time consistent public policy in this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure we characterize and solve for markov perfect equilibria of the dynamic game between successive governments the characterization consists of an inter temporal first order condition a generalized euler equation for the government and we use it both to gain insight into the nature of the equilibrium and as a basis for computations for a calibrated economy we find that when the only tax base available to the government is capital income an inelastic source of funds at any point in time the government still refrains from taxing at confiscatory rates we also find that when the only tax base is labour income the markov equilibrium features less public expenditure and lower tax rates than the ramsey equilibrium

household survey data and pricing policies in developing countries in recent years household survey data from developing countries have increasingly become available and have been increasingly used to cast light on important questions of policy the reform of prices whether agricultural prices consumer taxes subsidies or tariffs has consequences for individual welfare and for government revenues and these can be investigated empirically with household survey data the gainers and losers from price changes can be identified and the magnitudes of their gains and losses measured nonparametric estimation techniques provide a straightforward and convenient way of displaying this information the procedure is illustrated for the effects of rice pricing in thailand using data from more than five thousand rural households estimates of the revenue effects of price reforms are harder to obtain because they require estimates of supply and demand elasticities estimates that are not easily obtained for many developing countries a procedure is presented for estimating price elasticities of demand from spatial price variation as recorded in household survey data the main innovations lie in the appropriate treatment of quality variations and measurement error applications of the procedure in cote d ivoire indonesia and morocco are reviewed

optimal monetary policy when lump sum taxes are unavailable a reconsideration of the outcomes under commitment and discretion we re examine optimal monetary policy when lump sum taxes are unavailable under commitment we show that with alternative utility functions to that considered in nicolini s related analysis the direction of the incentive to cheat may depend on the initial level of government debt with low debt creating an incentive towards surprise deflation but high debt the reverse under discretion we show that the economy will not necessarily tend to the friedman rule as obstfeld found instead it may tend to the critical debt level at which there is no cheating incentive under commitment and inflation and could well be positive here

nutrients impacts and determinants understanding the determinants of nutrient intake and the influence of nutrition on performance is critical in designing policies to alleviate hunger and malnutrition a series of studies undertaken by the authors which are synthesized here analyzes the influence of prices income and women s schooling on the nutrient intake of those in developing countries and the effect of nutrition on health productivity wages and fertility these studies suggest that the impact of food price increases may be strong particularly among those with the lowest incomes that the growth of income may be less likely to improve nutrient intake than has been suggested by others and that womzen s schooling is important in improving nutrition these studies also indicate that nutrition exerts a positive influence on wages productivity and fertility our limited knowledge of the role and determinants of nutrition is reflected in the finding of unduly strong effects of seasonalitv on price nutrition relations and the lack of a direct association between nutrition and health the nutrition of poor populations is of substantial interest because of the widespread and plausible presumption that better nutrition improves the welfare of individuals in such populations nutrition also is of interest because of the common conjecture that better nutrition improves productivity a series of our studies have analyzed the relations between nutrition and health labor productivity and fertility and the relations between prices income women s schooling and nutrition intake here we synthesize the results of these studies and address some of the puzzles and policy implications that have arisen

commitment versus discretion in a political economy model of fiscal and monetary policy interaction abstract does price commitment result in lower welfare i pair an independent monetary authority controlling nominal bonds with a fiscal authority microfounded by the political economy model of battaglini and coate 2008 without price commitment time inconsistency is alleviated by interaction between the benevolent monetary authority and the politically distorted fiscal authority with price commitment nominal bonds will be used for wasteful spending by the politically distorted fiscal authority price commitment results in lower welfare because it eliminates monetary control over fiscal decisions

the economics of development a survey i the subject our definition of the subject will be the use of economic analysis to understand the economies of poor or developing countries this includes in particular how standards of living in the population are determined and how they change over time and further how policy can or should be used in the influence of these processes the definition contains in principle much or most of analytical methods in economics insofar as they can be put to use in the examination of the issues of interest this is as it should be but it poses a problem for a survey in a journal a comprehensive treatment is infeasible so we shall follow a different route the survey will focus on what i take to be the major themes and approaches which characterise the productive aspects of the subject there is therefore no pretence at being exhaustive the purpose is rather to highlight some of the advances many of these have been of real substance there are a number of possible purposes for a survey and it is important to be clear at the outset for whom it is intended what it is and what it is not this survey is addressed to economists and students of economics who know the tools of their trade but not necessarily how they have been applied to and fashioned for the analysis of the economics of developing countries it is a description of the ways in which problems can be productively formulated and approached in terms of examples chosen for their intrinsic importance and interest the vastness of the subject means that we have to be highly selective it does not seek to provide a summary evaluation of the current view of the appropriate response to immediate policy questions it is not a history of thought nor a research manifesto nor an attempt to adjudicate or settle the major debates where they arise naturally from the major purpose some judgements on these subjects will be offered but they do not themselves constitute the primary intent of this survey there are three lines of enquiry or sets of questions which have i suggest been distinctive of the most fruitful work in development economics they will

household food demand in burkina faso implications for food policy abstract chronic food production deficits since the early 1970s have prompted policymakers of burkina faso to emphasize technological research with the goal of increasing the production of the most consumed locally grown cereals sorghum millet and maize meanwhile urban consumers have been developing preferences for rice and wheat cereals that are primarily imported this study estimates demand relationships among food items in ouagadougou burkina the results of the estimation suggest that prices income household composition education marital status and urbanization were jointly important in explaining household expenditure allocations both local and imported cereal consumption responded positively to an income increase however incremental income changes would lead to relatively greater consumption of locally produced cereals by low income households whereas high income households would consume relatively more wheat and rice the household model is then used to demonstrate its relevance in addressing food policy issues by forecasting the levels of urban grain demand under alternative income and demographic scenarios with increased production due to advances in technology the urban demand levels do not exhaust the rural surplus of local cereals but deficits persist in the rice wheat sector the results underscore the importance of technological research since burkina could become self sufficient in at least the production of sorghum millet and maize

electoral uncertainty fiscal policy and macroeconomic fluctuations abstract in this paper we study the link between elections fiscal policy and aggregate fluctuations the setup is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re election shocks the latter are incorporated via a two party model with elections the main theoretical prediction is that forward looking incumbents with uncertain prospects of re election find it optimal to follow relatively shortsighted fiscal policies and that this hurts capital accumulation our econometric estimation using u s data finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes

the extensive margin and monetary policy abstract the creation of new firms referred to as the extensive margin is a significant but overlooked dimension of monetary policy a monetary var documents that monetary policy has significant effects on firm creation an analytically tractable model combining sticky prices and firm entry shows that entry alters the transmission of monetary policy innovations acting much like a type of investment in more standard models monetary policy rules that offset the uncertainty of productivity shocks can raise the mean level of entry and thereby welfare suggesting a new motivation for stabilization policy

public debt stabilization the relevance of policymakers time horizons policymakers are stuck in time political short termism policy myopia policy short sightedness and similar words have been coined to emphasize the present centric policy thinking politics tends to produce short time horizons and as a result policymakers often fail to use present opportunities to mitigate future harms focusing on fiscal and monetary strategic interactions given different separate decision makers our paper aims to explore the effects of policymakers time horizons on debt stabilization to formalize our ideas we use the novel concept of nonlinear model predictive control feedback nash equilibrium nfne and find that present centric policy thinking and decision horizons matters under several dimensions

discretionary monetary policy and the zero lower bound on nominal interest rates abstract ignoring the existence of the zero lower bound on nominal interest rates one considerably understates the value of monetary commitment in new keynesian models a stochastic forward looking model with an occasionally binding lower bound calibrated to the u s economy suggests that low values for the natural rate of interest lead to sizeable output losses and deflation under discretionary monetary policy the fall in output and deflation are much larger than in the case with policy commitment and do not show up at all if the model abstracts from the existence of the lower bound the welfare losses of discretionary policy increase even further when inflation is partly determined by lagged inflation in the phillips curve these results emerge because private sector expectations and the discretionary policy response to these expectations reinforce each other and cause the lower bound to be reached much earlier than under commitment

substitution between goods and leisure in a developing country the paper explores the substitutability between goods female leisure and male leisure we find that goods and leisure are not separable we then adapt the almost ideal demand system aids to include leisure in the system in the same manner as commodities the model is not sensitive to variations in the assumption of total time available for each individual s work and leisure results from sri lanka indicate the marginal propensity to consume leisure is quite high especially in rural areas this finding has important implications for transfer programs designed to raise food consumption a somewhat surprising complementarity between male and female leisure was also observed a number of goods were found to be complements to both male and female leisure

program interventions intrahousehold distribution and the welfare of individuals modelling household behavior abstract in this essay the implications for the intrahousehold distribution of resources derived from economic models of household behavior that treat the household as maximizing a single welfare function are reviewed particular attention is paid to the within family allocation of time and food and to the effects of these resources on the schooling earnings and health status of individuals as they are affected by direct food intervention and female employment schemes and price altering policies empirical applications are provided from data sets from india indonesia and the philippines to illustrate the power and limitations of such models for illuminating household interventions and for placing restrictions on data

optimal government spending with labor market frictions abstract we study optimal government spending in a business cycle model with labor income taxes and unemployment due to hiring costs labor market frictions raise the optimal steady state ratio of government spending to private consumption the labor tax rate is higher since profits are taxed that arise from employed workers which save hirings costs for calibrated examples the quantitative effect of labor market frictions on optimal fiscal policy is small in the short run optimal policy involves a strongly procyclical reaction of the tax rate to technology and preference shocks while the ratio of public to private spending is close to flat this ratio is however markedly countercyclical if taxes are constrained to be constant over the cycle

firm entry markups and the monetary transmission mechanism abstract two business cycle models with endogenous firm and product entry are estimated by matching impulse responses to a monetary policy shock the competition effect implies that entry lowers desired markups and dampens inflation under translog preferences where the substitutability between goods depends on their number we find evidence of such an effect that model generates more countercyclical markups than dixit and stiglitz 1977 monopolistic competition model where price stickiness is the only source of markup fluctuations in contrast a model with strategic interactions between oligopolistic firms cannot generate an empirically relevant competition effect and is statistically equivalent to the dixit stiglitz model

food aid impacts in rural kenya assessing the potential role of food aid in economic development requires that analytical attention be given to both household production and consumption consequences of food aid projects effects of a food for work ffw project in rural kenya are assessed using a peasant household firm model which incorporates a linear programming model and an almost ideal demand system the results indicate that program participants have net returns 52 percent higher than nonparticipants most of which is due to induced effects of capital formation on own farm production greater capital formation increases the opportunity cost of participants time encouraging a transition over time from ffw activities to greater own farm production ffw increases food demand employment and marketable surplus

time consistent optimal fiscal policy this article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period s capital income tax rate we find that the results contrast markedly with those under full commitment first capital income tax rates are very high 65 on average versus close to zero on average under full commitment second labor income taxes are rather low on average about 12 versus a value of around 31 under full commitment finally labor income taxes are quite volatile whereas under full commitment their standard deviation is essentially zero

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

endogenous market structures and optimal taxation this article provides optimal labour and dividend income taxation in a general equilibrium model with oligopolistic competition and endogenous firms entry in the long run the optimal dividend income tax corrects for inefficient entry the dividend income tax depends on the form of competition and the nature of the sunk entry costs in particular it is higher in market structures characterised by competition in quantities rather than those characterised by price competition oligopolistic competition leads to an endogenous countercyclical price markup as a result offsetting the distortions over the business cycle requires deviations from full tax smoothing

monetary policy under a fiscal theory of sovereign default abstract this paper examines equilibrium determination under different monetary policy regimes when the government might default on its debt we apply a cash in advance model where the government does not have access to non distortionary taxation and does not account for initial outstanding debt when it sets the income tax rate solvency is then not guaranteed and sovereign default can affect the return on public debt if the central bank sets the interest rate in a conventional way the equilibrium allocation cannot be determined if instead money supply is controlled the equilibrium allocation can uniquely be determined

household inventories and marketed surplus in semisubsistence agriculture a model of semisubsistence agriculture explicitly accounting for the ability of farm households to hold inventories of staple foods is developed comparative statics analysis highlights the potential importance of wealth effects attributable to price induced changes in the value of household inventories empirical results for three groups of households in an indian village confirm that failure to account for household inventories leads to an overstatement of the responsiveness of both consumption demand and marketed surplus

the welfare costs of moderate inflations in the recent past the view that a little bit of inflation was good for the economy was widely held the phillips curve in its earlier incarnations implied that moderate inflation was worth tolerating because it would permit lower unemployment this justification for tolerating inflation has long since been abandoned by economists and policymakers because both theory and experience showed it to be false nevertheless one legacy of this era seems to be a fairly widespread tolerance for moderate inflation recently there has been much discussion of removing this inflationary bias by passing legislation that would require the federal reserve to target zero inflation in this paper we examine some of the consequences of achieving that goal we appraise the revenue and welfare costs of policies designed to reduce moderate inflation rates to zero much has been written about why government policies may have an inflationary bias in this paper we don t address the issue of what motivates governments to inflate implicit in our analysis however is the notion that one important motive for inflation is the revenue raising potential of the inflation tax it would be difficult to argue that the inflation tax constitutes an important revenue source for the united states one indirect and very imperfect measure of this would be contributions by the federal lleserve to the treasury in recent years those rebates have amounted to

price level determinacy with an interest rate policy rule and rational expectations abstract this paper reconsiders a result obtained by sargent and wallace namely that price level indeterminacy obtains in their model if the monetary authorities adopt a feedback rule for the interest rate rather than the money stock it is shown that the indeterminacy vanishes if the interest rate rule is chosen so as to have a desired effect on the expected quantity of money demanded this holds even if considerable weight is given in the choice of a rule to the aim of smoothing interest rate fluctuations

endogenous market structures and the business cycle we propose a flexible prices model where endogenous market structures and search and matching frictions in the labor market interact endogenously the interplay between firms endogenous entry strategic interactions among producers and labor market frictions represents a strong amplification channel of technology shocks on labor market variables and helps addressing the unemployment volatility puzzle consistently with u s evidence new firms create a large fraction of new jobs and grow faster than more mature firms net firms entry is procyclical and the price mark up is countercyclical

optimal fiscal and monetary policy some recent results this paper studies the quantitative properties of fiscal and monetary policy in business cycle models in terms of fiscal policy optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average in terms of monetary policy the friedman rule is optimal nominal interest rates are zero and optimal monetary policy is activist in the sense that it responds to shocks to the economy

joint determination of food consumption and production in rural sierra leone estimates of a household firm model abstract this paper investigates the determination of food consumption for rural households in sierra leone that produce the foods which they consume a household firm model is estimated with seven commodities including five foods non foods and labor as compared to three commodities in past studies such food disaggregation permits tracing of the effects of socioeconomic variables on household nutrient availability household specialization in production is such that censored data is a problem a tobit approach is used to correct for this for most crops the own price effects on consumption remain negative when a price change is allowed to shift the budget constraint by effecting the profits from home production elasticities of calorie availability with respect to toal expenditure are found to be sizeable varying little by expenditure group the price elasticities of calorie availability are generally positive however an important exception occurs for price of the staple food rice this exception has several important policy implications which are explored

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

demographic variables in demand analysis in this paper the authors discuss five procedures for incorporating demographic variables into theoretically plausible demand systems translating scaling and the gorman reverse gorman and implicit prais houthakker procedures these five procedures are used to incorporate a single demographic variable the number of children in a household into the generalized ces demand system using household budget data for the united kingdom for the period 1966 1972 excerpt

money and asset prices in a cash in advance economy an asset pricing model with money introduced via a cash in advance constraint is presented the monetary velocity is variable hence money demand does not obey the trivial quantity equation the effects of disturbances in output and money growth on real balances the price level and interest rates are examined monetary policy has effects on real asset prices the fisher relation and the premium on nominal bonds are discussed the precise role of the timing of information and transactions for properties of price levels and interest rates are clarified

debt inflation and central bank independence abstract increasing the independence of a central bank from political influence although ex ante socially beneficial and initially successful in reducing inflation would ultimately fail to lower inflation permanently the smaller anticipated policy distortions implemented by a more independent central bank would induce the fiscal authority to decrease current distortions by increasing the deficit over time inflation would increase to accommodate a higher public debt by contrast imposing a strict inflation target would lower inflation permanently and insulate the primary deficit from political distortions

optimal structure of fiscal and monetary authorities why are monetary authorities not elected like fiscal authorities are advanced economies pair an elected fiscal authority with an independent monetary authority replicating the advanced economies structure with authorities microfounded by a political economy model shows that this structure is the solution to a constrained mechanism design problem that overcomes time inconsistency and results in the highest possible welfare goal and instrument independence singly and in combination are insufficient to minimize time inconsistency though their combination is necessary

central bank independence and the monetary instrument problem we study the monetary instrument problem in a dynamic noncooperative game between separate discretionary fiscal and monetary policy makers we show that monetary instruments are equivalent only if the policy makers objectives are perfectly aligned otherwise an instrument problem exists when the central bank is benevolent while the fiscal authority is short sighted relative to the private sector excessive public spending and debt emerge under a money growth policy but not under an interest rate policy despite this property the interest rate is not necessarily the optimal instrument

capital income taxation with imperfect competition a key feature of modern dynamic economies is imperfect competition some imperfect competition is due to institutions such as patents and copyrights that allow firms to exercise market power over the sale of products they invent some imperfect competition is due to various forms of increasing returns to scale and product differentiation since market power is an essential feature of innovation and growth in the new economy as it was in the old economy we need to know how imperfect competition affects the conventional wisdom on tax policy i argue that it has particularly striking implications for the taxation of capital the current consensus among economists is

will developing country nutrition improve with income a case study for rural south india aggregate estimates of food expenditure are consistent with such a possibility implying income expenditure elasticities close to one however the high degree of aggregation at which such estimates are made means that the considerable increase in price per nutrient as income increases is ignored and the nutrient elasticities are therefore overstated estimates for a rural south indian sample indicate that this bias is considerable and that the true nutrient elasticities with respect to income may be close to zero

effects of subsidized wheat consumption by state in india this paper reports the results of a study of the effects of the indian government s consumer subsidies on wheat demand results indicate consumption of subsidized wheat is higher in urban areas than in rural areas the public distribution of wheat in most states had little effect on demand in the commercial market which suggests the government is effective in targeting subsidized wheat to poor consumers

determinants of food consumption in rural sierra leone abstract this paper reports the application of a quadratic expenditure system with demographic variables to the household consumption leisure choice component of a household firm model a system of seven commodities is estimated including five foods non food and leisure appropriate for such a level of disaggregation a demand system is used the quadratic expenditure system which allows for a flexible relationship between full income and commodity expenditures without sacrificing parsimony in parameters demographic data on households are explicitly incorporated into the model allowing for a richer specification than can be achieved by using per capita variables the data are from a cross section survey of households in rural sierra leone price variation exists by region permitting estimation of a complete demand system engel curves are found to be significantly non linear with marginal expenditure on rice the major staple declining with higher income most foods are found to be reasonably price responsive with sizeable own price substitution effects declining with higher income aggregate labor supply is found to be price inelastic

tax smoothing in frictional labor markets we re examine the optimality of tax smoothing from the point of view of frictional labor markets our central result is that whether or not this cornerstone optimal scal policy pre

household composition labor markets and labor demand testing for separation in agricultural household models this paper tests the separation of farm labor supply and labor demand decisions using the observation that household composition is an important determinant of farm labor use with nonseparation after assessing the conditions under which the test has power against several alternatives an empirical model is developed to test the proposition that farm employment is independent of family composition the model is estimated on a data set from rural java the null hypothesis that farm labor allocation decisions are independent of household structure is not rejected the results are robust to different specifications of the labor demand function copyright 1992 by the econometric society

a dynamic analysis of expenditure patterns in rural india abstract recent generalisations of the linear expenditure system have concentrated on its restrictive assumption of separable preferences but underplayed its equally restrictive assumption of linearity in income i e constant marginal budget shares this reflects the data base which has usually been long time series of disaggregated consumer expenditure data such generalisations are inappropriated for developing countries which rely on highly aggregated commodity expenditure data from budget surveys with more variation in income responses is introduced variation in prices a general procedure for non linearising income but rather limited applied to some recent les generalisations to generate still further geenralisations and then used to analyse rural india s expenditure behaviour the results decisively support the suggested generalisation and also provide evidence in favour of dynamic behaviour and habit persistence on budget data

the cyclical behavior of marginal cost and price the author examines the cyclical behavior of price marginal cost margins for u s manufac turing after 1956 short run marginal cost is markedly procyclical this is primarily due to procyclical overtime payments incurred beca use employment is not perfectly flexible in most industries output price fails to respond to the cyclical movement in marginal cost so price marginal cost margins are markedly countercyclical the res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing they support theories that explain low production in a recession by the inability of firms to sell their output copyright 1987 by american economic association

on the joint determination of fiscal and monetary policy abstract the conduct of fiscal and monetary policy absent commitment depends on the interaction between the objective of smoothing distortions intertemporally and a time consistency problem when net nominal government obligations are positive both fiscal and monetary policies are distortionary and the choice of debt depends on how the anticipated response in future monetary policy affects the current demand for money and bonds there exists a unique steady state with positive net nominal government obligations which is stable and time consistent for any initial level of debt the welfare loss due to lack of commitment is small

more on the time consistency of monetary policy abstract we introduce costs of unexpected inflation in a general equilibrium monetary model by changing the timing of the constraints faced by consumers we show that in this environment monetary policy is still time inconsistent but the nature of the inconsistency is very different from the standard result found in the literature in particular we find that the government may find optimal to deviate by choosing inflation rates lower than expected by making a brief review of the monetary literature we argue that the model of this paper is more attractive than the ones proposed before to study the time consistency of optimal monetary policy

does better nutrition raise farm productivity household level data from sierra leone are used to test whether higher caloric intake enhances family farm labor productivity this is the notion behind the efficiency wages hypothesis which has found only weak empirical support a farm production function is estimated accounting for the simultaneity in input and calorie choice instruments include prices household demographic characteristics and farm assets the latter two sets of instruments are later dropped to explore the robustness of the results to different specifications of exogeneity the exercise shows a highly significant effect of caloric intake on labor productivity providing solid support for the nutrition productivity hypothesis the marginal effect on productivity falls drastically as calorie consumption rises but remains positive at moderately high levels of intake one result is a fall in the effective price of food a decline that is larger for households that consumer fewer calories

government policy in monetary economies i study how the specic details of a micro founded monetary economy aect the determination of government policy i consider three variants of the lagos wright monetary framework a benchmark were all markets are competitive a case which allows for nancial intermediaries and a case with trading frictions although intitutions frictions are shown to have a signicant structural impact in the determination of policy the calibrated articial economies are observationally equivalent in steady state the policy response to aggregate shocks is qualitatively similar in the variants considered however there are signicant quantitative dierences in the response of government policy to productivity shocks mainly due to the idiosyncratic behavior of money demand the variants with no trading frictions display the best t to u s post war data

dynamic monetary fiscal interactions and the role of monetary conservatism assuming that macroeconomic policies are directed by distinct monetary and fiscal policy makers who cannot commit to future actions we reassess the implications of monetary conservatism and fiscal impatience in a setting with nominal government debt for environments where a non negative steady state level of government debt assets emerges in the absence of conservatism and impatience monetary conservatism induces accumulation of a higher stock of liabilities assets and has adverse positive welfare implications this result obtains irrespectively of the degree of fiscal impatience and questions the unambiguous desirability of monetary conservatism traditionally found in the literature

is there curvature in the slutsky matrix d o the poor substitute among commodities more flexibly than the rich when relative prices change even when compensated for the income effects of the price changes is it necessary to add a third dimension to the slutsky substitution matrix to identify household income in short do the terms of the slutsky elasticity matrix curve smoothly from poor households to rich households in such a way that equation 1 is meaningful

intra household resource allocation an inferential approach if household income is pooled and then allocated to maximize welfare then income under the control of mothers and fathers should have the same impact on demand with survey data on family health and nutrition in brazil the equality of parental income effects is rejected unearned income in the hands of a mother has a bigger effect on her family s health than income under the control of a father for child survival probabilities the effect is almost twenty times bigger the common preference or neoclassical model of the household is rejected if unearned income is measured with error and income is pooled then the ratio of maternal to paternal income effects should be the same equality of the ratios cannot be rejected there is also evidence for gender preference mothers prefer to devote resources to improving the nutritional status of their daughters fathers to sons

the information content of the interest rate and optimal monetary policy optimal monetary policy rules are derived in a rational expectations cum contracting framework monetary policy is redundant if wage setters exploit the incomplete current information embodied in today s nominal interest rate however the monetary authorities can save wage setters the costs of indexing to the interest rate a contemporaneous money supply feedback rule is as effective as wage indexation a lagged rule relevant under a regime of money supply targeting is also as effective if investors use the interest rate both rules have the same implications for the real interest rate as poole s combination policy however the two rules have strikingly different implications for the nominal interest rate

poole in the new keynesian model abstract we study the properties of alternative central bank targeting procedures within the standard new keynesian model we find that poole s famous insights concerning the output stabilization properties of money and interest rate targeting obtain when intertemporal substitution is low and that output volatility rankings do not induce similar welfare rankings unlike the popular presumption money targeting always fares better for money demand shocks for fiscal shocks money targeting does better for low and worse for high degree of intertemporal substitution the opposite pattern obtains for supply shocks

optimal monetary policy optimal monetary policy maximizes the welfare of a representative agent given frictions in the economic environment constructing a model with two sets of frictions costly price adjustment by imperfectly competitive firms and costly exchange of wealth for goods we find optimal monetary policy is governed by two familiar principles first the average level of the nominal interest rate should be sufficiently low as suggested by milton friedman that there should be deflation on average yet the keynesian frictions imply that the optimal nominal interest rate is positive second as various shocks occur to the real and monetary sectors the price level should be largely stabilized as suggested by irving fisher albeit around a deflationary trend path since expected inflation is roughly constant through time the nominal interest rate must therefore vary with the fisherian determinants of the real interest rate although the monetary authority has substantial leverage over real activity in our model economy it chooses real allocations that closely resemble those which would occur if prices were flexible in our benchmark model there is some tendency for the monetary authority to smooth nominal and real interest rates

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

interest rate rules vs money growth rules a welfare comparison in a cash in advance economy abstract this paper considers the welfare consequences of two particularly simple rules for monetary policy an interest rate peg and a money growth peg the model economy consists of a real side that is the standard real business cycle model and a monetary side that amounts to imposing cash in advance constraints on certain market transactions the paper also considers the effect of assuming a rigidity in the typical household s cash savings choice the competitive equilibrium of the economy is not pareto efficient partly because of two distortions a distortion on the capital accumulation decision and a distortion on portfolio choice that arises from the assumed rigidity the principal result of the paper is that the interest rate rule but not the money growth rule entirely eliminates these two distortions and is thus the benevolent central banker s policy choice

ramsey tax rules for economies with imperfect competition abstract this paper derives optimal commodity tax rules for a general equilibrium model with imperfect competition to achieve this functions are constructed that describe the effects of taxation upon the equilibrium prices and profit levels of imperfectly competitive industries the use of these functions allows existing tax rules to be generalised to accommodate imperfect competition

optimal fiscal and monetary policy under sticky prices this paper studies optimal fiscal and monetary policy under sticky product prices the theoretical framework is a stochastic production economy without capital the government finances an exogenous stream of purchases by levying distortionary income taxes printing money and issuing one period nominally risk free bonds the main findings of the paper are first for a miniscule degree of price stickiness i e many times below available empirical estimates the optimal volatility of inflation is near zero this result stands in stark contrast with the high volatility of inflation implied by the ramsey allocation when prices are flexible the finding is in line with a recent body of work on optimal monetary policy under nominal rigidities that ignores the role of optimal fiscal policy second even small deviations from full price flexibility induce near random walk behavior in government debt and tax rates third sluggish price adjustment raises the average nominal interest rate above the one called for by the friedman rule finally an interest rate feedback rule whereby the nominal interest rate depends on inflation and output fits well the data emanating from the ramsey economy however the fitted rule is not of the taylor type for the implied inflation coefficient is less than one and close to zero and the output coefficient is negative jel classification e52 e61 e63

optimal taxation of capital income with imperfectly competitive product markets abstract we show that the steady state optimal tax on capital income can be negative positive or zero in a neoclassical growth model that allows for imperfectly competitive product markets the sign of the optimal tax rate depends crucially on 1 the degree of monopoly power 2 the extent to which monopoly profits can be taxed 3 the size of the depreciation allowance and 4 the magnitude of government expenditures for an empirically plausible set of parameters we find that the steady state optimal capital tax can range between 10 and 22

the effects of human capital on wages and the determinants of labor supply in a developing country abstract the heckman procedure is used to correct for sample selection bias in estimating wage offer and net labor market supply equations the findings show that wages are affected by education and experience in addition the wage offer is influenced by other genetic and environmental influences captured in the wage of one s father calories as predicted by exogenous instruments are also shown to influence the wage offer suggesting that better nutrition increases labor productivity the probability of market labor participation as well as the amount of net market labor supply declined with the size of paddy landholding in addition to the net market supply elasticity increasing with the amount of land owned and being lower for urban than rural workers

estimation of complete demand systems from household budget data the linear and quadratic expenditure systems in this paper we explore two issues in empirical demand analysis the estimation of complete systems of demand equations using household budget data section i and the incorporation of demographic characteristics into such systems section ii although there are numerous studies which use time series data to estimate complete demand systems and many which estimate engel curves from household budget data there are virtually none which combine budget data from different periods to estimate complete systems since each budget study corresponds to a single price situation one might conjecture that estimation of complete systems would not be possible unless budget studies were available from a large number of periods this is incorrect in section i we argue that interesting complete demand systems can be estimated from a small number of budget studies despite the limited price variability represented in such data to demonstrate this we use budget study data for two periods to estimate a pair of related demand systems the familiar linear expenditure system les and a quadratic expenditure system qes a generalization of les in which the demand equations are quadratic in total expenditure the inclusion of demographic variables in the analysis of household consumption patterns is desirable because there are likely to be systematic differences in the consumption behavior of households with different demographic characteristics but the effects of demographic characteristics have seldom been studied within the framework of complete demand systems in section ii we propose translating as a general method for incorporating demographic variables into complete systems of demand equations this method has not previously been discussed as a general technique for bringing demographic variables into demand systems although it has been employed in several studies to improve the estimates of the les and the qes presented in section i we reestimate these two systems using translating to incorporate family size

monetary conservatism and fiscal policy abstract does an inflation conservative central bank a la rogoff 1985 remain desirable in a setting with endogenous fiscal policy to provide an answer we study monetary and fiscal policy games without commitment in a dynamic stochastic sticky price economy with monopolistic distortions monetary policy determines nominal interest rates and fiscal policy provides public goods generating private utility we find that lack of fiscal commitment gives rise to excessive public spending the optimal inflation rate internalizing this distortion is positive but lack of monetary commitment generates too much inflation a conservative monetary authority thus remains desirable when fiscal policy is determined before monetary policy each period the monetary authority should focus exclusively on stabilizing inflation monetary conservatism then eliminates the steady state biases associated with lack of monetary and fiscal commitment and leads to stabilization policy that is close to optimal

optimal fiscal and monetary policy with sticky prices in this paper i consider the role of state contingent inflation as a fiscal shock absorber in an economy with nominal rigidities i study the ramsey equilibrium in a monetary model with distortionary taxation nominal non state contingent debt and sticky prices with sticky prices the ramsey planner must balance the shock absorbing benefits of state contingent inflation against the associated resource misallocation costs for government spending processes resembling post war experience introducing sticky prices generates striking departures in optimal policy from the case with flexible prices for even small degrees of price rigidity optimal policy displays very little volatility in inflation tax rates display greater volatility compared to the model with flexible prices with sticky prices tax rates and real government debt exhibit behavior similar to a random walk for government spending processes resembling periods of intermittent war and peace optimal policy displays extreme inflation volatility even when the degree of price rigidity is large as the variability in government spending increases smoothing tax distortions across states of nature becomes increasingly important and the shock absorber role of inflation is accentuated

prices infrastructure household characteristics and child height household survey data from brazil matched with information collected at the municipio county level are used to examine the relation between parental characteristics primarily education community infrastructure and services and child height data are drawn from 2 sources informacoes basicas municipais 1974 is a periodic survey of 4000 municipios on infrastructure health and education services estudo nacional da despesa familiar 1974 75 is a household survey covering 37000 children under age 8 on income expenditure anthropometry and socio demographic characteristics local food price indices were derived from these data child height is significantly affected by local infrastructure particularly modern sewerage and piped water in urban areas and electricity in rural settings these effects are stronger for children over 2 those of better educated mothers and those in households spending more higher prices for dairy products and sugar are linked to lower urban child height and higher fish prices to lower rural child height significantly for children of illiterate mothers higher prices for meat and rice are associated with taller height possible because men usually eat these foods mothers with elementary schooling can counteract the effects of food prices on child height number of teachers is positively related to height in rural children numbers of nurses and of hospital beds is associated with shorter children suggesting that large hospitals locate in poor urban areas this study has succeeded in identifying some public investments that affect child health

estimating consumer demand in korea abstract in this paper time series annual data on five consumer goods for korea are analyzed using the neoclassical model of consumer behavior the approach taken is the indirect utility function and employs a translog form various restrictive specifications of consumer preferences with respect to homotheticity and separability are examined and rejected by the likelihood ratio test income and price elasticities are estimated which appear to be generally high relative to those of developed countries growth in real income is primarily responsible for changes in commodity demand marginal utilities of income and associated income elasticities are calculated which are consistent with normal expectations