the determinants of realignment expectations under the ems some empirical regularities abstract the stability of the ems depends crucially on realignment expectations of the market participants in this paper we discuss how to measure such expectations and how to relate them to economic fundamentals central bank reputation and institutional arrangements of the ems we find the following empirical regularities for ff dm and il dm exchange rates 1 1 expected devaluations are positively related to the current exchange rate deviation from the central parity 2 2 expected devaluations are negatively related to the length of time since last realignment in the short and medium run 3 3 the basle nyborg agreements seem to have a stabilizing effect for both currencies examined albeit through different channels

unauthorized immigration and fiscal competition abstract reflecting upon recent enforcement policy activism of us states and countries within the eu towards unauthorized workers we examine the overlap of centralized federal and decentralized state or regional enforcement of immigration policies in a spatial context among other results we find that if interstate mobility is costless internal enforcement is overprovided and border enforcement and local goods are underprovided when regions take more responsibility in deciding policies this leads to higher levels of unauthorized immigration under decentralization interregional migration costs moderate such over underprovision moreover income distributive motives in the host country may shape the design of immigration policies in specific ways the basic model is extended in several ways first we study how the policies change when regions can exclude unauthorized immigrants from the consuming of regionally provided goods or services second we assume that the potential number of unauthorized immigrants is endogenous and finally we examine the effect of considering an alternative spatial configuration that includes border and interior regions

real exchange rate dynamics with nominal parities structural change and overshooting abstract the relationship between structural changes that require a modification of the steady state level of the real exchange rate is examined in terms of a model of staggered prices and real wealth effects although wealth effects are necessary for overshooting it is shown that their actual values are of no particular relevance in fact overshooting is shown to be more likely the smaller is the real wealth effect in the demand for tradables a key and counterintuitive result is that overshooting is more likely the higher is the frequency of price changes

dividend taxes corporate investment and q abstract taxes on corporate distributions have traditionally been regarded as a double tax on corporate income this view implies that while the total effective tax rate on corporate source income affects real economic decisions the distribution of this tax burden between the shareholders and the corporation is irrelevant recent research has suggested an alternative to this traditional view one explanation of why firms in the united states pay dividends in spite of the heavy tax liabilities associated with this form of distribution is that the stock market capitalizes the tax payments associated with corporate distributions this capitalization leaves investors indifferent at the margin between a corporation s decision to pay out dividends or to retain earnings this alternative view holds that while changes in the dividend tax rate will affect shareholder wealth they will have no impact on corporate investment decisions this paper develops econometric tests which distinguish between these two views of dividend taxation by extending tobin s q theory of investment to incorporate taxes at both the corporate and personal levels the implications of each view for corporate investment decisions can be derived the competing views may be tested by comparing the performance of investment equations estimated under each theory s predictions british time series data are particularly appropriate for testing hypotheses about dividend taxes because of the substantial postwar variation in effective tax rates on corporate distributions the econometric results suggest that dividend taxes have important effects on investment decisions

exchange rate based stabilization imperfect competition and supply side effects abstract this paper studies exchange rate based stabilization programs in the context of a dynamic general equilibrium model for a small open economy that incorporates imperfect competition a backward looking wage setting and an endogenous labor supply in contrast to previous results the analysis shows that a permanent disinflation leads to a sustained expansion in the domestic sector and a slow inflation convergence this study also shows that a temporary stabilization replicates a boom recession cycle these results suggest that a backward looking wage setting and an endogenous labor supply are the key ingredients for reproducing the stylized facts of exchange rate based stabilization

the incidence and allocation effects of a tax on corporate distributions abstract to study the effects of double taxation first at the corporation level then at the shareholder level this paper analyzes a model with a tax on all corporate distributions to equity owners and no other taxes contrary to the common view the tax is shown to have no subtitution effect and in particular no effect on the corporate choice between debt and equity via retained earnings finance the analysis opens to question certain arguments commonly used to support integration of corporation and individual income taxes via dividend relief

capital tax reform and the real economy the effects of the 2003 dividend tax cut this paper tests whether the 2003 dividend tax cut one of the largest reforms ever to a us capital tax rate stimulated corporate investment and increased labor earnings using a quasi experimental design and us corporate tax returns from years 1996 2008 i estimate that the tax cut caused zero change in corporate investment and employee compensation economically the statistical precision challenges leading estimates of the cost of capital elasticity of investment or undermines models in which dividend tax reforms affect the cost of capital either way it may be difficult to implement an alternative dividend tax cut that has substantially larger near term effects jel c72 c78 c91

migration remittances and the family remittances by migrants along with migration itself are elements in a migrant familys intertemporal contractual arrangement the reasons why the migrant and his family voluntarily enter into a mutually beneficial contractual arrangement with each other rather than with a 3rd party are discussed and the conditions under which the contractual arrangement is self enforcing are identified both parties can usually benefit from a number of pareto efficient mutual contractual arrangements this gives rise to an indeterminacy problem solved through a bargaining process between the parties who consequently converge to a contractual arrangement implying a specific flow of migrant to family remittances the chosen contractual arrangement reflects the relative bargaining powers of the parties and variables impinging upon these powers thus bear upon remittances in the light of these arguments tests are conducted on observed remittance behavior across individual migrants in botswana authors

illegal immigration and resource allocation this paper studies the effects of illegal immigration and the associated expansion of the underground economy on the allocation of resources commodity prices and wages of workers both in the short run when occupational mobility is restricted and in the long run when the skill composition of the labor force is endogenous the paper goes on to consider some of the fiscal implications of illegal immigration and the related expansion of underground activity effects of sanctions against employers hiring illegal aliens and measures to legalize the status of clandestine foreign workers are also examined the geographical focus is on developed countries primarily the united states and europe excerpt

implications of immigration policies for the u s farm sector and workforce i background in 1942 the united states and mexico signed the bracero program a formal agreement to draw seasonal labor to work in u s agriculture which provided employment opportunities to poor rural mexicans 1 however this program was abolished in 1964 ending the legal seasonal labor supply to u s agriculture in the southwestern states concurrently the united states passed the immigration act of 1965 establishing a quota of 120 000 legal immigrants per year the abandonment of the bracero program the new legal immigrants quota limits and economic inequality between the united states and mexico paved the way for steady entry of illegal laborers and led to eventual insurmountable illegal immigration population in the united states because illegal immigration was not a serious problem in the 1960s and 1970s legislation addressed only the number of legal immigrants allowed to enter the united states but in the 1980s illegal immigration began to emerge as a national problem and extensive debates entrenched around issues such as preventing the entry of unauthorized workers providing public services to illegal immigrants and even legalizing these workers consequently the u s congress attempted to address the immigration problems by enacting the 1986 immigration reform and control act irca the goals of irca were to eliminate the stock of undocumented workers through amnesty 2 and domestic enforcement of employer sanctions and curb the influx of illegal immigrants by increasing the border surveillance amnesty failed to eliminate the stock of illegal immigrants because only about half of the illegal immigrants filed for citizenship and it created future expectation of amnesty and more illegal unauthorized entry furthermore domestic sanctions on employers of undocumented workers and deportation of these workers were scantly enforced to stop the influx of immigrants irca focused heavily on tightening border control the irca also legislated the h 2a program which allowed agricultural employers to bring in guest workers during seasonal operations ers 2007 however farmers complained that the cumbersome paperwork of h 2a and bureaucratic delay were not conducive to procure seasonal laborers at the time of peak farm operations such as vegetable and fruit picking 3 in spite of irca s amnesty provision and strengthened control measures illegal immigration continued to rise about 12 million unauthorized immigrants resided in the united states in 2007 martin 2007 which is reaffirmed by many popular press reports leading to an extended congressional debate that began at the start of this decade to solve the illegal immigration problem several bills were proposed by the house of representatives the senate and the white house addressing issues related to increased domestic and border enforcements 4 paths to citizenship and guest worker programs montgomery 2006 these bills were not passed because of major disagreements among lawmakers over providing citizenship and guest worker programs as a result of the failed legislations and the september 11 attack the government primarily focused on border security accordingly funding for border enforcement has steadily increased 5 and resources were diverted from domestic to border enforcement however boucher and taylor 2007 documented that increased funding to secure the border did not deter undocumented workers from crossing the border because determined immigrants eventually find a way to enter the country by repeated attempts following september 11 2001 the u s immigration and customs enforcement ice further decreased the number of human hours devoted to worksite inspection because monitoring critical infrastructure took priority gao 2005 for example from 1999 to 2003 the number of human hours for domestic enforcement decreased from 480 000 to 18 000 6 7 but by late 2005 the u

a monetary approach to the crawling peg system theory and evidence this paper develops and estimates a model of the joint determination of the exchange rate international reserves and the rate of inflation under a crawling peg system the framework presented which is an extension of previous work on the monetary approach generates short run deviations from purchasing power parity that occur simultaneously with movements in both international reserves and the exchange rate the model is estimated by full information maximum likelihood on the basis of quarterly data for brazil

migration and foreign aid when it comes to linkages between migration and the global allocation of foreign development assistance the size of the immigrant population from a recipient country residing in a donor country is an important determinant of dyadic aid commitments two complementary hypotheses probe this relationship first donors use foreign aid to achieve their broader immigration goals targeting migrant sending areas to increase development and decrease the demand for entry into the donor country second migrants already residing in the donor country mobilize to lobby for additional aid for their homeland empirical tests on a large sample of country pairs made up of twenty two donors and more than 150 recipients over the period 1993 to 2008 show robust support for these hypotheses

bounds on elasticities with optimization frictions a synthesis of micro and macro evidence on labor supply how can price elasticities be identified when agents face optimization frictions such as adjustment costs or inattention i derive bounds on structural price elasticities that are a function of the observed effect of a price change on demand the size of the price change and the degree of frictions the degree of frictions is measured by the utility losses agents tolerate to deviate from the frictionless optimum the bounds imply that frictions affect intensive margin elasticities much more than extensive margin elasticities i apply these bounds to the literature on labor supply the utility costs of ignoring the tax changes used to identify intensive margin labor supply elasticities are typically less than 1 of earnings as a result small frictions can explain the differences between micro and macro elasticities extensive and intensive margin elasticities and other disparate findings pooling estimates from existing studies i estimate a hicksian labor supply elasticity of 0 33 on the intensive margin and 0 25 on the extensive margin after accounting for frictions

exchange rate based stabilizations a literature review the exchange rate based stabilizations erbss that have been undertaken in chronic inflation countries have generated a controversial body of literature regarding the effects of disinflation programs especially those on real consumption and output this survey provides an extensive overview of the literature on erbs the paper covers various empirical studies that have attempted to document the macroeconomic regularities associated with erbs discussing both their strengths and their weaknesses it analyzes diverse theoretical models that have been put forward to replicate the business cycles associated with erbs and sheds light on which models perform better using real data the results suggest that durables incorporated weak credibility and sticky price model proves to be most compatible with the empirical regularities observed in the course of erbs

tax policy and heterogeneous investment behavior abstract we estimate the effect of temporary tax incentives on equipment investment using shifts in accelerated depreciation analyzing data for over 120 000 firms we present three findings first

exchange rate based inflation stabilization the initial real effects of credible plans abstract this paper studies the initial effects of exchange rate based stabilization programs within a dynamic general equilibrium model of a small open economy in which inflation acts as a tax on intermediate transactions and capital accumulation is subject to convex adjustment costs and gestation lags the model replicates the typical pattern of slow inflation convergence sustained real exchange rate appreciation trade balance deterioration and expansion in domestic spending followed by a deflationary slowdown without resorting to sticky prices imperfect credibility or adaptive expectations calibrated versions of the model are compared with the initial effects of the argentine convertibility plan of april 1991

taxing across borders tracking personal wealth and corporate profits globalization is making it increasingly easy for corporations to shift profits to low tax countries modern technology has also made it simpler for wealthy individuals to move funds to undeclared bank accounts in offshore tax havens both issues have featured prominently in the news and global economic debates since the financial crisis but the arguments tend to be based on relatively little empirical evidence measuring the costs of tax havens to foreign governments is fraught with difficulties however balance of payments data and corporate filings show that us companies are shifting profits to bermuda luxembourg and similar countries on a large and growing scale about 20 percent of all us corporate profits are now booked in such havens a tenfold increase since the 1980s this profit shifting is typically done within the letter of the law and thus would be best described as tax avoidance rather than fraud i attempt to quantify its cost for government coffers by taking a fresh look at the most recent macroeconomic evidence and combining it in a systematic manner over the last 15 years the effective corporate tax rate of us companies has declined from 30 to 20 percent and about two thirds of this decline can be attributed to increased profit shifting to low tax jurisdictions wealthy individuals too use tax havens sometimes legally to benefit from banking services not available in their home country and sometimes illegally to evade taxes a number of changes have sought with some success to curb that form of tax evasion over the last years yet the available evidence from switzerland and

illegal immigration a supply side analysis abstract this paper analyzes the supply side determinants of illegal immigration using a three sector general equilibrium model of the source country agricultural liberalization raises illegal immigration while liberalization of the high tech sector reduces it in contrast capital mobility in the source country renders trade policy ineffective for controlling illegal immigration paradoxically increased enforcement by the host country may raise source country unskilled wages although illegal immigration falls finally under capital mobility a rise in the source country restrictions on capital inflow raises the level of illegal immigration and reduces the effectiveness of border enforcement efforts by the host country

household expenditure and the income tax rebates of 2001 using questions expressly added to the consumer expenditure survey we estimate the change in consumption expenditures caused by the 2001 federal income tax rebates and test the permanent income hypothesis we exploit the unique randomized timing of rebate receipt across households households spent 20 to 40 percent of their rebates on nondurable goods during the three month period in which their rebates arrived and roughly two thirds of their rebates cumulatively during this period and the subsequent three month period the implied effects on aggregate consumption demand are substantial consistent with liquidity constraints responses are larger for households with low liquid wealth or low income

the trade effects of us anti dumping actions against china post wto entry since china s entry into the wto us anti dumping ad actions against china have increased particularly with respect to multiple petitions distinguishing between us single and multiple petitions we examine the trade effects of us ad actions against china based on an unbalanced panel of quarterly trade data the results show that a us single petition investigation greatly restrains us imports of the filed products from china but also causes more significant import diversion from non named countries in the short run a preliminary ad duty imposed on china via a us multiple petition not only restrains us imports of the filed products from china but also prevents trade diversion from non named countries in the long run a final ad duty on china resulting from a us multiple petition creates a larger destructive effect on china and causes us import diversion from non named countries thus a final ad duty imposed on china following a us multiple petition not only harms china s exports but also fails to help the us achieve import substitution furthermore we have been able to reveal the negative trade effect of a preliminary ad duty even in cases where the ultimate decision is not to impose a final duty

a divisible search model of fiat money this paper extends the kiyotaki wright search model of fiat money to allow for divisible money and goods the extension allows me to examine the standard issues in monetary economics such as the neutrality and superneutrality of money by severing the artificial link in the kiyotaki wright model between the money supply and the number of money holders it is shown that money is neutral but not superneutral money growth generates a trading opportunity effect it changes the fraction of different agents in the economy and hence changes the probability with which agents have a successful match in addition money growth has a negative effect on the real money balance that is familiar in walrasian monetary models the balance of the two effects can imply a positive optimal money growth rate

migration and the skill composition of the labour force the impact of trade liberalization in ldcs the purpose of this paper is to shed some light on the conditions under which trade liberalization in the developing countries is likely to cause an increase or a decrease in out migration we also examine the impact of trade liberalization on the skill composition of migration and of the labour force for this purpose we explicitly incorporate four additional features in the heckscher ohlin model heterogeneity of labour skills international migration migration costs and constraints on financing migration excerpt summary in fre

the welfare effects of illegal immigration abstract this paper extends the work of ethier on illegal immigration by examining the optimal level of enforcement for the labor importing country in a two country model and by considering the effects of allowing capital mobility we derive a formula for the optimal level of enforcement against firms that hire illegal workers and show that the presence of enforcement costs makes the policy less efficient than a wage tax with capital mobility foreign workers gain from an increase in enforcement in the home country because capital is driven out of the home country

trade deflection and trade depression this is the first paper to empirically examine whether a country s use of an import restricting trade policy distorts a foreign country s exports to third markets we first develop a theoretical model of worldwide trade in which the imposition of antidumping and safeguard taris or trade remedies by one country causes significant distortions in world trade flows we then empirically test this model by investigating the eect of the united states use of such import restrictions on japanese exports of roughly 4800 products into 37 countries between 1992 and 2001 our estimation yields evidence that us restrictions both deflect and depress japanese export flows to third countries imposition of a us antidumping measure against japan deflects trade as the average antidumping duty on japanese exports leads to a 5 7 increase in japanese exports of the same product to the average third country market the imposition of a us antidumping measure against a third country depresses trade as the average us duty imposed on a third country leads to a 5 19 decrease in japanese exports of that same product to the average third country s market we also document the substantial variation in trade deflection and trade depression across dierent importing countries and exported products

the macroeconomics of populism in latin america by populism this paper refers to an economic approach that emphasizes growth and income redistribution and deemphasizes the risks of inflation and deficit finance external constraints and the reaction of economic agents to aggressive nonmarket policies it analyzes two instances of populism chile under allende and peru under garcia these experiences are described in detail not as a righteous assertion of conservative economics but as a warning that populist policies ultimately fail and always at a frightening cost to the groups they were supposed to benefit this paper explores the question of whether some variant of populist policies could succeed it suggests that populist policies could succeed if they stayed clear of foreign exchange constraints emphasized reactivation for a brief initial period and then shifted to growth policies most important expansionary policies must reflect awareness of capacity constraints and must rely for financing on an extremely orthodox fiscal policy and rigorous tax adminsitration the paper concludes by warning that imf style policies unconcerned with growth of social progress may establish financial stability in the short run but inevitably open the door to yet another round of destructive reaction in the form of populist policies

sticky inflation and the real effects of exchange rate based stabilization abstract this paper tests the empirical validity of the forward looking pricing hypothesis using data from four exchange rate based stabilization erbs episodes it finds that backward looking components of inflation play an important role in inflation dynamics in some cases exceeding the importance of forward looking components the paper then shows that the presence of empirically relevant degrees of inflation stickiness increases the size of the real exchange rate appreciation predicted by an imperfect credibility model of erbs the 12 real appreciation predicted by the sticky inflation model is a 70 improvement over the predictions of the fully forward looking pricing setup but as in other erbs models still falls short of matching the real appreciations observed in practice

strict dollarization and economic performance an empirical investigation in this paper we analyze the macroeconomic record of strictly dollarized economies in particular we investigate whether dollarized countries have historically exhibited faster growth and lower volatility than countries with a domestic currency we analyze this issue by using a treatment regression analysis that estimates jointly the probability of being a dollarized country and outcome equations our analysis indicates that the probability of being a dollarized country depends on regional geographical political and structural variables our results also suggest that gdp per capita growth has not been statistically different in dollarized and in non dollarized countries we also find that volatility has been significantly higher in dollarized than in non dollarized economies these results are robust to the estimation technique and to the sample used

trade aid and migrations some basic policy issues the link between trade policy and international migration is explored using data from the united states and europe we conclude that restrictive trade policies in industrialised countries have most likely added to migration pressures we then turn to the broader question of the effects of income growth in the sending countries on the propensity to migrate we argue that in relatively poor countries an increase in income will be associated with higher migration flows for middle income countries however income growth will lead to lower migrations in the medium run therefore the relationship between development levels as measured by gdp per capita and the propensity to migrate follows an inverse u pattern econometric analysis of aggregate migration flows from southern europe provides considerable support for such conjecture excerpt

stabilization dynamics and backward looking contracts abstract exchange rate based stabilizations often result in an initial output expansion one explanation for this phenomenon has been that in the presence of inflation inertia a reduction in the nominal interest rate causes the domestic real interest rate to fall thus increasing aggregate demand this paper reexamines this issue in the context of an intertemporal optimizing model in contrast to previous results the analysis shows that if the intertemporal elasticity of substitution is smaller than the elasticity of substitution between traded and home goods a permanent reduction in the rate of devaluation leads to a fall in aggregate demand

compulsory licensing evidence from the trading with the enemy act compulsory licensing allows firms in developing countries to produce foreign owned inventions without the consent of foreign patent owners this paper uses an exogenous event of compulsory licensing after world war i under the trading with the enemy act to examine the effects of compulsory licensing on domestic invention difference indifferences analyses of nearly 130 000 chemical inventions suggest that compulsory licensing increased domestic invention by 20 percent jel d45 l24 n42 031 034 compulsory licensing allows firms in developing countries to produce foreign inventions without the consent of foreign patent owners 1 countries such as brazil thailand and india have used the policy to procure life saving drugs for millions of patients and are proposing it as a means to access foreign technologies to combat climate change 2 opponents of compulsory licensing however fear that the policy may reduce access to critical innovations that are invented abroad as it weakens incentives for foreign firms to transfer new technologies into developing countries for example the us pharmaceutical company merck criticized brazil s licensing of its hiv drug efavirenz as an expropriation of intellectual property which will hurt patients who require new life saving therapies http www ip watch org

a critical evaluation of exchange rate policy in turkey abstract this paper reviews and critically evaluates the exchange rate policy followed in turkey in the post 1980 period during which a far reaching program of liberalization has been launched we conclude that the new exchange rate policy has been essential for turkey s regaining its creditworthiness furthermore it has positively contributed to growth of output and exports and to expansion of tradables production relative to nontradables persistence of inflation and weakness of private investment in tradables overshadow the successes recorded in other areas and cast doubt over the sustainability of turkey s outward orientation we argue that the root cause of these problems has been inconsistencies between overall economic policies rather than the exchange rate policy itself we compare the period of real appreciations since late 1998 with the earlier period of real depreciations and draw policy implications

credibility and the dynamics of disinflation in open economies a note on the southern cone experiments abstract when people lack confidence in the ability of politicians to carry out a newly announced disinflationary policy disinflation becomes more difficult to achieve numerous writers have emphasized the importance of policy consistency for establishing credibility this essay suggests in addition that policies with a quicker disinflationary impact become more credible sooner and thus have a better chance of succeeding with that proposition in mind the objective is to examine and compare the initial impacts of alternative disinflationary strategies in an open economy with capital mobility using evidence from the southern cone experience with preannounced exchange rates for illustrative purposes

investment tax incentives prices and the supply of capital goods using data on the prices of capital goods this paper shows that much of the benefit of investment tax incentives does not go to investing firms but rather to capital suppliers through higher prices the reduction in the cost of capital from a 10 percent investment tax credit increases equipment prices 3 5 7 0 percent this lasts several years and is largest for assets with large order backlogs low import competition or with a large fraction of buyers able to use investment subsidies capital goods workers wages rise too instrumental variables estimates of the short run supply elasticity are around 1 and can explain the traditionally small estimates of investment demand elasticities in absolute value the demand elasticity implied here exceeds 1

crawling peg inflation hedges and exchange rate dynamics this paper stresses the effects of currency substitution and speculation on inflation hedges on the relative price of home goods in the two sector general equilibrium portfolio balance model examining the overshooting hypothesis of exchange rates in association with the overshooting phenomenon of price of inflation hedges it has shown that exchange rate undershooting is plausible with the significant overshooting of the price of inflation hedges when domestic residents hold only domestic money and inflation hedges however the impact of currency substitution is strong enough to lead to exchange rate overshooting if the domestic residents have access to foreign currency

when failure becomes success class and the debate over stabilization and adjustment abstract this article criticizes the current debate over stabilization and adjustment and develops an alternative class analytic approach first the respective theories and policy recommendations of neoclassical and structuralist economist are analyzed then the article considers the recent experiences of argentina brazil and peru where orthodox and heterodox policies have been attempted and subsequently declared failures finally it is shown that those failures with respect to employment inflation and the balance of payments become successes to the extent that they involve increasing exploitation and otherwise strengthening the class aspects of capitalism

taxation and corporate payout policy this paper presents new evidence on how corporate payout policy responds to the differential between the tax burden on dividend income and that on accruing capital gains it describes the construction of weighted average marginal tax rate series for the period since 1929 and it suggests that the enactment of the job growth of taxpayer relief reconciliation act of 2003 should raise the after tax value of dividends relative to capital gains by more than five percentage points the impact of this change on payout depends on the elasticity of dividend payments with respect to the after tax value of dividend income relative to capital gains time series estimates suggest an elasticity of more than three and imply that the recent tax reform could ultimately increase dividends by almost twenty percent this abstract was borrowed from another version of this item

the capital inflows problem revisited a stylized model of southern cone disinflation in the late 1970s countries in latin america s southern cone initiated attempts to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange rate devaluation the stabilization programs gave rise to massive capital inflows real exchange rate appreciation and current account deficits this paper develops a stylized intertemporal framework in which the effects of a credible preannounced disinflation scheme can be studied it is shown that even when agents have perfect foresight and markets clear continuously the capital inflows phenomenon and the associated real appreciation may result while unanticipated permanent inflation changes are neutral in the paper anticipated inflation is neutral only in exceptional circumstances a preannounced disinflation operates by altering the path of an expenditure based real domestic interest rate that depends on expected changes in the prices of liquidity services and nontradable consumption goods

illegal aliens unemployment and immigration policy abstract this paper develops a simple two country model of illegal immigration in an attempt to examine the interaction among variables such as the stock of migrant labor the unemployment rates of the two economies and the rate of spending by the host country on the enforcement of its immigration restrictions the focus of the analysis is on the dynamics of immigration policy and on its role in determining the nature of the mechanism by which disturbances to the labor market of one country are transmitted to that of the other in the short run and in the long run

exchange rate based disinflation wage rigidity and capital inflows real exchange rate appreciation usually accompanies stabilization programs based on the exchange rate one thing that causes the real exchange rate to appreciate is the capital inflows that follow liberalization of the capital account and the financial market capital inflows cause the exchange rate to appreciate in part because of the resulting increase in expenditures this appreciation is exacerbated if there is some price rigidity and if control of the money supply is only partial all these conditions existed during chile s experiment with exchange rate based disinflation between 1978 and 1981 simulating what might have been the authors study how exchange rate based disinflation affects expenditures switching and reduction when wages are partially indexed in some segments of the labor market the paper also shows the extent to which a more flexible rule on wage indexing would have offset the adverse impact of lower capital flows on protected sector employment

how does your kindergarten classroom affect your earnings evidence from project star in project star 11 571 students in tennessee and their teachers were randomly assigned to classrooms within their schools from kindergarten to third grade this article evaluates the long term impacts of star by linking the experimental data to administrative records we first demonstrate that kindergarten test scores are highly correlated with outcomes such as earnings at age 27 college attendance home ownership and retirement savings we then document four sets of experimental impacts first students in small classes are significantly more likely to attend college and exhibit improvements on other outcomes class size does not have a significant effect on earnings at age 27 but this effect is imprecisely estimated second students who had a more experienced teacher in kindergarten have higher earnings third an analysis of variance reveals significant classroom effects on earnings students who were randomly assigned to higher quality classrooms in grades k 3 as measured by classmates end of class test scores have higher earnings college attendance rates and other outcomes finally the effects of class quality fade out on test scores in later grades but gains in noncognitive measures persist

on gradual disinflation the real exchange rate and the current account abstract we study the effects of a credible gradual exchange rate based disinflation program in a two sector economy after an initial exchange rate depreciation the reductions in the rate of devaluation reduce the monetary wedge generated by the cash in advance constraint leading to a gradual increase in absorption that yields progressive real exchange rate appreciations and current account deficits an initial boom in economic activity is not followed by a later contraction as labour supply expands during the whole length of the program many of the model s predictions are in accordance with the stylized facts on disinflation in chronic inflation countries in particular those of the mexican program of 1988 1992

stabilization policies in developing countries what have we learned abstract the paper reviews the recent experience with stabilization programmes in latin america in the light of traditional and monetarist models of inflation and the exchange rate the traditional model links both inflation and payments problems to budget deficits the monetarist model too believes that inflation is caused by fiscal deficits but it takes a more optimistic view of stabilization full purchasing power parity and perfect capital mobility make stabilization just a question of the appropriate exchange rate policy and the proper rate of domestic credit creation the traditional view is substantially right as a long run model but it fails in the dynamics the monetarist model is as we know now fundamentally wrong as a short run description of the possibilities of inflation control there is need and room for a paradigm that places emphasis on the debt money mix in financing the budget on the stickiness of inflation rates and on the place of short run real exchange rate and real interest rate variations that these are key features of the transition phase is amply borne out by the devasting and unsuccessful experiences with monetarist stabilization in argentina chile and brazil

trade diversion as firm adjustment to trade policy evidence from eu anti dumping duties on vietnamese footwear this paper evaluates the impact of the 2006 european union anti dumping ad action on vietnamese footwear in three markets imports to the eu footwear producers in vietnam and the trade diversionary adjustment of vietnamese firms in the us market we find that the ad action reduced vietnamese imports to the eu by as much as 65 per cent given that the eu makes up almost two thirds of vietnam s footwear exports and footwear is among the top four export industries for vietnam this reduction is economically significant consistent with predictions of our model we find evidence of trade diversion by vietnamese producers from the eu to the us market our difference in difference estimates of the ad actions on the value of vietnamese footwear imports to the united states ranged from 69 to 71 per cent over the period 2004 07 and 69 to 72 per cent in terms of quantity these results highlight the spillover effects of trade policy in third markets when firms adjust to trade barriers our results are robust to triple difference specifications where we adjust for trend differences and a series of placebo specifications

exchange rate based stabilizations under real frictions the role of endogenous labor supply abstract this paper studies exchange rate based stabilization programs in the context of a model of a small open economy where labor supply is endogenous agents derive utility from both consumption and leisure in environments where consumption is subject to a cash in advance constraint a cut in the rate of devaluation lowers the nominal interest rate and hence alters the optimal mix of consumption and leisure the paper shows that in the presence of adjustment costs of investment a perfectly credible cut in the devaluation rate causes simultaneously a consumption and output boom a cumulative current deficit a sustained real appreciation of the domestic currency and an increase in labor supply over time it is also shown that an imperfectly credible stabilization program in this environment would have effects similar to the perfectly credible program but generate richer dynamics such as an initial boom in output followed by a recession which begins prior to the end of the program the model has clear welfare implications in that permanent reductions in inflation are unambiguously welfare enhancing

national and international aspects of financial policies in ldcs a prologue after a period of animated controversy between keynesians advocating policies of low interest rates and monetary expansion and monetarists who insisted on the importance of the distinction between nominal and real interest rates economists have now almost reached a consensus on the role of money in the development process this consensus has arisen because it was increasingly felt that what was called for was not new concepts so much as new ways of looking at them in ldcs money s role need be neither denigrated nor exaggerated money s traditional functions as a medium of exchange and a store of value remain important in ldcs but its function as a conduit of resources from savers to investors is more central to an inderstanding of its contributions to development coats and khatkhate 1980 p 3 the body of the consensus derives from the framework set up by mckinnon and shaw fleshed out by the earlier work of goldsmith and patrick goldsmith 1969 patrick 1966 and extended by the theoretical and empirical output of a large number of younger economists fry 1981 this analysis attached central importance to financial policies of higher real interest rates which were supposed to encourage the build up of real money balances increased financial intermediation and unification of financial markets eventually such a policy would lead to the efficient utilization of resources and particularly of scarce capital this new paradigm has contributed to an improved understanding and perception of the economies of ldcs their problems and how these problems are accentuated by distortions arising from interventionist policies for a while it was believed that the programme contained the secret of how to reconcile stabilization objectives with those of development roe 1982 however the accumulation of empirical evidence on several developing countries where the prescribed set of policies was adopted has raised doubts about the validity of this conclusion in the presence of distortions in the financial markets it is no doubt a sensible policy to raise real interest rates the problematic issue is how far to go raising real interest rates without any regard for the rates of return on investment may run counter to the requirements of development to argue that once funds are generated through the accumulation of real balances investment can take care of itself ignores the very dynamics of development thus the hiatus between stabilization and development has not really been bridged this is evident from the recent concern with supply side policies rather than demand management policies a dichotomy which parallels the distinction between the stabilization and development problems it is this dual distinction which provides the theme of this special issue of world development

risk preference immigration policy and illegal immigration abstract the paper analyzes the effects of government policy upon illegal immigration the model used as a vehicle for this analysis is an extension of ethier s one small country model of illegal immigration to a two country context we distinguish between the cases of capital immobility and free capital mobility and consider illegal immigration when there are border patrols by the government and when there are internal enforcement procedures in effect unlike previous researchers who have assumed risk neutrality we examine the impacts of government policy when prospective illegal immigrants exhibit risk averse and risk loving behavior the relaxation of the risk neutrality assumption leads to the possibility of multiple and unstable equilibria moreover attitudes to risk and the probability of detection are shown to have implications for some equilibrium responses to tighter surveillance

obstacles to disinflation what is the role of fiscal expectations persistently high expected inflation often makes it difficult for policy makers to recover from inflationary episodes without substantial output losses using survey data from eleven disinflation episodes we can assess whether the more or less sluggish decline of inflation rates towards lower target levels is related to backward looking pricing behavior or to imperfect credibility of the stabilization efforts we find that expectations of future inflation play a much more important role than past inflation in shaping the inflation process second we find that an improvement in various measures of fiscal balances significantly reduces inflation expectations this evidence suggests that when attempting to stabilize inflation priority should be given to building fiscal credibility oya celasun r gaston gelos and alessandro prati

modern hyper and high inflations since 1947 hyperinflations by cagan s definition in market economies have been rare much more common have been longer inflationary processes with inflation rates above 100 percent per annum based on a sample of 133 countries and using the 100 percent threshold as the basis for a definition of very high inflation episodes this paper examines the main characteristics of such inflations among other things we find that i close to 20 percent of countries have experienced inflation above 100 percent per annum ii higher inflation tends to be more unstable iii in high inflation countries the relationship between the fiscal balance and seigniorage is strong both in the short and long run iv inflation inertia decreases as average inflation rises v high inflation is associated with poor macroeconomic performance and vi stabilizations from high inflation that rely on the exchange rate as the nominal anchor are expansionary

us immigration policies and dynamics of cross border workforce in agriculture given the contentious debate on immigration this study develops a dynamic model to analyse the effects of stricter border and domestic enforcement and streamlining the guest worker programme on cross border migration from mexico employment and production in us labour intensive and mexican agriculture and the us and mexican wage rates the model incorporates labour leisure decisions of mexican workers and labour market dynamics and linkages the findings show stricter border and domestic controls exacerbate the labour shortage problems and reduce the us agricultural production streamlining the guest worker programme provides a steady supply of farm workers and has negligible impact on the us wage

disinflation programs under policy uncertainty abstract this paper uses a model with endogenous labor supply to study exchange rate based inflation stabilization programs under uncertainty regarding the duration of the program the paper finds that the output and consumption dynamics induced by these programs are extremely sensitive to whether the programs are perceived to have a chance of continuing permanently or whether they are expected to end in finite time it is shown that the business cycle dynamics for output that are typically associated with these programs arise only when the policy is expected to collapse in finite time furthermore for the purposes of rationalizing the stylized facts the uncertain duration channel appears to induce a fundamental tension between the consumption dynamics and the current account dynamics these results raise doubts regarding the explanatory power of the uncertain duration channel in particular and the credibility channel in general

tax policy and business fixed investment in the united states abstract this paper derives and estimates models of nonresidential investment behavior in which current and future tax conditions directly affect the incentive to invest the estimates suggest that taxes have played an independent role in affecting postwar u s investment behavior particularly for investment in machinery and equipment in addition the paper develops a method for assessing the impact of tax policy on the volatility of investment when such policy is endogenous illustrative calculations using this technique based on the paper s empirical estimates suggest that tax policy has not served to stabilize investment in equipment or nonresidential structures during the sample period

the politics of adjustment lessons from the imf s extended fund facility the international debt crisis has forced painful economic adjustments on the developing world in the short run it has forced governments to seek to correct payments imbalances through stabilization programs usually undertaken with conditional assistance from the international monetary fund imf the crisis has also revealed deeper weaknesses in many third world economies weaknesses demanding more basic reforms in the structure of incentives prices and investment

the effects of fiscal stimulus evidence from the 2009 cash for clunkers program we evaluate the impact of the 2009 cash for clunkers program on short and medium run auto purchases our empirical strategy exploits variation across u s cities in ex ante exposure to the program as measured by the number of clunkers in the city as of summer 2008 we find that the program induced the purchase of an additional 370 000 cars in july and august 2009 however we find strong evidence of reversal high clunker counties bought fewer autos in the 10 months after the program expired which offset most of the initial purchases we find no evidence of an effect on employment house prices or household default rates in cities with higher exposure to the program jel codes h20 e62 copyright 2012 oxford university press

who profits from patents rent sharing at innovative firms this article analyzes how patent induced shocks to labor productivity propagate into worker compensation using a new linkage of u s patent applications to u s business and worker tax records we infer the causal effects of patent allowances by comparing firms whose patent applications were initially allowed to those whose patent applications were initially rejected to identify patents that are ex ante valuable we extrapolate the excess stock return estimates of kogan et al 2017 to the full set of accepted and rejected patent applications based on predetermined firm and patent application characteristics an initial allowance of an ex ante valuable patent generates substantial increases in firm productivity and worker compensation by contrast initial allowances of lower ex ante value patents yield no detectable effects on firm outcomes patent allowances lead firms to increase employment but entry wages and workforce composition are insensitive to patent decisions on average workers capture roughly 30 cents of every dollar of patent induced surplus in higher earnings this share is roughly twice as high among workers present since the year of application these earnings effects are concentrated among men and workers in the top half of the earnings distribution and are paired with corresponding improvements in worker retention among these groups we interpret these earnings responses as reflecting the capture of economic rents by senior workers who are most costly for innovative firms to replace

consumption taxes and corporate investment consumers nominally pay the consumption tax but theoretical and empirical evidence is mixed on whether corporations partly shoulder this burden thereby affecting corporate investment using a quasi natural experiment we show that consumption taxes decrease investment firms facing more elastic demand decrease investment more strongly because they bear more of the consumption tax we corroborate the validity of our findings using 86 consumption tax changes in a cross country panel we document two mechanisms underlying the investment response reduced firms profitability and lower aggregate consumption importantly the magnitude of the investment response to consumption taxes is similar to that of corporate taxes received september 25 2017 editorial decision august 26 2018 by editor wei jiang authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

foreign aid and illegal immigration abstract we develop a two country model of illegal immigration we analyse the effect of foreign aid on illegal immigration and consider both exogenous and endogenous income repatriation in the former an increase in aid increases illegal immigration if the total amount of aid is small a transfer of resources from border control to aid increases illegal immigration when the total amount of aid is small under endogenous income repatriation aid has no effect on illegal immigration when the preferences of the immigrants and their family members are the same if the preferences are different aid may increase illegal immigration

inflation stabilisation and the consumption of durable goods exchange rate based stabilisations in chronic inflation countries have often been characterised by an initial consumption boom which is most evident in the behaviour of durable goods followed by a later contraction this paper provides an explanation for such a boom recession cycle based on the timing of purchases of durable goods the initial fall in inflation results in a wealth effect which induces many consumers to bring forward their purchases of durable goods thus generating an aggregate consumption boom since most consumers replenish their stock of durable goods at the beginning of the programme a later slowdown follows

on the marginal source of investment funds abstract under the new view of dividend taxation developed by auerbach quarterly journal of economics 1979 93 433 446 bradford journal of public economics 1981 15 1 22 and king public policy and the corporation chapman hall london 1977 the marginal source of finance for new investment projects is retained earnings in this case the tax advantage of retaining earnings precisely offsets the double taxation of subsequent dividends taxes on dividends have no impact on the investment incentives of firms using retentions as a marginal source of funds and paying dividends with residual cash flows we show that the same invariance with respect to dividend taxes may hold under weaker conditions with respect to the source of funds if the use of funds follows the same pattern we find evidence that there is significant heterogeneity in our sample of us firms with some firms exhibiting dividend behavior consistent with this expanded version of the new view and others exhibiting behavior consistent with the traditional view that retained earnings are not an important marginal source of funds

more cops less crime abstract i exploit a natural experiment to estimate the causal effect of police on crime the american recovery and reinvestment act increased funding for the community oriented policing services cops hiring grant program from less than 20 million over 2005 2008 to 1 billion in 2009 hiring grants distributed in 2009 were allocated according to an application score cutoff rule and i leverage quasi random variation in grant receipt by comparing the change over time in police and crimes for cities above and below the threshold in a difference in differences framework relative to low scoring cities those above the cutoff experience increases in police of about 3 2 and declines in victimization cost weighted crime of about 3 5 following the distribution of hiring grants the effects are driven by large and statistically significant effects of police on robbery larceny and auto theft with suggestive evidence that police reduce murders as well crime reductions associated with additional police were more pronounced in areas most affected by the great recession the results highlight that fiscal support to local governments for crime prevention may offer large returns especially during bad macroeconomic times

time series minimum wage studies a meta analysis time series minimum wage studies a meta analysis author s david card and alan b krueger reviewed work s source the american economic review vol 85 no 2 papers and proceedings of the hundredth and seventh annual meeting of the american economic association washington dc january 6 8 1995 may 1995 pp 238 243 published by american economic association stable url http www jstor org stable 2117925 accessed 04 11 2011 15 46

temporary investment tax incentives theory with evidence from bonus depreciation even modest reductions in the after tax cost of capital purchases provide strong incentives for increased investment indeed for tax subsidies that are temporary and for capital goods that are very long lived the incentive to invest when the after tax price is temporarily low is essentially infinite firms that would have purchased new capital equipment in the future instead make their purchases during the period of the subsidy for tax increases the effects are the opposite firms that would have normally invested now delay until the tax rate returns to normal we present a model of the equilibrium effects of temporary investment tax incentives the model reveals a simple relationship between the shadow price of investment goods and the size of a temporary investment tax incentive specifically for sufficiently long lived capital goods goods with very low rates of economic depreciation and for sufficiently short lived investment tax subsidies the shadow value of capital should be nearly unchanged and thus the pre tax shadow price of capital goods should fully reflect the magnitude of the tax subsidy this result holds regardless of the elasticity of investment supply and regardless of the underlying demand for capital instead it relies only on the firm s ability to arbitrage predictable movements in the after tax price of long lived capital over time two conclusions immediately follow first observ ing price increases following a temporary tax incentive is not evidence that investment supply is relatively inelastic a temporary investment tax subsidy can substantially affect investment even if it bids up the price of investment sharply second because economic theory dictates that the shadow price of investment moves one for one with a temporary tax subsidy the elasticity of supply can be inferred from quantity data alone recent changes in us tax law allow us to use the model and its implications to estimate struc tural parameters that govern the supply of investment the 2002 and 2003 tax bills provided temporarily accelerated tax depreciation called bonus depreciation for certain types of qualified capital goods under the 2002 bill firms could immediately deduct 30 percent of investment purchases and then depreciate the remaining 70 percent under standard depreciation schedules