fiscal policy interventions at the zero lower bound we build on a new keynesian dynamic stochastic general equilibrium dsge model to explore the macroeconomic consequences of fiscal expansionary shocks during the economic crisis of 2008 in the eurozone in this setting we find that the big four eurozone economies france germany italy and spain can effectively escape from their liquidity trap through fiscal policy interventions caused by government purchases we estimate the government spending multiplier to be above 1 8 when this policy is associated with a long term commitment to keeping the nominal interest rate at the zero lower bound as suggested by krugman 1998 notably the short term deficit effect on the budget balance can be offset five years after the implementation of a large spending program we also show that alternative policies with tax cuts that expand the supply do not appear to have the same power in the short run moreover we provide novel empirical evidence that a large government debt renders a government spending policy ineffective

do too many cooks always spoil the stew an experimental analysis of rent seeking and the role of a strategic buyer laboratory methods are used to evaluate the effects of institutional arrangements and rent defending activity on rent seeking auction outcomes in part nash equilibrium predictions are a useful behavioral guide as predicted more rents are dissipated in perfectly discriminating auctions where the high bidder wins than in lotteries where relative bids determine the chance of winning also as predicted the introduction of a rent defending buyer reduces social costs nevertheless the social costs of rent seeking consistently exceed predicted levels moreover individual bidding especially by buyers deviates markedly from nash predictions

collective labor supply a single equation model and some evidence from french data in chiappori s 1988 collective model of labor supply hours of work are supposed flexible in many countries however male labor supply does not vary much in that case the husband s labor supply is no longer informative about the household decision process and individual preferences to identify structural components of the model additional information is needed we thus consider an approach in which the wife s labor supply is expressed as a function of the household demand for one specific good we demonstrate that the main properties of chiappori s initial model are preserved and apply our results on french data

regulatory discretion and the unofficial economy johnson kaufmann and shleifer 1997 find that the share of the unofficial economy in gdp is determined by the extent of control rights held by politicians and bureaucrats in post communist economies exploring in more detail the role of bribes and using a broader data set from the oecd latin america and transition economies we find that the unofficial economy accounts for a larger share of gdp when there is more corruption and when the rule of law is weaker while these findings are consistent with the earlier results for transition economies in the larger country sample we find it is not necessarily the case that more regulation or higher taxes directly increases the size of the unofficial economy the problem appears to be not regulation or taxation per se but whether the state administrative system can operate without corruption a high level of regulatory discretion helps create the potential for corruption and drive firms into the unofficial economy

caught in the trap welfare s disincentive and the labor supply of single men abstract youth unemployment is particularly large in many industrialized countries and has dramatic consequences in both the short and long term while there is abundant evidence about the labor supply of married women and single mothers little is known about how young childless singles react to financial incentives the french minimum income revenu minimum d insertion rmi often accused of generating strong disincentives to work offers a natural setting to study this question since childless single individuals primarily males constitute the core group of recipients exploiting the fact that childless adults under age 25 are not eligible for this program we conduct a regression discontinuity analysis using french census data we find that the rmi reduces the participation of uneducated single men by 7 10 at age 25 we conduct an extensive robustness check and discuss the implications of our results for youth unemployment and current policy developments

dodging the grabbing hand the determinants of unofficial activity in 69 countries across 69 countries higher tax rates are associated with less unofficial activity as a percent of gdp but corruption is associated with more unofficial activity entrepreneurs go underground not to avoid official taxes but to reduce the burden of bureaucracy and corruption dodging the grabbing hand in this way reduces tax revenues as a percent of both official and total gdp as a result corrupt governments become small governments and only relatively uncorrupt governments can sustain high tax rates 2000 elsevier science s a all rights reserved

on the emergence of a classic work a short history of the impact of gordon tullock s welfare costs of tariffs monopolies and theft gordon tullock s welfare costs of tariffs monopolies and theft is by now widely regarded to be a classic work in public choice however like many classic papers it was not always so highly regarded it was rejected at several journals before finding its way to print and arguably took two or three decades to be fully appreciated this paper discusses developments in the public choice and rent seeking literatures that helped bring tullock s paper to its status as a classic work in political economy

income maintenance and labor force participation the paper studies the optimal tax subsidy schedules in an economy where the only decision of the agents is to work or not with an application to the case of france given an income guarantee provided by the welfare state the tax schedule that maximizes government revenue provides a benchmark the laffer bound above which it is inefficient to tax in fact under mild conditions a feasible allocation is second best optimal if and only if the associated taxes are lower than the laffer bound the only restriction that efficiency puts on the shape of the tax scheme is this upper laffer bound the laffer tax scheme itself can be computed from the joint distribution of the agents productivities and work opportunity costs depending on the economy it can take widely different forms and exhibit for instance negative marginal tax rates after estimating the joint distribution of productivities and work opportunity costs on french data i compute the laffer bound for two subpopulations single women and married women with two children or more quite surprisingly the actual incentives to work appear to be very close to the bound

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

attenuating the forward guidance puzzle implications for optimal monetary policy abstract we examine the implications of less powerful forward guidance for optimal policy using a sticky price model with an effective lower bound elb on nominal interest rates as well as a discounted euler equation and a discounted phillips curve when the private sector agents discount future economic conditions more in making their decisions today a future rate cut becomes less effective in stimulating current economic activity under a wide range of plausible degrees of discounting it is optimal for the central bank to compensate for the reduced effect of a future rate cut by keeping the policy rate at the elb for longer

does industrial composition matter for wages a test of search and bargaining theory does switching the composition of jobs between low paying and high paying industries have important effects on wages in other sectors in this paper we build on search and bargaining theory to clarify a key general equilibrium channel through which changes in industrial composition could have substantial effects on wages in all sectors in this class of models wage determination takes the form of a social interaction problem and we illustrate how the implied sectoral linkages can be empirically explored using u s census data we find that sector level wages interact as implied by the model and that the predicted general equilibrium effects are present and substantial we interpret our results as highlighting the relevance of search and bargaining theory for understanding the determination of wages and we argue that the results provide support for the view that industrial composition is important for understanding wage outcomes

ideas versus resources explaining the flat tax and pension privatization revolutions in eastern europe and the former soviet union this article examines the rapid spread of pension privatization and the flat tax in former communist countries to understand why new policy ideas take hold and to elucidate the role played by mater

on the measurement of rent seeking and its social opportunity cost utilizing 4 digit industry data by county we compare the allocation of resources across industries in state capital areas with noncapital areas we are able to identify which industries are expanded and contracted relative to noncapital areas our results provide the first direct evidence and measurement of the forgone productive activity resulting from resources being reallocated toward rent seeking and interest group activity our data also allow us to measure total rent seeking and also to isolate the extent of indirect and in kind rent seeking which can account for part of the tullock paradox

some unpleasant properties of loglinearized solutions when the nominal rate is zero does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero an emerging consensus in the new keynesian nk literature is that the answer to this question is yes evidence presented here suggests that the nk model s implications for fiscal policy at the zero bound may not be all that different from its implications for policy away from it for a range of empirically relevant parameterizations employment increases when the labor tax rate is cut and the government purchase multiplier is less than 1 05

inflation dynamics during the financial crisis using confidential product level price data underlying the u s producer price index ppi this paper analyzes the effect of changes in firms financial conditions on their price setting behavior during the great recession that surrounds the financial crisis the evidence indicates that during the height of the crisis in late 2008 firms with weak balance sheets increased prices significantly relative to industry averages whereas firms with strong balance sheets lowered prices a response consistent with an adverse demand shock these stark differences in price setting behavior are consistent with the notion that financial frictions may significantly influence the response of aggregate inflation to macroeconomic shocks we explore the implications of these empirical findings within a general equilibrium framework that allows for customer markets and departures from the frictionless financial markets in the model firms have an incentive to set a low price to invest in market share though when financial distortions are severe firms forgo these investment opportunities and maintain high prices in an effort to preserve their balance sheet capacity consistent with our empirical findings the model with financial distortions relative to the baseline model without such distortions implies a substantial attenuation of price dynamics in response to contractionary demand shocks

female labour supply and on the job search an empirical model estimated using complementary data sets we develop an empirical model of labour supply that is consistent with on the job search and which is identified and estimated by combining two data sets the u k family expenditure survey which contains information on income and expenditure and the u k labour force survey which has data on hours and job search behaviour we provide statistical evidence on the compatibility of the two samples for the purposes of estimating our model we find that search has a direct negative effect on hours of work and we establish a strong positive effect of wages on hours

estimating labour supply responses using tax reforms the 1980 s tax reforms and the changing dispersion of wages offer one of the best opportunities yet to estimate labor supply effects nevertheless changing sample composition aggregate shocks the changing composition of the tax paying population and discontinuities in the tax system create serious identification and estimation problems we develop grouping estimators that address these issues our results reveal positive and moderately sized wage elasticities we also find negative income effects for women with children

a life cycle consistent empirical model of family labour supply using cross section data this paper estimates a utility maximising model of the joint determination of male and female labour supplies using a sample of married couples from the u k family expenditure survey the emphasis is on the estimation of within period preferences that are consistent with intertemporal two stage budgeting under uncertainty however the approach we adopt provides an alternative method of estimating certain aspects of life cycle behaviour to the fixed effects constant approach of heckman and macurdy 1980 macurdy 1981 and browning deaton and irish 1985 moreover it relaxes some of the underlying restrictions that are implicit in these constant models under uncertainty

myth and reality of flat tax reform micro estimates of tax evasion response and welfare effects in russia we examine the effects of russia s 2001 flat rate income tax reform on consumption income and tax evasion we use the gap between household expenditures and reported earnings as a proxy for tax e

fiscal activism and the zero nominal interest rate bound in an economy where the zero lower bound on nominal interest rates is an occasionally binding constraint and the government lacks a commitment technology it may be desirable for society to appoint a policymaker who cares less about government spending stabilization relative to inflation and output gap stabilization than the private sector does a policymaker of this type uses government spending more elastically to stabilize the economy at the zero lower bound the anticipation of aggressive fiscal expansions in future liquidity trap situations increases inflation expectations and lowers real interest rates thereby mitigating the decline in output and inflation

clearing up the fiscal multiplier morass bayesian prior predictive analysis of five nested dsge models suggests that model specifications and prior distributions tightly circumscribe the range of possible government spending multipliers multipliers are decomposed into wealth and substitution effects yielding uniform comparisons across models by constraining the multiplier to tight ranges model and prior selections bias results revealing less about fiscal effects in data than about the lenses through which researchers choose to interpret data when monetary policy actively targets inflation output multipliers can exceed one but investment multipliers are likely to be negative passive monetary policy produces consistently strong multipliers for output consumption and investment

temporal causality and the dynamics of judicial appellate caseload real income and socio economic complexity in australia this study applies granger causality tests within a multivariate error correction framework to examine the relationship between judicial caseload real income and urbanization for australia using annual data from 1904 to 2001 decomposition of variance and impulse response functions are also considered the granger causality results as well as the decomposition of variance and impulse response functions suggest that urbanization is the most exogenous of the three variables in both the long run and short run while judicial caseload and real income are relatively exogenous in the short run

rent seeking in a market with morality solving a puzzle about corporate social responsibility rent seeking by lobbying for government favors is generally thought to be wasteful in view of this wastefulness it is puzzling that rent seeking by corporations has not been criticized as a failure to be socially responsible or even as an unethical business practice this article examines the compatibility of rent seeking with corporate social responsibility by utilizing thomas dunfee s idea of a marketplace with morality this idea is useful for solving this puzzle because in considering whether rent seeking is compatible with corporate social responsibility it is necessary first to define rent seeking which this article argues is a normative concept and second to find some principled way of identifying rent seeking behavior it also solves the puzzle about rent seeking by revealing that the concept of rent seeking itself is of little use in determining whether certain conduct is or is not socially responsible since rent seeking activity cannot be identified without first evaluating which activity is rent seeking

the dynamics of lobbying a differential game this paper presents a dynamic model on lobbying the interactions between two competing lobbies who attempt to influence regulations and legislation are modelled as a differential game we consider for this game first a time consistent and then a subgame perfect equilibrium in linear markov strategies the subgame perfect equilibrium lowers considerably lobbying activity and expenses this provides a partial explanation of the puzzle that rent seeking expenses are often small compared with the prize sought

economists and public policy chicago political economy versus conventional views both conventional welfare economics and public choice analysis suggest that economists have an important educational role to play in the public policy process in improving the decision making process in sharp contrast information and incentive problems related to voting rules the bureaucracy and the legislature do not arise in cpe because these processes are all perfect agents of interest groups consequently the political process is efficient and there is no scope for beneficial economic analysis as it relates to the sugar program or other public policies that is the polity is efficient or it would be reordered by competing interest groups to make it so but as mitchell 1989 290 stresses the important unanswered question in cpe remains if there is no scope for improvement how and why does change occur

direct estimation of hidden earnings evidence from russian administrative data abstractwe employ unique administrative data from moscow to obtain a direct estimate of hidden incomes our approach is based on comparing employer reported earnings to market values of cars owned by the corresponding individuals and their households we detect few hidden earnings in most foreign owned firms and larger firms especially state owned enterprises in heavily regulated industries the same empirical strategy indicates that up to 80 percent of earnings of car owners in the private sector are hidden especially in smaller companies and industries such as trade and services where cash flows are easier to manipulate we also find considerable hidden earnings in government services our approach sheds new light on the decline in the gross domestic product gdp in russia after the collapse of communism and subsequent recovery in particular we argue that a good deal of these changes might represent changes in income reporting rather than actual changes in gdp

directly unproductive profit seeking dup activities this paper propses directly unproductive profit seeking dup activities as a general concept that embraces a wide range of recently analyzed economic activities including the subset of rent seeking activities considered by krueger it then proceeds to provide a synthesis and generalization of the welfare theoretic analysis of such activities by developing a fourfold categorization of cases depending on the levels of distortions before and after the dup activity thus a unification and overview of the subject are achieved

monetary fiscal policy interactions and fiscal stimulus abstract increases in government spending trigger substitution effects both inter and intra temporal and a wealth effect the ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption higher future taxes create a strong negative wealth effect while the active monetary response increases the real interest rate this paper estimates markov switching policy rules for the united states and finds that monetary and fiscal policies fluctuate between active and passive behavior when the estimated joint policy process is imposed on a conventional new keynesian model government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized the paper reports the model s predictions of the macroeconomic impacts of the american recovery and reinvestment act s implied path for government spending under alternative monetary fiscal policy combinations

austerity in the aftermath of the great recession abstract cross country differences in austerity defined as government purchases below forecast account for 75 of the observed cross sectional variation in gdp in advanced economies during 2010 2014 statistically austerity is associated with lower gdp lower inflation and higher net exports a multi country dsge model calibrated to 29 advanced economies generates effects of austerity consistent with the data counterfactuals suggest that eliminating austerity would have substantially reduced output losses in europe austerity was so contractionary that debt to gdp ratios in some countries increased as a result of endogenous reductions in gdp and tax revenue

lobbying and the measurement of conventional welfare cost it is widely accepted that the welfare cost of distortionary policy has two components the first component is the conventional welfare cost of lost economic surplus due to an inefficient allocation of resources the second component is the rent seeking cost associated with efforts to influence policy if the policy in question is an excise tax the partial equilibrium measure of conventional welfare cost is the harberger triangle of lost consumer and producer surpluses partial equilibrium rent seeking costs are measured by the amount spent to influence policy total welfare cost is the sum of the two measurements while how one determines and thus measures the equilibrium amount of rent seeking is the subject of much debate and modelling the measurement of conventional welfare cost is not controversial 1 furthermore conventional welfare costs are treated as independent of the manner in which rent seeking occurs for example consider the welfare cost of monopoly see tullock 1967 or posner 1975 the portion o f the total welfare cost due to underproduction is measured by the harberger triangle of lost surplus whatever the method by which monopoly rights are obtained the benefits of rent seeking accrue entirely to the holder of the monopoly right any rent seeking expenses are treated as fixed costs with no effect on the monopolist s output decision the form that rent seeking takes is irrelevant to the measurement of conventional welfare cost in other cases the form rent seeking takes is relevant consider a multi firm industry subjected to an excise tax if effective lobbying requires a collective lobbying effort and if a firm s share of the industry s rent seeking expenses vary with a firm s output rent seeking will affect the firm s and industry s marginal cost functions the impact of rent seeking on marginal cost if overlooked leads to mismeasurement of conventional welfare cost and thus the total welfare cost of the policy moreover the direction of measurement error

monetary and fiscal policy in a liquidity trap with inflation persistence abstract this paper relies on the new keynesian model with structural inflation persistence to characterize the optimal monetary and fiscal policy in a liquidity trap it shows that with a phillips curve that is both forward and backward looking the monetary policy that is implemented during a liquidity trap episode can be sufficient to avoid a depression the central bank does not need to commit beyond the end of the crisis to get some traction on economic activity regarding fiscal policy inflation persistence justifies some front loading of government expenditures to get inflation started such as to reduce the real interest rate the magnitude of the optimal fiscal stimulus is decreasing in the degree of inflation persistence finally if inflation persistence is due to adaptive expectations rather than to price indexation then monetary policy is ineffective while the optimal fiscal stimulus is large and heavily front loaded

the disinterest in deregulation in the analysis of the costs of monopoly power the usual experiment is to convert a competitive industry into a monopoly and observe the consequent change in consumer s surplus modern contributions have emphasized the deadweight cost of monopoly arnold harberger 1954 and the possibility of an associated rent seeking cost of monopoly gordon tullock 1967 the harberger cost of course refers to the lost consumer s surplus triangle the tullock cost concerns the role of competition for monopoly returns taken together and assuming that the competition for monopoly rents is perfect the total cost of monopoly power is a trapezoid the rectangle of monopoly profits plus the triangle of lost consumer s surplus richard posner 1975 in this paper we approach the monopoly problem in a different spirit we compare three states of the world competition regulation and deregulation in this setting we ask what happens if a monopoly is eliminated through deregulation our analysis suggests that because under most conditions tullock costs cannot be recouped the returns to deregulation are lower than previously thought rent seeking expenditures in the past leave the economy permanently poorer even if competition is restored to the industry in contrast the returns to preventing monopoly in the first place are relatively high in our model an insight afforded by the analysis is an explanation of the persistence of laws and regulations which appear to serve no interest in this regard the example of railroad regulation in the united states comes to mind the standard explanation for such regulation is either that voters and government decision makers are ignorant of basic economics or that a small interest group like railroad firms wins rents at the expense of uninformed or economically rational consumers of rail services who do not find it cost effective to seek deregulation we offer another and perhaps more plausible explanation for the persistence of regulation and the apathy of consumers about the costs of regulation namely the costs of such regulations are for the most part the original rent seeking expenditures that lead to the regulation in the first place and these costs are sunk abolishing so called uneconomic laws does nothing to recover these losses hence there is little political support from any quarter to return to the status quo ante in fact as we shall show such a deregulatory program can easily impose more costs than it is worth there are numerous examples of this point including tariffs and quotas of all sorts subsidies to farmers the postal monopoly organized labor s antitrust exemption the licensing of doctors and so forth the traditional explanations of these monopoly rights namely ignorance of economic common sense and special interest groups are neither sufficient nor necessary since the primary costs of these laws are rent seeking expenditures which are made prior to their passage there is simply little to be gained by changing them now gains would accrue in the form of reduced harberger costs costs would be borne in passing and implementing the deregulatory program it is not that the potential gainers from deregulation are large in number diffuse heterogeneous and face high organizational costs rather they do not exist to any degree interpreted in this light efforts by political action groups such as the right to work foundation stand to be a drain on society s resources they cannot produce anything unless they prevent further monopolization through regulation we do not of course mccormick and shughart clemson university clemson sc 29631 tollison center for the study of public choice george mason university fairfax va 22030 thanks go to james buchanan rex cottle and gordon tullock for helpful comments the usual caveat applies

flat income taxation redistribution and labour market performance a flat tax rate on labour income has gained popularity in european countries this article assesses the attractiveness of such a flat tax in achieving redistributive objectives with the smallest distortions to employment we do so by using a detailed applied general equilibrium model for the netherlands the model is empirically grounded in the data and encompasses decisions on hours worked labour force participation skill formation wage bargaining between unions and firms and a wide variety of institutional details the simulations suggest that the replacement of the current tax system in the netherlands by a flat rate will harm labour market performance if aggregate income inequality is contained only flat tax reforms that reduce redistribution will raise employment this finding bolsters the notions from optimal tax literature regarding the equity efficiency trade off and the superiority of nonlinear taxes to obtain redistributive goals in an efficient way

the effect of marginal tax rates on taxable income a panel study of the 1986 tax reform act this paper uses a treasury department panel of more than 4 000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates on the basis of a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform the analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply the evidence shows an elasticity of taxable income with respect to the marginal net of tax rate that is at least one and could be substantially higher the implications for recent tax rate changes are discussed

fiscal policy in an expectations driven liquidity trap we study the effects of fiscal policy interventions in a liquidity trap in a model with nominal rigidities and an interest rate rule in a liquidity trap caused by a self fulfilling state of low confidence higher government spending has deflationary effects that reduce the spending multiplier when the zero lower bound is binding instead cuts in marginal labor tax rates are inflationary and become more expansionary when the zero lower bound is binding these findings contradict popular views about the effects of fiscal policy in a liquidity trap

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

dealing with a liquidity trap when government debt matters optimal time consistent monetary and fiscal policy how does the need to preserve government debt sustainability affect the optimal monetary and fiscal policy response to a liquidity trap to provide an answer we employ a small stochastic new keynesian model with a zero bound on nominal interest rates and characterize optimal time consistent stabilization policies we focus on two policy tools the short term nominal interest rate and debt financed government spending the optimal policy response to a liquidity trap critically depends on the prevailing debt burden while the optimal amount of government spending is decreasing in the level of outstanding government debt future monetary policy is becoming more accommodative triggering a change in private sector expectations that helps to dampen the fall in output and inflation at the outset of the liquidity trap

tax distortions to the choice of organizational form income from corporate and noncorporate firms is treated very differently under the tax law in theory given existing tax law the noncorporate sector should consist of very profitable firms owned by low tax bracket investors and firms with tax losses owned by high tax bracket investors but the degree to which firms change their form of organization in response to taxes and the resulting excess burden depends as well on nontax factors given the role of taxes we estimate what size the nontax advantage to incorporating must take in each industry so that the forecasted choices for organizational form aggregated over investors in different tax brackets are consistent with the aggregate evidence while the estimated nontax costs are large in some industries noncorporate activity tends to be concentrated where the costs are small leading to little excess burden from the tax distortion to organizational form

are low interest rates deflationary a paradox of perfect foresight analysis we argue that an influential neo fisherian analysis of the effects of low interest rates depends on using perfect foresight equilibrium analysis under circumstances where it is not plausible for people to hold expectations of that kind we propose an explicit cognitive process by which agents may form their expectations of future endogenous variables perfect foresight is justified by our analysis as a reasonable approximation in some cases but in the case of a commitment to maintain a low nominal interest rate for a long time our reflective equilibrium implies neither neo fisherian conclusions nor implausibly strong predicted effects of forward guidance

the empirical measurement of rent seeking costs this survey focuses on the efforts carried out mainly by public choice scholars to measure the social cost of rent seeking the concept introduced by gordon tullock in 1967 and coined by anne krueger in 1974 is well known and accepted by the profession but its empirical measurement has fallen behind with respect to its theoretical formulation an often criticized lack in the literature although there are good general surveys none has specifically focused on reviewing the empirical efforts made to measure the phenomenon the purpose of this paper is to provide such a survey it could be said that the rent seeking concept has been fully integrated into economic jargon it is commonly used when some agent seeks to obtain an artificial transfer usually from government and covers all the actions efforts or expenses that the agent has to carry out to obtain the prize the key issue however is the possible social waste that arises in these situations the empirical efforts to measure such waste constitute the main purpose of this survey the concept of rent seeking was introduced by tullock 1967 although the term was first coined by krueger 1974 in a paper not related to the former in a recent paper tullock himself wrote of the history of the concept and the intellectual context within which it arose tullock 2003 starting with the pioneering work by harberger 1954 several studies were conducted during the 1950s in which the calculation of the social cost of monopolies and tariffs always gave the result of very modest figures the first response to these results was made by leibenstein 1966 and his x efficiency which refers to a hypothetical loss in efficiency due to the absence of competition shortly after leibenstein s paper appeared tullock argued that the deadweight costs of monopoly and tariffs understate the true social cost because the expenditures made to capture related rents have to be included so rectangles as well as harberger s triangles have to be included in the calculations let us see this argument once more figure 1 depicts the iconic tullock graphic analysis of rent seeking it represents the demand schedule d for a monopolized good where pm is the monopoly

gordon tullock entrepreneur of public choice when gordon tullock first encountered james m buchanan in 1957 as an initial step in his transition from the bureaucracy of the u s department of state to the ivy league atmosphere of the university of virginia he carried with him a voluminous manuscript on bureaucracy that he had tried unsuccessfully to publish buchanan 1987a 11 although eight years would pass before that manuscript eventually would be published three years after publication of the calculus of consent 1962 tullock s pioneering instincts already had directed him to the as yet uncharted path of public choice already had alerted him to the ubiquitous presence of homo economicus in the marketplace of politics buchanan quickly recognized the potential importance of combining tullock s insight with his own wicksellian notion of the importance of consent in political process as the basis for a radical research program trespassing across the traditional boundaries of economics and politics ignoring tullock s lack of formal training in economics buchanan installed him in the thomas jefferson center for studies in political economy and thereby provided that crucially important initial support absent which many a potential entrepreneur has failed to fulfill his talent steadfast in this judgment and firm in his resolve buchanan later was to gamble his own career together with the future of the virginia school of political economy in a 1968 exodus from charlottesville as the left leaning ideologically activist bureaucracy of thomas jefferson s academy thrice denied tullock a well earned promotion to full professor breit 1986 buchanan s judgment was sound and the virginia school reemerged unscathed and fortified as buchanan and his protege regrouped in the foothills of the appalachian mountains to carry the baton of the virginia public choice research

deficits public debt dynamics and tax and spending multipliers cutting government spending can increase the budget defi cit at zero interest rates according to a standard new keynesian model calibrated with bayesian methods similarly increasing sales taxes can increase the budget defi cit rather than reduce it both results suggest limitations of austerity measures at zero interest rates running budget defi cits can be either expansionary or contractionary depending on how they interact with expectations about long run taxes and spending the effect of fi scal policy action is thus highly dependent on the policy regime a successful stimulus therefore needs to specify how the budget is managed not only in the short but also in the medium and long runs

unconventional fiscal policy at the zero bound when the zero lower bound on nominal interest rates binds monetary policy cannot provide appropriate stimulus we show that in the standard new keynesian model tax policy can deliver such stimulus at no cost and in a time consistent manner there is no need to use inecient policies such as

are rents fully dissipated students of rent seeking have erred in focusing their attention exclusively on the analysis of competitions for exogenously specified transfers when redistributive policies are treated as endogenous choices it is clear that there are both incentives and opportunities for policymakers to design them in ways that prevent the wasteful dissipation of a large proportion of the intended transfers an analytical framework that treats policy design in this way is capable of explaining a variety of common attributes of redistributive policies that are apparent anomalies under the traditional approach to rent seeking furthermore we predict and find supporting evidence that authoritarian regimes tend to be associated with higher ratios of government revenue to total income than do democracies we attribute this tendency to the substantially greater potential for dissipative competition for revenues under democracy than under dictatorship finally available estimates of lobbying expenditures and rents transferred under the recent federal crude oil controls contradict the hypothesis that rents are fully or almost fully disspated through political competition

taxation in empirical labour supply models lone mothers in the uk taxation has become an integral part of the empirical specification of labour supply models the opportunity set available to workers is made significantly non linear by the workings of the tax and benefit system and this in turn complicates an individual s optimal choice of labour supply in such a framework the relationship between hours of work gross wages and other income is necessarily non linear moreover the marginal wage and virtual income at any chosen hours of work are an implicit function of the hours choice itself to guarantee a unique solution to this choice problem consumer theory places integrability conditions on the form of wage and income derivatives of labour supply similarly once the problem is made stochastic and econometric methods are utilised to recover unknown parameters a coherency condition is required to define a well behaved econometric model see heckman i 978 and gourieroux et al i980 in the labour supply and taxation framework these two conditions are quite naturally closely related they do however have implications for labour supply specification and the reliability of tax reform simulations based on empirical labour supply models for the case of the linear labour supply model macurdy et al i990 document the potential for misleading results that may occur once a linear model is utilised in a framework with non linear taxation such a specification all but guarantees a global forward sloping labour supply function which is not a requirement of economic theory and is empirically often too restrictive in this paper we focus on two issues the first relates to the specification of a flexible model allowing backward bending labour supply the second issue relates to the statistical coherency of such a model in the presence of non linear taxation the empirical application in this paper concerns the labour supply behaviour of lone mothers in the uk this group face a highly non linear budget constraint the analysis of their labour supply responses is crucial for the design of effective policy reforms we use a labour supply specification suggested by

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

the social cost of rent seeking first estimates omists have been unanimous in their verdict that rent seeking is socially wasteful if rational from the practitioner s perspective 1 the entire literature on rent seeking that has developed over the past twenty years has focused on a describing the process of rent seeking b describing the theoretical consequences of rent seeking and c applying the theory to examination of political behavior and political outcomes to our knowledge there have been no attempts to empirically verify quantify the alleged social waste due to rentseeking the purpose of this paper is to report our first stab efforts in this regard we make no pretense of advancing the theory of rent seeking the investigation is an empirical search for a phillips curve type of relationship between incidence of rent seeking in the u s economy and the size growth of that economy our findings based on both time series and cross sectional analysis of the u s economy verify the existence of a social cost to rentseeking our crude estimate of the impact of rent seeking suggests that rentseeking as we measure it cost the economy an additional 22 6 percent of measured gnp in 1985

the incredible shrinking elasticities married female labor supply 1978 2002 this paper demonstrates the extent to which married women s labor supply elasticities have changed over the past quarter century estimates from march current population survey data suggest that these elasticities have decreased substantially by 60 percent for the hours wage elasticity from 0 36 to 0 14 70 percent for the hours income elasticity from 0 053 to 0 015 95 percent for the participation wage elasticity from 0 66 to 0 03 and 60 percent for the participation income elasticity from 0 13 to 0 05 changing demographic characteristics explain little of the drop in these elasticities suggesting that preferences toward work have changed across birth cohorts

the deflation bias and committing to being irresponsible i model deflation at zero nominal interest rate in a microfounded general equilibrium model i show that one can analyze deflation as a credibility problem if three conditions are satisfied first the government s only policy instrument is increasing the money supply by open market operations in short term bonds second the economy is subject to large negative demand shocks third the government cannot commit to future policy i call the credibility problem that arises under these conditions the deflation bias i propose several policies to solve it they all involve printing money or issuing nominal debt in addition they require cutting taxes buying real assets such as stocks or purchasing foreign exchange the government credibly commits to being irresponsible by pursuing these policies it commits to higher money supply in the future so that the private sector expects inflation instead of deflation this is optimal since it curbs deflation and increases output by lowering the real rate of return

evaluating the employment impact of a mandatory job search program this paper exploits area based piloting and age related eligibility rules to identify treatment effects of a labor market program the new deal for young people in the u k a central focus is on substitution displacement effects and on equilibrium wage effects the program includes extensive job assistance and wage subsidies to employers we find that the impact of the program significantly raised transitions to employment by about 5 percentage points the impact is robust to a wide variety of nonexperimental estimators however we present some evidence that this effect may not be as large in the longer run jel j18 j23 j38

the russian flat tax reform in 2001 russia dramatically reduced its higher rates of personal income tax pit establishing a single marginal rate at the low level of 13 in the following year real revenue from the pit increased by about 26 this flat tax experience has attracted much attention and emulation making it perhaps the most important tax reform of recent years but it has been little studied this paper asks whether the strong performance of pit revenue was itself a consequence of this reform using both macro evidence and in particular micro level data on the experiences of individuals and households affected by the reform to varying degrees it concludes that there is no evidence of a strong supply side effect of the reform compliance however does appear to have improved quite substantially by about one third according to our estimates though it remains unclear whether this was due to the parametric tax reform or to accompanying changes in enforcement anna ivanova michael keen and alexander klemm

rent seeking and the welfare cost of trade barriers this paper estimates the potential social cost of trade barriers using the harberger and the tullock posner approaches for a sample of u s food and tobacco manufacturing industries in addition it tests the relationship between the computed welfare losses and special interest political activity pac contributions if all rents were dissipated through rent seeking the social cost of trade barriers would be about 12 5 percent of domestic consumption and would be particularly large for sugar and milk products where quotas are the main instrument of protection furthermore the results indicate that welfare losses are positively associated with industry lobbying but the strength of such association is strongly dependent on industry concentration

aspects of governance and hbox co _2 co 2 emissions a non linear panel data analysis the reduction of hbox co 2 emissions has been at the centre of worldwide debates on environmental issues though its inclusion as one of the millennium development goals mdgs by the united nations has changed the focus of relative literature among many one of the world bank s recipes to achieve a higher position toward mdgs has been to undertake reforms for a better governance while the majority of researches focus has been on one single aspect and its relationship with the environment some studies have simultaneously considered two governance dimensions in this paper we focus on the role of several aspects of governance on hbox co 2 emissions this provides us with a chance to explore the possible impacts of all aspects of governance on a more direct measure of emissions that is different to previous researches which have focused on the indirect transmission and considered the maximum of two using the iv method within panel data analysis we show that only one single aspect of governance control of corruption has a negative significant effect on hbox co 2 emissions and its effect has a non linear relationship the non linearity exists in both parametric and nonparametric analysis after controlling for endogeneity

the effect of predatory rent seeking on household saving and portfolio choices a cross section analysis the existence of predatory behavior when measured by the number of lawyers per capita and the crime rate seems to have an impact on saving and investment behavior in u s households where the risk of redistribution are lowest the incentives to save are higher and a fortiriori the willingness to invest in highly vulnerable financial instruments is enhanced either because of low saving rates or because of disintermediation households in states where the risks of redistribution are greater avoid accumulating financial assets

the changing distribution of male wages in the uk this paper uses microeconomic data from the u k family expenditure surveys fes and the general household surveys ghs to describe and explain changes in the distribution of male wages since the late 1970s wage inequality has risen very fast in the u k and this rise is characterized both by increasing education and age differentials we show that a large part of the changes in the u k can be summarized quite simply as increases in eduction differentials and a decline of growth of entry level wages which persist subsequently this fact we interpret as cohort effects we also show that like in the u s an important aspect of rising wage inequality is increased within group wage dispersion finally we use the ghs to evaluate the role of alternative education measures

new keynesian versus old keynesian government spending multipliers renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy because of modelling uncertainty it is essential that policy evaluations be robust to alternative assumptions we find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust government spending multipliers in an alternative empirically estimated and widely cited new keynesian model are much smaller than in these old keynesian models the estimated stimulus is extremely small with gdp and employment effects only one sixth as large and with private sector employment impacts likely to be even smaller we investigate the sensitivity of our findings with regard to the response of monetary policy the zero bound on nominal interest rates and the inclusion of an empirically relevant degree of rule of thumb behaviour in the new keynesian model in addition we relate our findings using estimated structural macroeconomic models to the recent literature using reduced form regression techniques

evaluating the economic effects of flat tax reforms using synthetic control methods tax reforms are often motivated by their potential to improve economic performance however their actual impacts are difficult to quantify we analyze the impact of flat tax reform on incomes using synthetic control methods we identify the eight eastern and central european countries that adopted flat tax systems between 1994 and 2005 and then compare post reform gdp per capita of treated countries with a convex combination of similar but untreated countries while accounting for the time varying impact of unobservable heterogeneity we find positive impacts in all eight countries with seven out of eight cases significant at the conventional level

an exogeneity test for a simultaneous equation tobit model with an application to labor supply a test of weak exogeneity in the simultaneous equation tobit model is proposed and illustrated using a female labour supply model estimated using cross section data the test statistic can be simply output from any standard tobit maximum likelihood package and is asymptotically efficient the procedure provides consistent estimators for the simultaneous tobit model whose asymptotic covariance matrix is a simple extension of the usual tobit formula we also provide the lagrange multiplier test of weak exogeneity this abstract was borrowed from another version of this item