the deadweight loss from non neutral capital income taxation abstract this paper develops an overlapping generations general equilibrium model that treats explicitly the role of capital goods in the production process and uses the model to measure the relative magnitudes of different distortions associated with capital income taxation across industries assets and time one of the main results is that uniform capital income taxation is almost certainly suboptimal theoritically but that optimal deviations from uniform taxation are empirically inconsequencial the paper also introduces and applies a general technique for distinguishing intergenerational transfers from efficiency gains in the analysis of the impact of policy changes on long run welfare

female labour supply and marital status decisions a life cycle model this paper studies the interdependence between and the determinants of life cycle marital status and labour force participation decisions of women a dynamic utility maximization model is presented and estimated using longitudinal data on women from the panel study of income dynamics the mle method employed involves solving a dynamic programming problem further a minimum distance estimator is proposed which allows for the incorporation of wage data in a computationally simple way the estimates are used to predict changes in the life cycle patterns of employment marriage and divorce due to differences in education race the female s earnings and her potential husband s earnings the estimation results indicate that the utility gains to marriage are decreasing in the female s wage rate and increasing in her potential husband s earnings while the opposite is found for gains to working ignoring the endogeneity of marital status decisions is shown to lead to an underestimation of own and husband s wage effects on female labour supply

saving wealth and the exchange bequest motive a model of exchange motivated bequests based upon childrens attentions to parents provided when the children are young adults is joined to a standard life cycle specification to examine the consequences for wealth and savings the results of general equilibrium simulations show contribution to be far below some recent estimates exchange motivated bequests produce offsets to life cycle savings that limit their ability to increase total savings epargnes richesse et le legs motive par la logique de l echange l auteur combine un mod0e de legs motive par la logique de l 6change les parents obtenant en echange l attention de leurs enfants quand ceux ci sont jeunes adultes et une specification standard du modele

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

the impact of body weight on occupational mobility and career development this paper examines the relationship between individuals weight and their employment decisions over the life cycle i estimate a dynamic stochastic model of individuals annual joint decisions of occupation hours worked and schooling the model allows body weight to affect non monetary costs switching costs and distribution of wages for each occupation and also allows individuals employment decisions to affect body weight i use conditional density estimation to formulate the distributions of wages and body weight evolution i find that heavier individuals face higher switching costs when transitioning into white collar occupations earn lower returns to experience in white collar occupations and earn lower wages in socially intensive jobs simulating the model with estimated parameters decreased occupational mobility accounts for 10 percent of the obesity wage gap while contemporaneous wage penalties for body weight are small the cost over the life cycle is substantial an exogenous increase in initial body mass by 20 percent leads to a 10 percent decrease in wages over the life course

two sector perspectives on the effects of payroll tax cuts and their financing abstract this paper analyzes the consequences of lifting from labor some of the burden of taxation in a life cycle two sector setup where a consumption good is produced alongside a capital good the analysis focuses on the implications of alternative ways of financing payroll tax cuts in closed and small open neoclassical economies in our models payroll tax cuts do not necessarily stimulate hours worked in the stationary state we show for example that in the closed economy paradoxically long run aggregate labor hours and the capital stock will be reduced if labor tax proceeds are replaced by capital taxation if instead government purchases of the capital good or government labor services are decreased manhours are left unchanged in the long run while capital formation is spurred in the small open economy it is only if the offsets are a fall in entitlement spending or a rise in the wealth tax that aggregate manhours are increased otherwise steady state hours worked are invariant

randomization of commodity taxes an expenditure minimization approach using an expenditure minimization approach necessary and sufficient conditions for local random taxation are obtained in terms of the curvature of the compensated demand function so that intuition from excess burden analysis can be applied major findings include 1 random taxation is locally optimal if the compensated demand function is sufficiently convex 2 horizontally equitable taxation is locally optimal if the compensated demand function is concave and 3 local randomization is not optimal if the tax revenue requirement is sufficiently close to zero or to any local maximum we also derive an inverse elasticity characterization of the optimal random tax structure

a dynamic approach to the measurement of waste in an open economy abstract the paper develops a methodology for evaluating the cost of distortions within the production sector of a small open growing economy quadratic approximations to the loss of output are developed the main new result is that the dynamic loss due to distortions generally exceeds the discounted sum of static type losses due to distortions at least to the second order another new result derives a quadratic approximation to the output loss that can be calculated using information on the size of the distortions and on producer substitution matrices evaluated at an observed distorted equilibrium rather than at a hypothetical undistorted equilibrium

the effect of salaries and opportunity costs on duration in teaching evidence from michigan this paper demonstrates that salaries and opportunity costs have important influences on how long teachers stay in teaching the empirical work is based on a new longitudinal dataset providing information on the careers of 7800 michigan public school teachers the generalized least squares estimation technique accommodates censored observations time varying covariates and fixed effects one implication of the result is that predictions from the current generation of teacher supply and demand models are likely to be misleading copyright 1989 by mit press

how vouchers could change the market for education small probability that vouchers will in the foreseeable future be adopted on a large scale in any school district or state at the moment only three states have adopted publicly funded voucher programs and all of these programs are limited in scale nonetheless in recent years over 40 state legislatures have considered proposals to provide some type of voucher program or tuition tax credit for at least some families in a given state or school district and the children s scholarship fund see http www scholarshipfund org has helped create or expand privately funded voucher programs in numerous cities as vouchers become a more significant part of education policy debates the time is right to consider what we know and do not know about the likely effects of adopting various voucher schemes in the balance of this paper i describe both empirical and theoretical work on education that speaks to this topic i argue that we cannot confidently predict the outcomes that would result from various voucher schemes and i also stress that debates over vouchers per se are not informative details concerning funding targeting and discretion in the use of vouchers should greatly affect the outcomes associated with any particular voucher program still empirical evidence on the performance of public versus private schools as well as numerical results from existing simulation models suggest that policymakers should be able to design voucher programs that would be helpful to minority students in large cities public schools in large cities often perform poorly in minority neighborhoods and this is especially true in economically disadvantaged areas

job exit behavior of older men a dynamic programming model of job exit behavior and retirement is constructed and estimated using the method of simulated moments the model and estimation method allow for both unobserved individual effects and unobserved job specific match effects the model is estimated using two different assumptions about individual discount factors first a static model with the discount factor equal to zero is estimated then a dynamic model with the discount factor equal to 95 is estimated in both models it is found that bad health age and lack of education increase the probability of retirement the dynamic model performs better than the static model and has different implications for retirement behavior the job specific effects are an important source of unobserved heterogeneity copyright 1991 by the econometric society

the transition from payroll to consumption receipts with endogenous human capital abstract the transition from payroll to consumption receipts is simulated in a life cycle growth model featuring adult human capital as in other studies savings are higher under the consumption base however unlike those studies much of the additional savings here take human form human capital production increases for all cohorts in or yet to join the labor market as of the tax change the additional human capital production tends to dampen physical capital accumulation when compared with otherwise identical simulations which hold human capital constant the implications for intergenerational incidence are similar to that found in other examinations of the transition to a consumption base

growth and employment the scope of a european initiative this paper is an abridged version of a policy initiative paper prepared with a dozen colleagues in louvain la neuve and paris we propose a set of policies to cope with europe s persistent unemployment including two medium term programs a drastic reduction of the indirect cost of unskilled labour and an ambitious stimulation of targeted investments the bottom line is that policies addressing meaninfully europe s unemployment problem must be pursued on a bolder scale than currently contemplated

the quality and distribution of teachers under the no child left behind act the heart of accountability under the no child left behind nclb act is an attempt to change the existing incentives in schools with the ultimate objective that all students meet a proficiency standard existing research indicates that nothing is more important to high achieve ment as having effective teachers implying that the impact of new incentives on teachers will be central to any consideration of the accountability statutes tracing the impacts of nclb on the stock and distribution of teachers is none theless a difficult and uncertain task the belief that the quality of teachers matters a great deal to the quality of education received by students has actually proven hard to substantiate and the reasons for this difficulty are key to assessing the impacts of no child left behind a substantial body of research going back to the coleman et al 1966 report has attempted to link commonly used measures of teacher quality such as experience degree level and state teacher certification to student outcomes surprisingly except for perhaps the first few years of classroom experience no robust connection has appeared for example hanushek and rivkin 2006 review various studies attempting to identify characteristics of effective teachers one

marginal welfare costs of taxation with human and physical capital i introduction marginal welfare cost of taxation is the amount by which the social cost of an additional tax dollar differs from 1 because of distortionary taxation browning and johnson 1984 stuart 1984 browning 1987 ballard 1988 and allgood and snow 1998 use static models of the u s economy in which labor supplies adjust but the stocks of human and physical capital are fixed to calculate estimates of this welfare cost relevant to cost benefit analysis the studies by lucas 1990 and perroni 1995 incorporate human and physical capital into calculations of excess burden for the purpose of comparing alternative tax systems but do not address the welfare costs of marginal tax and spending reforms ballard et al 1985 and judd 1987 provide estimates of welfare cost using models that allow the stock of physical capital to change in response to marginal reforms but the stock of human capital is exogenous in these studies however judd 2001 argues that there is ample evidence indicating that human capital investment decisions have a significant effect on the cost of altering the tax system which suggests that these decisions could also have an important influence on marginal welfare cost in this article we present estimates of welfare costs for marginal reforms to government tax and spending policies when labor supply saving and education decisions are all endogenous we focus our analysis on marginal reforms because as skinner and slemrod 1985 observe most policy reforms enacted do not involve replacing one tax or spending system with another but instead typically entail marginal adjustments in tax laws and government appropriations using a perfect foresight overlapping generations model with a three period life cycle we derive analytical expressions for the changes in labor supply saving and education and use them to calculate marginal welfare cost as shown by auerbach et al 1983 in overlapping generations models steady state welfare comparisons of alternative tax policies are biased unless households are compensated for intergenerational redistribution along the transition path to arrive at our steady state estimates of welfare costs we adapt the compensation method introduced by gravelle 1991 for analyzing fundamental tax reforms to the context of incremental tax and spending reforms in a static one consumer model triest 1990 has shown that marginal welfare cost mwc is positive solely because of tax leakage the decline in tax revenue caused by reductions in the tax base we extend this insight to an intertemporal context that incorporates tax leakage arising from changes in both human and physical capital investment we evaluate three sets of reforms first a revenue neutral reduction in the tax on capital income funded by a higher tax on labor income second spending on a public good financed by either a higher tax on labor or interest income third a per capita lump sum transfer or demogrant also funded by either a higher tax on labor or interest income we find that marginal welfare costs are uniformly lower in the dynamic model where investment decisions are endogenous than in the static model where investment decisions are fixed and that the majority of the difference between the dynamic and static estimates is attributable to human capital decisions the principal reason is that a reallocation of time between labor hours and human capital investment has opposing and potentially offsetting effects on effective labor supply as a result labor supply responds less elastically in the dynamic model and changes in labor supply are the main source of tax leakage because wage taxation is the main source of tax revenue we also find that shifting marginal financing from capital to labor results in a lower welfare cost the reason being that such a change encourages saving which increases wage rates and stimulates labor supply leading to a reduction in marginal welfare costs

measuring the inefficiences of tax systems abstract the properties of the procedure for measuring inefficiency developed by debreu 1951 1954 are summarised and the advantages of such an input based approach in analysing taxation discussed exact expressions for the debreu measure of deadweight loss are derived and the measure proposed by kay 1980 shown to be a special case the approach is pursued to construct and interpret a measure of the overall welfare loss from taxation which decomposes conveniently into efficiency and distributional components in one special case the corresponding index of total effectiveness is the product of debreu s coefficient of resource utilisation and an atkinson equality index

the effect of taxes on labour in efficiency wage models abstract this paper analyses the effects of labour taxation on wage and employment in a moral hazard efficiency wage model where effort is a continuous variable and workers are risk averse in the model examined ad valorem and specific taxes on labour do not have the same consequences on the real wage both taxes have a negative effect on employment but the imposition of a specific tax causes an increase in the net real wage including firms to raise the quality of their workers these results are compared with those obtained in other versions of the shirking efficiency wage model

taxes in a life cycle growth model with bequests and inheritances in a recent paper lawrence summers 1981 analyzes alternative taxes in a life cycle growth model this paper extends his analysis to include bequests and inheritances this inclusion is worth undertaking for several reasons first several recent empirical studies have suggested that bequests may account for an important share of the capital stock laurence kotlikoff and summers 1981 second it is important to explore whether the comparison of taxes is significantly affected when a bequest motive is introduced third the treatment of bequests under a consumption tax is controversial the endowment rationale calls for treating a bequest as taxable consumption by the deceased peter mieszkowski 1980 the real wage rationale calls for exempting bequests if such exemption raises the steady state capital intensity and real wage my 1980 article this paper confines itself to positive analysis of steady states transition paths and normative implications are explored elsewhere see my 1982 paper

labour tax reform the good jobs and the bad jobs we analyse recent proposals to shift the tax burden away from low paid labour assuming a dual labour market where the good high paying jobs are rationed a shift in the tax burden from low paid to high paid workers has an ambiguous effect on the level of aggregate employment while the allocation of aggregate employment is further distorted even if the tax reform raises total employment economic efficiency may be reduced because labour is reallocated from high productive to low productive jobs we also find that opportunities for on the job search have important implications for the policy effects

the after tax rate of return affects private savings level of savings and the rate of capital formation are of central concern to both economists and policymakers although the welfare effects of tax reforms do not directly depend on their impact on savings the effects of taxes on savings is crucial to considerations of tax incidence and equity and to the issue of long run growth the impact of the rate of return on consumption and savings decisions also bears on questions regarding the appropriate government discount rate the short run crowding out effects of fiscal policy and the effects of public indebtedness on capital intensity the traditional view among economists is that changes in the rate of return are likely to have only a small effect on the savings rate this consensus is supported by theoretical arguments pointing to the opposing income and substitution effects associated with changes in the rate of return the ambiguous implications of theory are matched by empirical studies which yield conflicting estimates as to the size of the impact of changes in the rate of return the polar empirical estimate is michael boskin s 1978 suggestion that the interest elasticity of savings is 4 this estimate is widely regarded as too high

inequality in five countries in the 1980s the role of demographic shifts markets and government policies this paper uses luxembourg income study lis data to examine levels of and trends in income inequality in canada the netherlands sweden the united kingdom and the united states inequality increased in sweden the united kingdom and the united states but did not increase in canada and the netherlands increased inequality of household heads earnings and increased shares of spouses earnings in family income account for much of the observed increases in income inequality the public sector can in general be assigned a moderating effect on these changes demographic shifts are not assigned any major role in inequality changes excerpt

the measurement of waste within the production sector of an open economy a methodology for measuring the loss of output that can be attributed to distortions within the production sector of an open economy is proposed examples of distortions are tariffs on imported intermediate inputs taxes or subsidies on exports specific taxes on an output that is used as an input by another industry nonneutral corporate income taxes interindustry monopolistic markup pricing and union induced wage differentials the methodology generalizes the earlier work of allais and debreu

the future of the income tax the federal income tax has been under attack by the economics profession for more than a decade the attack comes from two directions supply siders who believe that progressive income taxation impairs economic incentives and more traditional economists who would substitute a progressive expenditure tax for the income tax 2 at one time support for the expenditure tax was confined to a few members of our profession including such distinguished names as john stuart mill irving fisher nicholas kaldor and james meade today it is fair to say that many if not most economists favor the expenditure tax or a flat rate income tax this group has joined the opponents of progressive taxation in the attack on the income tax despite an incessant barrage from both groups no country in the world is planning to abandon the income tax or is even considering a personal expenditure tax a wave of tax reform beginning with the u s reform in 1986 has been sweeping the world aimed at improving the income tax not at eliminating it tax preferences formerly regarded as sacrosanct are being removed and there is a distinct movement toward comprehensive income taxation 3 however individual income tax rates are being cut tax progressivity has been declining almost everywhere and reliance on the income tax has been diminishing it will come as no surprise to this audience that i approve of the base broadening feature of the current tax reform movement but i believe that the reduction in the redistributive effect of the income tax has gone too far in this paper i shall show that the progressivity of the u s tax system never very pronounced except during and immediately after the two world wars has been declining for more than two decades and that the tax reform act of 1986 reversed this decline but only slightly consequently we have a long way to go to improve the equity of the tax system i believe this can be done without punitive tax rates that will hurt economic incentives i begin with a brief review of recent changes in the u s distribution of income and follow this with an analysis of the effect of taxes on the income distribution i next examine arguments for and against the income tax with particular emphasis on its effects on economic incentives and its merits when compared with the expenditure tax i then evaluate the income tax as it emerged from the 1986 tax reform and conclude with tjoseph pechman passed away on august 19 1989 his presidential address was delivered at the onehundred second meeting of the american economic association december 29 1989 atlanta georgia joseph a pechman economic studies program the brookings institution 1775 massachusetts avenue nw washington dc 20036 i have benefited from the comments and suggestions on an earlier draft of this paper by henry j aaron richard goode jane g gravelle robert w hartman donald w kiefer herbert e klarman robert d reischauer clifford m winston and h peyton young but they should not be held responsible for the views expressed in this paper i am indebted to richard kasten for various simulations i am also grateful to stephen j kastenberg for research assistance and to diane a shugart valerie m owens and sara c hufham for secretarial assistance some of the more extreme supply siders argued that large tax cuts pay for themselves see for example laffer 1981 but i believe it is fair to say that this view has been totally discredited for a more reasonable supply side view see the economic report of the president 1982 2see for example michael j boskin 1978 david e bradford 1980 charles l ballard don fullerton john shoven and john whalley 1985 paul courant and edward gramlich 1982 martin feldstein 1978 robert hall and alvin rabushka 1985 john kay and mervyn king 1983 charles mclure 1987 mieszkowski 1980 and lawrence summers 1981 it is interesting that the recent popularity of the expenditure tax among economists was stimulated by a tax lawyer william d andrews 1974 3see pechman 1988

teacher quality in public and private schools under a voucher system the case of chile chile is unusual in having long term experience with nationwide school vouchers a key criticism of school voucher systems is that they make it easier for private schools to attract better teachers to the detriment of public schools this paper uses longitudinal data from chile to estimate a discrete choice dynamic programming dcdp model of teacher and nonteacher labor supply decisions and to explore how wage policies affect the composition of the teacher labor force in public and private schools in the model individuals first decide whether to get a teaching degree and then choose annually from among five work home sector alternatives empirical results show that private voucher schools attract better teachers than public schools however the existence of the private voucher sector also draws higher productivity individuals into the teaching profession

the impact of employment tax cuts on unemployment and wages the role of unemployment benefits and tax structure abstract i model and simulate the effects of employment tax cuts on unemployment and wages in four equilibrium models competitive union bargaining search and efficiency wages i find that if the ratio of unemployment compensation to wages is fixed the effect of the tax cut is mainly on wages but if income out of work is fixed in real terms there are substantial employment effects when wages are determined by bargaining revenueneutral reforms that make the tax more progressive also reduce unemployment thus policy towards unemployment compensation and tax structure are key influences on the effect of taxes on unemployment

from the static to the dynamic some problems in the theory of taxation abstract this paper considers problems and issues that arise when we attempt to extend the static theory of taxation and production planning to a dynamic context and to combine that theory with theories of growth the reasons dynamic theory is less developed include problems with the analytical tractability of even those dynamic models which attempt to retain the basic structure of the static model furthermore difficult and interesting issues arise in a dynamic context which are either not present or are much less severe in the static theory special attention is paid to these new issues and the difficulties they pose

the efficiency gains from dynamic tax reform this paper presents a new simulation methodology for determining the pure efficiency gains from tax reform along the general equilibrium rational expectations growth path of life cycle economies the principal findings concern the effects of switching from a proportional income tax with rates similar to those in the u s to either a proportional tax on consumption or a proportional tax on labor income a switch to consumption taxation generates a sustainable welfare gain of almost 2 percent of lifetime resources in contrast a transition to wage taxation generates a loss of greater than percent of lifetime re sources a second general result is that even a mild degree of progressivity in the income tax system imposes a very large efficiency cost this abstract was borrowed from another version of this item

welfare reform in european countries a microsimulation analysis this article compares the effects of increasing traditional welfare to introducing in work benefits in the 15 pre enlargement countries of the european union we use a labour supply model encompassing responses to taxes and transfers along both the intensive and extensive margins and the euromod microsimulation model to estimate current marginal and participation tax rates we quantify the equity efficiency trade off for a range of elasticity parameters in most countries because of large existing welfare programmes with high phase out rates increasing traditional welfare is undesirable unless the redistributive tastes of the government are extreme in contrast the in work benefit reform is desirable in a very wide set of cases

incentives work getting teachers to come to school we use a randomized experiment and a structural model to test whether monitoring and financial incentives can reduce teacher absence and increase learning in india in treatment schools teachers attendance was monitored daily using cameras and their salaries were made a nonlinear function of attendance teacher absenteeism in the treatment group fell by 21 percentage points relative to the control group and the children s test scores increased by 0 17 standard deviations we estimate a structural dynamic labor supply model and find that teachers respond strongly to financial incentives our model is used to compute cost minimizing compensation policies jel i21 j31 j45 o15

good jobs bad jobs and redistribution we analyse the question of optimal taxation in a dual economy when the policy maker is concerned about the distribution of labour income income inequality is caused by the presence of sunk capital investments which creates a good jobs sector due to the capture of quasi rents by trade unions with strong unions and high planner preference for income equality the optimal policy is a combination of investment subsidies and progressive income taxation if unions are weaker the policy maker may instead choose to tax investment

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

a theory of dual labor markets with application to industrial policy discrimination and keynesian unemployment this paper develops a model of dual labor markets based on employers need to motivate workers in order to elicit effort from their workers employers may find it optimal to pay more than the going wage this changes fundamentally the character of labor markets the model is applied to a wide range of labor market phenomena it provides a coherent framework for understanding the claims of industrial policy advocates it also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces finally the model provides the basis for a theory of involuntary unemployment

dynamic labour force participation of married women and endogenous work experience this paper presents and estimates a dynamic model of married women s labour force participation and fertility in which the effect of work experience on wages is explicitly taken into account because current participation alters future potential earnings the investment return to work will be an important factor in the current work decision in any forward looking behavioural model the model is estimated using the national longitudinal surveys mature women s cohort we use the estimates of our model to predict changes in the lifecycle patterns of employment due to changes in schooling fertility husband s income and the magnitude of the experience effect on wages we find that although work experience increases the disutility of further work the effect is overwhelmed by the positive effect of experience on wages leading to persistence in the employment patterns of these women in addition we find that an increase in young children and in husband s income substantially reduces participation while increased schooling has a powerful positive impact on participation this paper presents an estimable structural dynamic model of married women s labour force participation and fertility in which wages are stochastic and work experience or cumulative participation is endogeneous the model is structural in the sense that the parameters which are estimated are contained in the fundamental relationships governing behaviour namely the utility function and the constraints the model is contained in the class of models which describe the life cycle capital accumulation process with endogeneous labour supply such as weiss 1972 and heckman 1976 it is closest in spirit to that of weiss and gronau 1981 1 the basic feature of their model and ours is that labour market participation affects future wages which then affects future participation the investment return to current work will necessarily be taken into account in any forward looking optimizing model as weiss and gronau note estimates of labour supply models have ignored the inherent behavioural dynamics associated with a positive wageexperience profile there is no adequate empirical treatment of the human capital investment dimension of the labour force participation decision in the literature heckman and willis 1977 have studied a sequential discrete choice model of the labour force participation of married women in a reduced form framework their work

equity effects of the tax reform act of 1986 the major goals of the tax reform act of 1986 included an increase in the equity of the tax system but equity is a concept that is difficult to evaluate one dimension of equity involves vertical equity the idea that people of different income should be treated differently by the tax code this notion is often closely linked with the idea that the tax code should be at least somewhat progressive the tax reform act has also been characterized as favoring lower income individuals relative to higher income ones six million lowincome families were removed from the tax roles through increased standard deductions and personal exemptions and the earned income tax credit which refunded taxes to low income workers was expanded a second dimension of equity is horizontal equity the attempt to be sure that individuals with equal incomes are treated equally the tax reform act took many steps toward equalizing the treatment of different types of income it converted the personal tax rate schedule into two rates eliminated longstanding tax benefits such as the investment tax credit and the capital gains exclusion curtailed recently enacted incentives such as accelerated depreciation and individual retirement accounts struck deeply at popular tax shelters cut the top marginal tax rate for individuals by over one third and reduced the corporate tax rate by over one quarter but although efficiency gains have been

income consumption and wage taxation in a life cycle model separating efficiency from redistribution the desirability of switching from an income tax base to a wage or consumption tax base hinges critically on the potential efficiency gains from doing so the overlapping generations life cycle model developed by lawrence summers 1981 cannot easily be used to answer this question because individuals of different ages alive at the time of the tax substitution differ in their shares of income consumption wages and savings propensities steady state welfare changes include redistribution of taxes and factor incomes the effects of redistribution on the calculation can be controlled for by tracing the transition in another paper summers 1980 used myopic expectations individuals assume that current prices will prevail and solved the economy s equilibrium for 100 years gains and losses were discounted and summed alan auerbach laurence kotlikoff and jonathan skinner 1983 hereafter referred to as aks employed a perfect foresight model they used lumpsum payments to keep the utility of those alive at the time of the tax change fixed and allowed equal equivalent variations to all future generations 1 a perfect foresight model requires simultaneous solution of many years of equilibria 150 years in the aks model although these techniques eliminate distributional elements such models are so costly to construct modify and use that the study of relative efficiency of alternative tax regimes is now greatly hampered by computational complexity this study has two major contributions first it introduces a much simpler method of separating the efficiency and redistributional components of steady state gains rather than tracing the transition it uses a system of transfers which ensures that changes in welfare in the steady state do not arise from redistribution of income to or from transitional generations while this approach does not allow calculation of the transition its application to the aks model suggests that very little information about the magnitude of efficiency effects is lost by forgoing the tracing of the transition for estimating the relative efficiency of income consumption and wage taxation or the extent to which assumptions drive the results this approach greatly simplifies the researcher s task 2 this simplification becomes increasingly valuable as more detail is introduced into models which could involve thousands of equations using an approach that traces the transition secondly my calculations suggest that switching tax bases may not be worthwhile this result differs from the results of summers 1981 and auerbach and kotlikoff 1987 which strongly suggest that the consumption tax is always superior on efficiency grounds using a 0 25 intertemporal substitution elasticity and a cobb douglas production function the steady state wel congressional research service library of congress washington dc 20540 i thank christophe chamley don fullerton yolanda henderson don kiefer larry kotlikoff jonathan skinner tom woodward dennis zimmerman and three anonymous referees for helpful comments and discussions the views in this paper do not necessarily represent those of the congressional research service or the library of congress 1the aks model is confined to one good charles ballard 1984 1989 lawrence goulder 1985 and ballard and goulder 1987 develop multisector models 2the suggestion of a method for separating efficiency from redistribution is not intended to imply that there is no value to tracing the transition tracing the transition can provide information about intergenerational redistribution in an uncompensated change and insights into the realism of the model

a test of dual labor market theory despite substantial differences in their views of the appropriate policy response to the existence of poverty neither the proponents of dual market theory nor its critics have proposed potentially conclusive tests of the dual market hypothesis this paper presents a test of the two central propositions of dual market theory 1 the existence of two distinct labor markets with different wage setting mechanisms and 2 the existence of barriers to mobility between the labor markets we find considerable support for both hypothesis estimation of a switching model of wage determination with unknown regimes yields two distinct wage equations the one which most workers are associated with closely resembles the standard human capital regression with significant returns to education and experience the other equation is flat with no returns to human capital these two equations resemble the predictions of dual market theory for the primary and secondary markets respectively further we present evidence that at least some non white workers are involuntarily confined to the secondary market this crowding of minority workers into the low wage labor market accounts for a substantial portion of white non white wage differences we interpret these results as providing empirical support for the dual market hypothesis and for recent theoretical work on efficiency wagemodels in addition combining the efficiency wage argument with the observation that much of the white non white wage difference is explained by the exclusion of non whites from the primary sector suggests an explanation for the persistance of wage differences this abstract was borrowed from another version of this item

the interest elasticity of saving and the functional form of the utility function the interest elasticity of aggregate saving rate is a key parameter for a number of important questions concerning the government s influence on capital formation recently significant attempts have been made to examine and estimate the effects of interest rate changes on aggregate saving hamburger 9 and wright 17 attempted to estimate the interest elasticity of saving subsequent studies have reported divergent results and with the publication of boskin s 5 controversial study the profession has moved away from a consensus on this issue in a challenge to the widely held view that the elasticity is low summers 16 claimed to have formulated a realistic life cycle model yielding a large and positive interest elasticity of saving in fact he made the strong claim that the theory when formulated realistically implies interest elasticities well in excess of unity 16 534 the claim has been questioned by evans 7 who showed that with negative time preferences the interest elasticities are far lower furthermore he incorporated intergenerational transfers into the model and demonstrated that negative elasticities are not implausible seidman 13 introduced bequests into the model and obtained results that are qualitatively similar to those of summers the studies by summers 16 evans 7 and seidman 13 share a common feature in that each employed a standard homothetic ces utility function shces to represent the preferences of the individual none of these authors addressed the issue of the interest elasticity of saving in relation to alternative functional forms of the utility function a natural and fruitful way of generalizing the utility function considered by these authors is to introduce minimum or subsistence consumption levels as its argument according to the literature on consumer theory utility functions that make allowance for subsistence consumption levels are desirable for various reasons first to capture the notion that consumers require some minimal consumption levels for physiological and psychological needs in order to survive second to account for the habit forming nature of some goods and to make allowance for the future habit forming effect of current consumption third to reflect the fact that some consumption expenditures are contractually fixed and therefore prevent consumers from adjusting some portion

a dynamic model of teacher labor supply the labor supply decisions of certified elementary and high school teachers are examined using data from a general longitudinal survey a significant decrease in the teaching participation rate tak

endogeneity in semiparametric binary response models this paper develops and implements semiparametric methods for estimating binary response binary choice models with continuous endogenous regressors it extends existing results on semiparametric estimation in single index binary response models to the case of endogenous regressors it develops a control function approach to account for endogeneity in triangular and fully simulataneous binary response models the proposed estimation method is applied to estimate the income effect in a labor market participation problem using a large micro data set from the british fes the semiparametric estimator is found to perform well detecting a significant attenuation bias the proposed estimator is contrasted to the corresponding probit and linear probability specifications jel c14 c25 c35 j22

the influence of classroom characteristics on high school teacher turnover i introduction a number of authors have suggested that the u s will face a shortage of qualified teachers in the near future especially in the areas of math and science 1 school districts facing such a shortage could respond in a variety of ways for instance hiring standards could be lowered teachers could be asked to teach outside their areas of certification or funds permitting starting salaries could be increased in an effort to attract the most promising candidates still another option would be to raise teaching loads i e average class size or the number of classes taught thus making do with fewer teachers this option is particularly alluring in light of the fact that average class size has been falling rapidly in the u s over the last twenty years and yet no strong connection between smaller classes and increased student learning has been established 2 there is however a possible hidden cost that needs to be investigated before recommending such a course of action if teachers respond to larger or more frequent classes by quitting then a district that tries to solve its hiring problems in this fashion could simply be increasing its demand for new teachers this paper uses data from the new york state education department s personnel master file for the years 1979 to 1989 in order to investigate whether an increased teaching load affects the likelihood that a teacher will leave his or her district in order to obtain an unbiased sample of job lengths the sample is restricted to full time high school teachers who were newly hired in 1979 3 we estimate a discrete time hazard model in which teaching load is measured as the average class size taught by an individual the number of classes taught and the proportion of classes taught in the teacher s certified area in interpreting our results we pay special attention to whether the behavior of math and science teachers differs from that of other teachers this is an important issue because shortages of qualified teachers in these two areas are predicted to be especially acute ii background the market for teachers differs from a well functioning neoclassical labor market in that salaries are determined through a political process involving various levels of government the public and often teachers unions 4 if the demand for teachers increases as retirements and student enrollment increase then starting salaries cannot be counted on to quickly move to the market clearing level and thus a shortage of teachers becomes a possibility 5 few observers however believe that there will be an actual shortage of warm bodies the more likely scenario is that there will be a lack of teachers trained in specific areas and of high quality teachers in general see murnane et al 1991 1 2 given a limited budget what are the options available to a school district facing this type of shortage the district could settle for hiring lower quality teachers but this might be seen as an unnecessary measure with long term implications taken in response to what could be a temporary situation another option that has been suggested is to increase teacher workloads 6 whether this option is workable depends in part on the exit decisions of teachers a large number of empirical studies have investigated the determinants of teacher turnover however no work specifically directed toward capturing the effect of increased teaching responsibilities on turnover has been done 7 without knowing whether such an effect exists and what the magnitude of it might be informed policy decisions at the district level in response to a shortage of qualified teachers becomes impossible past studies have shown that the probability of a teacher leaving his or her job is high in the first few years after entering the profession falls after the third year 8 and again increases as the teacher nears retirement age murnane et al

tax reform and adjustment costs the impact on investment and market value this paper provides an effective tax rate measure that is valid in the presence of adjustment costs and anticipated tax changes and a measure of the impact of tax changes on market value that may be decomposed into the effects on discounted pure profits and normal returns to capital changes in the value of capital may in turn be decomposed further into changes in the marginal value of new capital and changes in the relative value of new and existing capital these new measures are used to evaluate tax changes similar to those introduced by the recent u s tax reform copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the dynamics of teacher quality abstract an extensive literature finds that while teachers vary considerably in initial quality there are limited teacher quality dynamics except for the first few years of teaching teacher quality does not improve over the course of a teacher s career this study evaluates the importance of various modeling restrictions to the key findings of this literature using data covering all 5th grade public school teachers from the state of north carolina i replicate the findings of the previous literature using their restrictive experience assumptions however using an unrestricted experience model i find that for mathematics achievement there are high returns to later career teaching experience about twice as much dispersion in initial teacher quality as previously estimated and a pattern of negative selection where high quality teachers are more likely to exit

a benchmark measure of income for assessing the distributional effects of tax reform abstract a basic difficulty inherent in analyzing tax induced changes in the distribution of income is to identify a concept of income that is economically meaningful and unaltered by changes in tax laws the present paper introduces a concept of income that is as much as possible invariant to changes in the tax code comparisons of the distribution of total cash income with those of other measures of income that are directly affected by tax reforms can shed light on the distributional effects of changes in tax laws

on the job search some empirical evidence from britain abstract this paper considers evidence from the labour force survey concerning job search by employed workers the unconditional probability of observing on the job search is decomposed into the product of two constituent probabilities upon which maximum likelihood estimation is performed the analysis facilitates the identification of who searches and whether search takes place in work or from unemployment temporary or part time employment encourages continued search by men but not women skilled workers search more than the unskilled and demonstrate a preference for employed search inter industry wage relativities encourage search on the job job tenure is a significant determinant of the quality of a job match and the subsequent likelihood that on the job search is undertaken employed job seekers adopt search strategies that are more readily integrated into a working environment

savings and wealth in models with altruistic bequests during recent years much attention has been given to the role of bequests in explaining various aspects of economic behavior for example authors have studied the impact of bequests on physical wealth accumulation laurence kotlikoff and lawrence summers 1981 the interest elasticity of savings owen evans 1983 tax reform laurence seidman 1984 and the distribution of wealth alan blinder 1976a more recently economists have begun to distinguish between human and physical bequests gary becker and nigel tomes 1986 acknowledging the presence of bequest in human form is important in analyzing each of the issues mentioned above outlays on children affect the shape of the family s labor supply and expenditure profiles upon which the level of aggregate savings crucially depends if these outlays are interest sensitive substitutes for physical bequests they will also influence the interest elasticity of savings in the area of tax reform the neutrality of the consumption tax depends on the ability of the government to identify human capital bequests from general consumption raymond batina 1987 if this is not possible the portfolio choice of investment in human versus physical capital may be distorted at the margin finally the unequal transmission of wealth across generations may be explained by the lack of physical bequests and the inefficiently low levels of human bequests made by wealthconstrained households becker and tomes 1986 to distinguish clearly the behavior of constrained households from unconstrained households who make sizeable physical bequests both types of bequests must be recognized this paper introduces a model that makes explicit examination of these issues possible it extends lord s 1989 multiperiod model of life cycle savings and adult human capital investment by adding altruistically motivated human and physical bequests 2 the model is calibrated using microeconomic data on earnings time and goods expenditures on children s human capital and physical bequests we then use the model to examine the contribution of bequests to wealth accumulation and the level of savings this topic is the source of an important but yet unresolved debate between franco modigliani 1988 and kotlikoff 1988 kotlikoff maintains that u s wealth accumulation is primarily the consequence of bequests as opposed to life cycle savings for retirement one type of evidence cited by kotlikoff comes from simulation results demonstrating the failure of realistically calibrated life cycle models to generate sufficiently high saving rates and wealth income ratios alan auerbach and kotlikoff 1987 we show however that if a pure life cycle

recruiting and retaining teachers in the uk an analysis of graduate occupation choice from the 1960s to the 1990s this paper examines the market for teachers in the uk from 1960 to 2002 using six graduate cohort data sets we find that while there is no strong evidence that teachers are underpaid the relative wages in teaching compared with alternative professions have a significant impact on the likelihood of graduates choosing to teach this wage effect is strongest at times of low relative teachers wages or following a period of decline in those wages it is also strongest for those individuals who have more recently graduated and for men

compensation policies and teacher decisions a dynamic discrete choice framework with a flexible structure for unobserved heterogeneity is used to model the occupational decisions of individuals who are certified to teach in elementary and secondary schools the model is estimated using data from the national longitudinal study of the high school class of 1972 and is used to examine the effects of possible changes in the compensation policy for teachers

an alternative approach to aggregate surplus analysis abstract this paper suggests a dual to the many person applied welfare economics problem with constraints on lymp sum redistribution the dual has the property of minimizing an aggregator function over individual income transfers the properties of the aggregator are dependent upon the resource costs of redistribution and not upon the distributional preferences embodied in the social welfare function an interpretation of the dual problem in terms of consumer surplus is offered

the consumption tax in the presence of altruistic cash and human capital bequests with endogenous fertility decisions abstract we provide an analysis of the consumption tax policy in the presence of cash bequests human capital investments in children and endogenous fertility decisions it is shown that the consumption tax is no longer neutral if the tax rate is constant over the taxpayer s life cycle labor supply is exogenous and the parent expects the offspring to pay the same tax rate if the number of children is chosen optimally by the parent neutrality breaks down because the shadow prices of both bequests and fertility are interlinked it is more expensive to produce a child the larger either bequest is and it is more expensive to make a bequest of either type to each child the larger the number of children produced several examples are provided where imposing the consumption tax induces an increase in the number of children produced and a decrease in net capital formation

effort taxation and unemployment abstract the importance of the design of the income tax system for the incentive to supply effort is considered in a situation where firms set wages a tax reform raising marginal taxes at all income levels and increasing decreasing average taxes at high low income levels may lead to higher wages lower employment and higher unemployment

wage setting and the tax system theory and evidence for the united kingdom abstract this paper analyses the effects of a non linear tax system on wage bargaining the main conclusions are an increase in the marginal income or payroll tax rate reduces the pre tax wage in the isoelastic case an increase in the average tax rate increases the pre tax wage by more than the tax increase and a measure of the progressivity of the tax system residual income progression is a sufficient measure of the effect of the tax system on wage pressure empirical evidence is presented to support these propositions and the predictions of the model regarding the effect of recent changes to the u k tax system on the distribution of earnings discussed

career paths and quit decisions evidence from teaching conventional models predict that workers consider employment opportunities and monetary rewards expected over their lifetimes when making current period decisions such as whether to quit a job this article tests the hypothesis that later career opportunities affect quit decisions by examining the relationship between teaching and school administration evidence on the extent to which administrative positions are available to teachers and the salary premia associated with them is presented discrete time logit hazard models of teacher quits estimated using data from new york state provide some support for the hypothesis though the magnitudes of the estimated effects are small

redistributive taxation in a simple life cycle model an overlapping generations model with rich and poor life cycle planners is developed positive aspects of redistributive capital and labor taxation are then analyzed the conditions required for feldstein s result that the long run capital labor ratio is invariant to wage taxations are discussed the utility frontier is shown to generally have a slope with an absolute value different from one in the neighborhood of a no tax equilibrium labor income is clearly a more efficient base for long run redistribution only if the economy is dynamically inefficient and the rich household benefits from an increase in the gross interest rate even in this case the labor income base may not be considered more desirable when transitional effects are considered copyright 1989 by the london school of economics and political science

do public schools hire the best applicants despite a surplus of candidates for most teaching jobs a strong academic record does little for an applicants job prospects this does not appear to result from lukewarm interest on the part of such applicants or choosiness about the positions they accept administrators lack of interest in these candidates may reflect the weakness of competitive pressures in public education policies intended to improve teacher quality need to consider incentives on both the demand and supply sides of the market

consumption vs wage taxation and the capital levy abstract based on a representative consumer framework it has been argued that wage taxation is inferior to consumption taxation this note shows that the opposite result may emerge in a model where households are heterogeneous and where a uniform poll tax or subsidy is available

leaving teaching in the uk a duration analysis in this paper the authors analyze the decision by teachers to leave the profession their results affirm the importance of relative earnings in the tenure and turnover decisions of teachers the econometric modeling approach used yields important insights into the appropriateness of adopting a flexible semiparametric specification of the duration dependence structure and of the unobserved heterogeneity distribution in duration models copyright 1995 by royal economic society

teacher mobility responses to wage changes evidence from a quasi natural experiment low mobility responses to wage changes imply rents associated with existing employment relationships for example continued employment after a wage cut all else equal reflects rents in the hand of the worker at the outset and symmetrically voluntary quits after a