent research on the relationship between labor unions wage behavior and national economic performance a simple linear model a parabolic model and a political model this article argues that an unemployment mediated linear model is theoretically preferable in a context of low unemployment encompassing labor movements can be expected to restrain wage demands whereas localized unions have much less incentive to do so in a context of high unemployment localized unions should exhibit wage moderation and the pressure on encompassing unions to restrain wage demands is further accentuated these four models are assessed as predictors of wage changes inflation and misery index levels for 15 industrialized nations over the periods 1960 1973 1974 1979 and 1980 1990 the linear models outperform the parabolic and political models in each of the latter two time periods for the mid to late 1970s the simple linear model performs best but for the 1980s the unemployment medi

the sensitivity of an empirical model of married women s hours of work to economic and statistical assumptions this study undertakes a systematic analysis of several theoretic and statistical assumption s used in many empirical models of female labor supply using a singl e data set psid 1975 labor supply data the author is able to replic ate most of the range of estimated income and substitution effects fo und in previous studies in this field he undertakes extensive specif ication tests and finds that most of this range should be rejected du e to statistical and model misspecifications the two most important assumptions appear to be the tobit assumption used to control for sel f selection into the labor force and exogeneity assumptions on the wi fe s wage rate and her labor market experience copyright 1987 by the econometric society

financial reporting quality and the cost of debt of smes this study explores a large and detailed dataset of financial statements of belgian small and medium sized enterprises smes over the 1997 2010 period using accruals quality as a proxy for the quality of smes financial reports we find that the quality of smes financial statements is negatively related to those companies effective interest cost this result is also highly economically significant the findings in this paper are consistent with the idea that earnings are important for creditors in predicting smes reimbursement capacity i e future cash flows and that less estimation error in accruals enhances earnings ability to predict future cash flows we deliver evidence of an important economic benefit of financial reporting for smes to wit the potential to reduce information asymmetry between smes and their creditors through higher quality financial reporting

financing patterns around the world are small firms different using a firm level survey database covering 48 countries we investigate how financial and institutional development affects financing of large and small firms our database is not limited to large firms but includes small and medium size firms and data on a broad spectrum of financing sources including leasing supplier development and informal finance small firms and firms in countries with poor institutions use less external finance especially bank finance protection of property rights increases external financing of small firms significantly more than of large firms mainly due to its effect on bank finance small firms do not use disproportionately more leasing or trade finance compared with larger firms so these financing sources do not compensate for lower access to bank financing of small firms we also find that larger firms more easily expand external financing when they are constrained than small firms finally we find suggestive evidence that the pecking order holds across countries

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

labor supply taxes and government spending a microeconometric analysis the effect of government spending on labor supply behavior is critical to predicting the balanced budget effect of income taxes and to estimating the marginal social cost of public funds yet its very existence not to mention direction and magnitude has not been empirically investigated this research estimates a labor supply function that incorporates income taxation and government spending using microeconomic data for men and women the empirical results suggest that public sector spending may have a significant effect on labor supply thereby leading to estimates of the marginal social cost of public funds that differ from those typically calculated

carbon emissions control and trade liberalization coordinated approaches to taiwan s trade and tax policy abstract in recent years several studies have emerged on the possible reconciliation between trade and environmental policies however little attention has been devoted to inquiring about the economic implications of the linkages of these policies in the newly industrialized countries the so called nics in this paper we investigate the joint effects of trade and environmental policies on the taiwan economy the estimates are derived from a five household 18 sector computable general equilibrium model calibrated to a 1995 social accounting matrix our empirical results based on taiwan s data show that tariff elimination can significantly reduce the costs of carbon emissions control and possibly offset welfare reductions due to implementation of a carbon tax our findings reveal that the coordination of trade liberalization with the introduction of targeted environmental policies enhances factor relocation towards competitive industries they are broadly consistent with those cases of developing countries reported in previous studies

carbon reducing taxes and income inequality general equilibrium evaluation of alternative energy taxation in taiwan recently several studies have been a detailed evaluation of the economic implications of energy taxation as a policy instrument to conserve energy and reduce carbon emissions however little attention has been devoted to inquiring about the economic implications of energy taxation in the newly industrialized countries the so called nics in this paper we use a multisector multihousehold computable general equilibrium model to assess the distributional effects of alternative energy taxation on the taiwan economy the counterfactual simulation technique is applied to investigate the income distribution implications of 1 an increase in the import taxes of crude oil and 2 an increase in the excise taxes of petroleum products our empirical results basing on taiwan s data show that both energy taxes increase government revenue and the gini coefficient but reduce net value added private consumption disposable income and equivalent variation a raise in the gini coefficient implies that there is a

a computable general equilibrium model of the southern region of taiwan the impact of the tainan science based industrial park the primary modelling tools used to analyse regional economic issues include econometric forecasting models fixed price input output i o multi sector models social accounting matrix sam and computable general equilibrium cge models cge models combine the advantages of econometric i o models and sam strengthening the theoretical basis of the modelling effort and thus enabling more precise policy analysis current cge literature includes models used to analyse international trade tax reform energy and environment issues however application of this technique on a regional scale is rare in the scientific literature in this paper a small regional computable general equilibrium model is constructed and applied to analyse the economic impact of constructing tainan science based industrial park tsbip locating in southern taiwan the research results provide a valuable reference for decision makers in formulating industrial and regional policies as well as helping business managers with strateg

women prefer larger governments growth structural transformation and government size i introduction in developing and developed economies alike growth of income per capita is generally accompanied by a rise in the share of government expenditure in gross domestic product gdp as well as an increase in the participation of women in the labor force we argue that these phenomena are causally related propose a model that motivates that relation and provide evidence in its support the share of total government spending in gdp has increased by 10 in organization for economic cooperation and development oecd countries in the last two decades alone see world bank 2001 and this rise comes in the wake of significant secular increases in government spending in the 20th century 1 apace with this rise in the government s share of gdp female labor force participation has also risen from 28 to 41 in the same countries and the same period 2 as for the long run goldin 1995 reports an increase in female labor force participation in the united states between 1900 and 1980 from 3 1 to 50 of the labor force 3 while according to tanzi and schuknecht 2000 the share of government spending rose in the same period from 8 to 30 figure 1 plots the change in government size as a share of gdp versus the change in female labor force participation from 1972 to 1999 for a sample of selected countries the twin increases in female labor force participation and government size are not a coincidence they are causally related the mechanism at work is twofold as wages rise with development and women choose to work more hours in the market they increase their demand for services that tend to be provided by the government including education healthcare care for the elderly and the unemployed the additional provision of government services further encourages female labor market participation as it decreases the time necessary to perform those home and family activities whose burden falls disproportionately on women 4 this circle of causation leads to higher female participation and larger governments our growth model extends galor and weil 1996 in addition to female participation in market activities fertility and output government size is also endogenously determined the rise in hourly wages that accompanies development and capital accumulation leads to an increase in female labor force participation as the opportunity cost of caring for the children increases in our model government spending decreases the time cost of performing household chores one obvious connection is the provision of extra school hours and child care which decrease the time cost of child rearing as couples women in particular participate more in market activities they choose higher government spending to compensate for time spent in the market under certain conditions which we make explicit they also choose higher tax rates with the result that female labor force participation and government size increase apace 5 as female labor force participation leads to a larger government the total cost of raising children is reduced for two reasons the total time at home decreases and the time cost per child also falls as public spending partly substitutes for home production of child care education and other activities 6 the decision to work outside the home is likely to lead women to demand wider and better provision of the public services that alleviate their unequal burden as caregiver at home in addition the role of women as insurer of family risks may lead to a demand for more government intervention as women become less present at home there is an additional mechanism through the composition of the public labor force government jobs in teaching and health which are a large portion of total public jobs tend to be filled mostly by women 7 our model draws on the solid literature on growth fertility and female labor force participation which is supported by microevidence

sweden s relative economic performance lagging behind or staying on top the purpose of this papers is confined to illuminating the aspect has sewedish economic growth been slow relative to other industrialised countries in recent decades i e is sweden lagging behind this abstract was borrowed from another version of this item

the swedish experiment the deterioration of the economic performance in sweden from about 1970 was to some extent the result of a number of exogenous shocks and unnecessary policy mistakes it was however also related to basic changes in the economic and social system in sweden in the late 1960s and early 1970 when government spending taxes and regulations started to expand dramatically it is also argued in the paper that problematic political economic and social mechanisms had become embedded in the long term dynamics of the system itself these various experiences are the background for recent reforms and retreats of the swedish experiment

tax revenue and the marginal cost of public funds in sweden abstract we assess the welfare cost of raising a marginal unit of tax revenue in a balanced budget general equilibrium framework the calculated social cost of an increment of public funds is sensitive to both the specific type of tax increase and the type of public spending used on the margin best guess assumptions on labor supply elasticities yield marginal costs of public funds for different fiscal mixes of between 0 67 and 4 51 at prevailing tax rates in sweden alternative labor supply assumptions well within the range of current estimates substantially affect the results and can imply infinite marginal welfare costs marginal welfare costs are also sensitive to assumptions about both the income and substitution effects of labor supply

the effect of government size on the unemployment rate recent empirical studies have revealed that the size of government is inversely related to economic growth and technical efficiency evidence is presented linking the size of government to reported unemployment rates for the industrial countries during recent years this finding helps to explain the empirical link between government size and poor macroeconomic performance

sweden s laffer curve taxation and the unobserved economy recent research on the unobserved economy suggests that the phenomenon has important implications for both macroeconomic policy and public finance attention is focused on the public finance implications by developing a simple macromodel from which it is possible to derive a laffer curve the model reveals that the shape and position of the laffer curve depend upon the strength of supply side effects the progressivity of the tax system and the size of the unobserved economy using alternative parameterizations of each of these effects it is possible to obtain rough empirical estimates of the laffer curve for sweden i introduction supply side economics the laffer curve and the unobserved economy are subjects which have captured the interest of economists in their effort to understand and design cures for the growing macroeconomic and public finance malaise which appears to be affecting many of the world s most developed economies high rates of unemployment and inflation combined with slower rates of real growth and ever widening government deficits have focused economists attention on the interrelated issues of macroeconomic stabilization and public finance policy the questions raised by the supply side laffer curve and unobserved economy literature focus on the effects of tax rates on economic performance and the ability of governments to sustain the ambitious social welfare programs established in the past decade while there is much controversy about what the laffer curve looks like and where various economies are on their curves it is generally accepted that the dependence of tax revenues on tax rates is too oversimplified in

labor supply and tax rates comment in a recent paper in this review 1983 james gwartney and richard stroup g s take issue with what they assert is the widespread view p 447 that because changes in tax rates have a theoretically indeterminate effect on individual labor supply the impact of changing tax rates is also indeterminate at the aggregate level gwartney and stroup suggest for example that if the initial output of public goods is optimal and the government cuts taxes and expenditures by equal amounts the forgone public goods would be valued as highly as the private goods that individuals purchase with their increase in disposable income hence aggregate real income would not rise but remain at its pre tax cut level gwartney and stroup state that under these circumstances a tax cut s impact on aggregate labor supply would not be indeterminate but labor inducing because in the aggregate there is no income effect only a positive substitution effect 1 gwartney and stroup illustrate this point by examining the aggregate labor supply effects of an increase in transfer payments financed by an exactly offsetting increase in income taxes they argue that if the transfer payments are income conditioned this policy would decrease net wage rates for transfer recipients as well as for taxpayers thereby producing work reducing substitution effects for all members of society on the other hand the aggregate change in disposable income in the economy would be zero since by design the expansion in transfers is exactly offset by the increase in taxes they conclude that unless recipients and taxpayers respond differently to a given change in disposable income the income effect of the tax transfer program will leave both the aggregate supply of labor and consumption of leisure unchanged but of course the substitution effect will still be present unambiguously it will induce individuals to work less although how much less is strictly an empirical issue p 450 in this comment we demonstrate that the g s tax transfer illustration and the policy implications drawn from it are highly misleading we first show that the g s conclusions about the relationship between tax rates and labor supply are based upon strong assumptions about the degree of homogeneity in the population and that without these assumptions their conclusions are not guaranteed to hold we then use microsimulation techniques to challenge the impression given by the g s paper that more redistribution must necessarily imply a reduction in the labor supply and output of the economy

financing the german mittelstand this paper describes how the german mittelstand or small and medium sized enterprises are financed in germany the role of the german mittelstand both in a static and in a dynamic framework is described and contrasted with that of the same size group in other leading industrialised countries we find that in general the mittelstand has played a mmore important role in germany than in other industrialised nations such as the united states or the united kingdom the traditional success of the german mittelstand is partly attributable to a system of finance that is richly layered by complementary institutions designed to meet the financial needs of both large and smaller enterprises however we find evidence that even under the german system of finance liquidity constraints exist and are greater for smaller firms the german system of finance moreover seems particularly deficient in the channeling of funds to new firm startups in the newer industries

marginal welfare cost calculations differential analysis vs balanced budget analysis abstract in a differential analysis tax revenue collections are held constant in a balanced budget analysis the spending level is changed and the level of distortionary taxation is changed correspondingly here income effects are important and efficiency calculations depend chiefly on uncompensated elasticities unless government exhaustive expenditure is assumed to substitute closely for cash a small scale computational general equilibrium model is constructed and differential and balanced budget experiments are performed results show that marginal welfare costs calculated from balanced budget experiments can be negative when labor supply functions are backward bending interactions among parameter values and efficiency costs are explored

a positive theory of in kind transfers and the negative income tax normative arguments for restricting redistribution to cash transfers or a negative income tax have not appealed to politicians or their constituents all modern governments redistribute income in kind and provide goods and services that can be produced and distributed privately at times public and private supply coexist housing services medical care and education are examples but so too are safety and many regulatory activities of government

tax rates government expenditures and labor supply clarifying the record a central claim of supply side economics is that in general equilibrium the income effect of a change in the income tax rate washes out and only the substitution effect remains in the words of ehrenberg and smith 1985 there would be a substitution effect with no overall income effect and labor supply would increase the aggregate supply of labor curve then must be upward sloping p 160 emphasis in the original although there has been a substantial literature on this subject the literature is sometimes confused in this paper a simple model is used to sort through the literature correct mistaken assertions derive a new result and collect earlier results in a compact way

child care subsidies and labor supply in sweden this paper utilizes data from a swedish household survey for 1984 the hus data in combination with data on public child care fees and spaces per child by community we argue that the subsidy rate and availability of spaces determined by the political leaders of the community is to a large extent exogenous to the household the joint out of home child care and labor supply decision is analyzed by logit and ordered probit choice models we find that the high quality public child care in sweden encourages labor market activity of women with preschoolers even when the spouse s income is high and that when spaces are not rationed a lower price encourages use

the maturity structure of corporate debt we provide an empirical examination of the determinants of corporate debt maturity our evidence offers strong support for the contracting cost hypothesis firms that have few growth options are large or are regulated have more long term debt in their capital structure we find little evidence that firms use the maturity structure of their debt to signal information to the market the evidence is consistent however with the hypothesis that firms with larger information asymmetries issue more short term debt we find no evidence that taxes affect debt maturity

should day care be subsidized in the presence of distortionary taxes on labor can subsidies on childcare flnanced by a further increase in taxes raise welfare by encouraging women with small children to work we approach this question in two difierent ways first we consider a set of stylized models where we prove analytically that under some conditions the ramsey optimal policy consists in making childcare expenses tax deductible then we construct a calibrated stochastic dynamic life cycle model of household decision making designed to capture some facts about labor supply in germany we flnd that the welfare gains associated with subsidizing childcare are considerable and that the maximum gains are realized when childcare is subsidized to an even greater extent than what tax deductibility implies

linear sam models for inequality changes analysis an application to the extremadurian economy social accounting matrices are adequate databases for the economic modelling these matrices emphasize the role of households in the economy and so they usually disaggregate the household sector into several groups this disaggregation allows social accounting matrices to be used for diverse income distribution analysis the objective of this work is to use the linear sam models to study how inequality is modified by several exogenous injections of income the set of multipliers and indicators presented is applied to the economy of extremadura a region situated in the southwest of spain in particular together with the accounting multipliers two redistributed income matrices are presented to show how changes in final demand and in income transfers cause opposite effects in inequality for contrasting these results gini and theil indices are also used finally a major reduction in both would result from an appropriate re allocation of transfers