econometric estimation of foresight tax policy and investment in the united states we develop a method for measuring the foresight agents have we first dichotomize an agent s information at current date t into knowledge up to date t 1 f and expectations after t 1 f we then form a residual based test statistic that allows us to compare prediction errors for econometric models based on different values of f we illustrate the method examining investment around tax reforms to measure the foresight firms have about tax policy in this illustration current investment appears to reflect currently available information but little foresight other than foresight of enacted policy changes

government deficits the real interest rate and ldc debt on global crowding out abstract the paper uses a three regions model of global saving investment balance to present a global crowding out interpretation of present economic trends the model builds on data which point to a possible shortage of savings explosive growth of social expenditures structural public sector deficit in north and south changes of the age pyramid real wage rigidity in many industrial countries

permanent income hedonic prices and demand for housing new evidence abstract housing demand is examined by looking quite specifically at the income and price variables based on individual household data permanent and transitory incomes are computed through instrumental variables related to human and nonhuman wealth a price is constructed by spatially varying hedonic techniques separation of measured income into permanent and transitory components substantially improves the predictive power of the housing demand estimation and leads to demand elasticities of 1 and 1 with respect to permanent income and price the permanent income elasticity is roughly twice the measured income elasticity

theory of tax smoothing in the small open economy abstract we derive necessary and sufficient conditions for the martingale like behavior of tax rates the world real interest rate is exogenous to the small domestic economy consumers are risk averse and markets are incomplete the government s loss function is not ad hoc

the market value of outstanding government debt 1919 1975 abstract several new series on the market value of outstanding government debt are reported and their methods of construction described the new series on federal debt are compared with other existing estimates and are shown to be markedly superior to them

optimal taxation with endogenously incomplete debt markets abstract empirical analyses of labor tax and public debt processes provide prima facie evidence for imperfect government insurance this paper considers a model in which the government s inability to commit to future policies or to report truthfully its spending needs renders government debt markets endogenously incomplete a method for solving for optimal fiscal policy under these constraints is developed such policy is found to be intermediate between that implied by the complete insurance ramsey model and a model with exogenously incomplete debt markets in contrast to optimal ramsey policy optimal policy in this model is consistent with a variety of stylized fiscal policy facts such as the high persistence of labor tax rates and debt levels and the positive covariance between government spending and the value of government debt sales

common trends the government s budget constraint and revenue smoothing abstract the requirement that the government s budget be balanced in present value terms is shown to be equivalent to the condition that government expenditures inclusive of interest tax receipts and seignorage be cointegrated the condition is in fact stronger requiring that the deficit inclusive of interest be stationary stationarity of the net of interest deficit is neither necessary nor sufficient for intertemporal budget balance however it does have implications for barro s tax smoothing hypothesis data for the period 1890 1986 are consistent with intertemporal budget balance but not with tax smoothing

the u s evidence on optimal taxation over time abstract this paper considers a tax rule in which a uniform tax rate over time becomes optimal its implications are that 1 changes in the tax rate should arise only when there are changes in permanent government expenditures and 2 no variable other than permanent government expenditures should be of any value in predicting the tax rate these implications are tested using u s data for 1937 82 empirical results of the tests reveal that in addition to responding to permanent government expenditures the tax rate also responds to temporary defense purchases the general price level and a time trend

consumer demand and equilibrium unemployment in a working model of the customer market incentive wage economy though not conceived as a constant the natural unemployment rate was taken to be invariant to supply shocks until the late seventies and to real demand shocks until now the largely micro theoretic model here is one in a series deriving the natural rate path from general equilibrium in this model the labor market exhibits generalized real wage rigidity resulting from the use of incentive wages to combat shirking and the asset backing shares is the firms customers arising from customer market friction one finding is that increased consumer demand drives up the natural rate by driving real interest rates up

taxation and political business cycles in eu economies this paper examines whether incumbent national governments of 11 member states of the european union manipulated the tax policy instruments at their disposal in order to create national political business cycles opportunistic or partisan the empirical evidence based on data concerning the 1965 to 1997 period does not support this hypothesis rather it appears that governments have pursued stabilization policies

housing careers life cycle and residential mobility implications for the housing market the concept of a housing career provides a useful way of integrating the residential mobility and filtering literatures in understanding the operation of the housing market using data from a survey in adelaide the paper examines these careers in terms of moves to and from both rental accommodation and home ownership it shows how the progression of households through the stock is influenced by the circumstances that prompt moves economic resources and stage in the family life cycle the results suggest that acceleration and postponement of advancement along housing careers provide the principal mechanisms by which household demand adjusts to available housing supply over the short term

the experience of some oecd economies on tax smoothing observed random walk behaviour of a tax rate does not necessarily support the tax smoothing hypothesis though the latter implies the former this article presents a direct test of tax smoothing by showing that if the tax smoothing hypothesis holds then the future tax rate should cointegrate with the current permanent government expenditure rate even though the tax rate is a random walk this test is a direct and robust test of a number of random walk models available in the literature this procedure also enables us to differentiate among strong tax smoothing weak tax smoothing and no tax smoothing all of which are consistent with the random walk behaviour of a tax rate application of this test to australia canada italy japan the netherlands new zealand the uk and the us show evidence in support of weak forms of tax smoothing

effects of productivity total domestic product demand and incentive wages on unemployment in a non monetary customer market model of the small open economy a small open economy is studied where the labor market exhibits job rationing owing to the elevated wage induced by the shirking problem with the world product market neoclassical a bad national productivity shock reduces employment and the real wage even in the short run a demand shock is undefined for a country too small to affect price nonnegligibly with the world a customer market employment may rise with the domestic productivity shock before it falls increased foreign demand raises both employment and the relative world price but it does not follow that a general increase of demand raises world employment

deficits government expenditures and tax smoothing in the united states 1929 1988 abstract barro s tax smoothing hypothesis tsh implies that the government runs a budget deficit whenever it anticipates the growth rate of national income to increase or the growth rate of its expenditure to decline we test this implication of the hypothesis by examining the implied cross equation restrictions on a vector autoregression var model using u s data for the period ranging from 1929 to 1988 our formal tests reject the hypothesis for the full sample period but cannot reject it for the post 1947 period further investigations show that the statistical rejection should be attributed to sharp differences in the statistical properties of the pre 1947 and the post 1947 data rather than the failure of the hypothesis itself

housing markets consumption and financial liberalisation in the major economies abstract this paper analyses the implications of relaxing credit restrictions in housing finance markets a theoretical model of the interaction of financial and housing markets and forward looking agents is developed the effects of financial liberalisation in the model are analysed and evidence from the u s a and u k on the impact of easing credit restrictions is presented estimates are also made of the degree to which credit restrictions may bind on households in those countries where the range of mortgage products on offer is still more limited than in the u k and u s a simulations are undertaken to gauge the effect on consumption saving and bequests of wealth of possible future convergence in national systems of housing finance

testing the positive theory of government finance researchers characterizing optimal tax policies for dynamic economies have reasoned that tax rates should follow a random walk we conduct a frequency domain examination of u s tax rates and reject the hypothesis that the first difference in the series is white noise the source of the rejection is pronounced activity of tax changes at an eight year cycle regression analysis confirms the finding that there is a cyclical component to tax changes corresponding to changes in political party administration the results suggest that the positive theory of government finance needs to be refined to incorporate features of political equilibrium

joint implications of consumption and tax smoothing in this paper the joint hypotheses of consumption and tax smoothing are shown to imply that the present value of expected proportionate declines in government non interest outlays is approximately equal to a log linear function of the budget deficit and private dissaving in this exact linear relation the budget deficit signals declines in future government outlays after controlling for prospective changes in the tax base private dissaving controls for such prospective changes since under the joint hypotheses the present value of expected proportionate rises in tax revenues are approximately equal to a log linear function of private dissaving both exact linear relations are tested in a var framework on annual post world war ii u s data we find considerable empirical support for the theory

the marginal income tax rate schedule from 1930 to 1990 abstract although it is well known that marginal income tax rates vary with income few economists have studied the effect on real gdp of the distribution of marginal income tax rates this omission is probably because data on the distribution do not exist we remedy this shortcoming by providing a computer program that calculates marginal income tax rates for all income levels for the years 1930 to 1990 we conduct a preliminary empirical investigation into the effect of taxes on economic growth we find that lowering taxes significantly raises economic growth and that changing the tax rate schedule also has significant effects on economic growth

a positive theory of discretionary policy the cost of democratic government and the benefits of a constitution we offer an explanation of government s preference for discretionary policy action the main elements are asymmetric information and the ability and desire of governments to maximize reelection prospects discretionary policy imposes a social cost we show that the cost is eliminated if all voters have the same information as the government an optimal state contingent policy rule that precommits government through a constitution eliminates the cost by removing government s opportunities to exploit its informational advantage rules of this kind and constitutional restrictions are difficult to enforce in the presence of uncertainty and different information available to government and the public

an introduction to the wage curve en conomists and policymakers are interested in understanding the forces that determine the level of unemployment and the level of wages this paper describes an empirical discovery made with the help of international microeconometric evidence covering more than a dozen nations about a link between these two variables the connection can be portrayed on a graph with the level of unemployment on the horizontal axis and the level of wages on the vertical axis then the wage curve as shown in figure 1 is a downwardsloping locus this relationship tells us that holding others things constant if a region has a rise in unemployment in a particular year those who live there will have a fall in their wages in that year what does this curve mean how in a field where fully controlled experiments are almost impossible could there be any convincing scientific basis for this wage curve what is the relationship between the wage curve and a phillips curve other than that the curve of figure 1 looks like a phillips curve with the vertical axis mislabeled how does the wage curve fit into existing economic knowledge and is the empirical finding consistent with competitive theory this paper sketches answers to these kinds of questions the discussion draws on our book the wage curve blanchflower and oswald 1994 where the points raised here are investigated more fully it also rests upon work done by other economists whose work is listed in the paper and the bibliography

marginal federal personal and corporate income tax rates in the u s 1909 1975 abstract in this article i first report and describe the construction of two new statistical series on the marginal federal income tax rates for corporations and private individuals in the united states since the inception of those taxes and then analyze the behavior of these series over time several results on the determination of tax rates are derived these generally are not consistent with barro s theory of deficit finance

u s deficits since world war i the tax smoothing theory suggests that deficits would respond particularly to recession temporarily high government spending and anticipated inflation my empirical estimates indicate that a relation of this type is reasonably stable in the u s since at least 1916 in particular the statistical evidence does not support the idea that there has been a shift toward a fiscal policy that generates either more real public debt on average or that generates larger deficits in response to recessions further the deficits for 1982 3 and popular projections formed in 1984 for 1984 5 are consistent with the previous structure the high values of these deficits reflect the customary response to substantial recession interacting with big government and to expected inflation

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

the ricardian approach to budget deficits persistent budget deficits have increased economists interest in theories and evidence about fiscal policy this paper develops the ricardian approach and contrasts it with standard models the discussion considers from major theoretical objections to ricardian equivalence finite lifetimes imperfect capital markets uncertainty about future taxes and incomes and the distorting effects of taxation the paper then considers empirical evidence on interest rates consumption and saving and current account deficits the conclusion is that the ricardian approach is a useful first order approximation and that this approach will probably become the benchmark model for assessing fiscal policy this abstract was borrowed from another version of this item

an analysis of household mobility and tenure choice an empirical study of korea abstract this paper develops a model of households joint mobility tenure decisions which improves upon the sole existing model in two important ways first the probabilistic structure is appropriately framed to capture the simultaneity of the mobility and tenure decisions second the model is based more directly on utility maximization theory an additionally distinguishing characteristic of the model is the fact that all independent variables in the estimation are expressed in flow terms this is done in an effort to more truly reflect their importance in the decision making of the household the model is estimated using microlevel data from korea the coefficients and derived elasticities are consistent with expectations and korean households are found to behave in a manner similar to that in the united states this suggests that the basic motivations underlying households mobility tenure decisions are invariant across countries

optimal fiscal policy with robust control abstract this paper analyzes how consumer uncertainty affects optimal fiscal policy in the lucas and stokey 1983 framework the consumers lacking confidence in their knowledge of the stochastic environment endogenously tilt their subjective probability model away from an approximating probability model the government though is confident that the approximating probability model characterizes the stochastic environment this confidence dichotomy reveals a range of possible objective functions for an altruistic government i assume that the government maximizes the consumers expected utility under the consumers own subjective probability model it is found that this government relies less heavily on labor taxes to absorb the fiscal shock than would be optimal if consumers were fully confident in their probability model this policy helps mitigate the direct welfare cost associated with consumer uncertainty i compare this policy to the one implemented by a government that maximizes the consumers expected utility under the approximating probability model

fiscal policy over the real business cycle a positive theory this paper presents a political economy theory of the behavior of fiscal policy over the business cycle the theory predicts that in both booms and recessions fiscal policies are set so that the marginal cost of public funds obeys a submartingale in the short run fiscal policy can be pro cyclical with government debt spiking up upon entering a boom however in the long run fiscal policy is counter cyclical with debt increasing in recessions and decreasing in booms government spending increases in booms and decreases during recessions while tax rates decrease during booms and increase in recessions data on tax rates from the g7 countries supports the submartingale prediction and the correlations between fiscal policy variables and national income implied by the theory are consistent with much of the existing evidence from the u s and other countries

budget balance through revenue or spending adjustments abstract the paper provides a historical perspective on the issue of whether budget deficits are typically eliminated by increased taxes or by reduced spending by examining u s budget data from 1792 1988 i conclude that about 50 65 of all deficits due to tax cuts and about 65 70 of all deficits due to higher government spending have been eliminated by subsequent spending cuts while the remainder was eliminated by subsequent tax increases in contrast to previous studies the empirical analysis uses error correction models in a way that the intertemporal budget constraint is imposed in the estimation stage

are state and provincial governments tax smoothing evidence from panel data the theory of debt examined here is known variously as efficient taxation over time optimal taxation over time the equilibrium approach to fiscal policy or tax smoothing tax smoothing results when an efficient government fixes tax rates today to minimize the costs of taxation over time given the long run constraint of a balanced budget if the marginal costs of taxation are an increasing function of the amount of resources taxed i e the tax rate then minimization of the total costs of taxation implies that the planned tax rate will be constant over time tax rate changes will be unpredictable and the tax rate will behave as a random walk efficient governments will not adjust tax rates to accommodate temporary changes in expenditures and revenues instead governments will minimize tax rate changes by tax smoothing smoothing tax rates implies that temporary changes in government spending and output result in deficits and surpluses therefore tax smoothing provides a theory of government debt the model is primarily due to barro 1 the goal of this paper is to contribute to our understanding of government debt the focus of this paper is on state and provincial debt or what is generally referred to as state and local debt nearly every state government in the united states has a balanced budget rule however balanced budget rules are not sufficient to rule out tax smoothing as state governments could build up budget surpluses in good times to smooth budgets over the business cycle if state governments are smoothing tax rates then their budget surpluses are endogenous contrary to the state governments provincial governments in canada have no balanced budget rules if provincial governments are smoothing tax rates it could explain the behavior of their budget deficits and surpluses as shown by barro tax smoothing implies that the overall tax rate behaves as a random walk and the tax rate would be a nonstationary time series with a unit root this study examines the tax smoothing hypothesis in two ways first the random walk implication is examined directly by testing the null hypothesis that the tax rate time series has a unit root second if the tax rate behaves as a random walk then changes in the tax rate should be unpredictable from past information if past information can predict tax rate changes this would provide evidence in favor of an alternative hypothesis a rejection of tax smoothing suggests that state and provincial tax rates respond to current

fiscal policy public debt stabilisation and politics theory and uk evidence this paper presents a two party model of fiscal and debt policy in which the parties do not care about policy outcomes when out of office unlike other models of this type our model has predictions that are largely consistent with existing empirical findings about partisan and electoral effects on government expenditure tax revenue and debt it also yields new predictions about how the feedback of fiscal policy on lagged debt may depend on partisan and electoral effects these new predictions are not rejected by a test of the model on uk data in multi party democracies the motives of the party in power undoubtedly affect fiscal and monetary policy many economists and political scientists believe that economic policy makers are driven by two not mutually exclusive motives first they wish to remain in office as long as possible the survival or opportunistic motive second they wish to benefit their constituencies partisan motive the effects of these motives may show up in two ways in the data first there may be effects of ideological differences of the parties in power on fiscal and monetary policy so called partisan effects for example we might expect left wing governments to tax and spend more and possibly accumulate more debt second there may be attempts by the incumbent party to use fiscal and monetary policy to bribe the electorate prior to elections e g by cutting taxes and interest rates so called electoral effects recent econometric work has established some interesting stylised facts which are broadly consistent with these predictions several studies report evidence of electoral effects on various fiscal policy instruments for the united states tufte i978 for transfers bizer and durlauf i990 for taxes and macdonald i99i for state level public expenditure more recently alesina et al i 992 i 993 have found evidence of electoral effects on government debt in a panel study of oecd countries evidence of partisan effects on fiscal policy is scarcer alesina et al i 993 report partisan effects on debt and roubini and sachs i989 report in a study of oecd democracies that countries with a higher percentage of left wing governments have significantly higher longrun government spending to gnp ratios concurrently with the accumulation of this evidence a theoretical literature notably alesina and tabellini 1990 rogoff 1990 and rogoff and sibert i 988 has provided new explanations of observed electoral effects on

equilibrium political budget cycles political business cycle theories generally rely on nominal rigidities and voter myopia this paper offers an equilibrium theory that preserves some basic insights from earlier models though with significant refinements the political budget cycle emphasized here is in fiscal policy rather than output and inflation it arises via a multidimensional signal process one can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure copyright 1990 by american economic association

race and tenure in toronto the analysis of a number of toronto sub populations consistently points to differences in the home ownership rates between visible minorities and whites people of african or caribbean origin have a much lower chance of being home owners compared to whites after controlling for differences in income levels housing preferences and household characteristics differences in tenure profiles are reduced at higher income levels but the home ownership deficit remains economic factors explain only a small part of the large difference cultural and institutional factors may determine how the tenure options are perceived and valued by different groups of people living in the same city biases in perceptions matter as they affect the extent to which people can gain from the direct and indirect subsidies offered to home owners the differences may be indicative of underlying problems some minorities face in gaining access to urban resources measures of home ownership deficits among the black and caribbean suggest

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

war politics an economic rational voter framework the frequency of foreign conflict initiations in the united states is found to be significantly greater following the onset of recessions during a president s first term than in other periods the authors develop an economic theory of the political use of wars which links the election cycle war decisions and economic performance consistent with the observed relationships among these events an incumbent leader with an unfavorable economic performance record may initiate a war to force the learning of his war leadership abilities and thus salvage with some probability his reelection this obtains despite voter rationality and informational symmetry copyright 1995 by american economic association

international evidence of tax smoothing in a panel of industrial countries a panel of industrial countries is examined for evidence of tax smoothing tax smoothing results when governments minimize tax distortions over time the model provides a positive theory of government debt and is due primarily to barro unit root tests are performed in panel data to test the null hypothesis of nonstationary tax rates panel regressions are then undertaken to test the null hypothesis that tax rate changes are unpredictable and test for evidence of an alternative hypothesis political and economic variables are examined for their ability to predict tax rate changes overall the results cannot reject the null hypotheses and support tax smoothing by national governments

real wages aggregate demand and unemployment a new methodology for differentiating the effects of aggregate demand and real wage rigidity on unemployment is presented it departs from the standard fixprice model by specifying that 1 product markets are imperfectly competitive and 2 demand functions for labor and capital are conditional on output as well as on the real wage keynesian and classical unemployment may coexist instead of occupying separate regimes as in the rationing model with competitive firms the method is used to estimate the volumes of natural excess hidden demand gap and wage gap unemployment in the united states during 1959 1982

political cycles fiscal deficits and output spillovers in europe this paper investigates whether national elections in europegenerate political cycles in other european countries and ifso whether these spillover effects are likely to surviveinside emu the paper first tests whether elections in germanyaffect macroeconomic outcomes in other european countries andthen investigates the impact of elections on budget deficits the results indicate that german politics significantlyimpacts macroeconomic variables in other european countries and also that politics significantly affects the behaviour ofeuropean budgetary policy the prospect of elections tends toincrease public deficits in recessions whereas left winggovernments tend to be more deficit prone than right winggovernments regardless of the state of the economy moreover the existence of political cycles spillovers among europeancountries suggest that there may be a need for electoralcoordination

econometric estimation of foresight tax policy and investment in the u s we develop a method for measuring the foresight agents have we first dichotomize an agent s information at current date t into knowledge up to date t 1 f and expectations after t 1 f we then form a residual based test statistic that allows us to compare prediction errors for econometric models based on different values of f we illustrate the method examining investment around tax reforms to measure the foresight firms have about tax policy in this illustration current investment appears to reflect currently available information but little foresight other than foresight of enacted policy changes

tax structure turbulence in oecd countries this paper analyses whether and to what extent politiciansmanipulate tax structures strategically in order to winelections or for ideological purposes we introduce anindicator for tax structure turbulence which measures thedegree to which a country s tax structure changes from oneyear to another using data on 18 oecd countries over theperiod 1965 1995 we find clear evidence of a politicalbudget cycle in national tax structures more precisely wefind that in election years tax structures are changedsignificantly less than in other years further thedispersion of political power significantly lowers the abilityof governments to change the tax structure we do not however find any evidence of partisan budget cycles innational tax systems following political regime changes

seigniorage and tax smoothing in the united states 1914 1986 abstract when monetary and fiscal authorities cooperate to minimize the distortionary costs of financing an exogenous stream of government expenditures barro s tax smoothing model implies a long run relationship between tax revenues and inflation previous empirical tests of this relationship are reinterpreted in light of recent work on cointegration and are shown to hold only when stochastic temporal variation in the excess burden of taxes and seigniorage is transitory in nature a new test that holds in the presence of nonstationary disturbances is developed and applied annual u s data from the period 1914 to 1986 reject the revenue smoothing hypothesis

endogenous elections electoral budget cycles and canadian provincial governments the existence of manipulative electoral budget cycles and opportunistic election setting is examined in the framework of a parliamentary democracy empirical tests are conducted using a pooled time series cross section data set derived from canadian provincial governments over the 1962 1992 period evidence in support of the electoral budget cycle hypothesis but not the opportunistic election timing hypothesis is obtained

the role of tax bases and collections costs in the determination of income tax rates seigniorage and inflation a growing theoretical literature on optimal taxation predicts that governments will set the tax rates on money holdings and on more traditional tax bases to minimize the deadweight losses of collecting government revenue under the presumption that relative collection costs and tax bases have not changed significantly over time the empirical time series seigniorage literature has focused on the theory s tax smoothing implication finding only weak support we show that changes in collections costs and tax bases played an important role in the determination of tax composition and find stronger support for tax smoothing when this is taken into account

efficient timing of income taxes abstract the marginal collection cost of an income tax is predicted to be a martingale and the marginal income tax rate is predicted to be a supermartingale collection costs can be estimated from tax rates almost all tests based on a u s series of actual marginal income tax rates 1913 1975 accept the hypothesis of random walk behavior in collection costs and reject the parallel hypothesis on tax rates

tax regimes tariff revenues and government spending this paper develops a model that describes the role of tariffs as a source of government revenue the model takes a public finance perspective and treats as part of the optimum revenue raising tax package relating the behavior of tariff rates and revenues to observable macroeconomic variables such as income and government spending although the approach is quite general the model is constructed to fit the stylized facts concerning the changing role of the tariff in u s history it is shown that relative collection costs for tariffs and other forms of taxes interact with changes in macroeconomic variables to explain the regime shifts qualitative changes in the relative importance of tariffs and other taxes found in u s tariff history copyright 1992 by the london school of economics and political science

optimal taxation and oecd labor taxes abstract we derive simple expressions for optimal labor taxes under different assumptions about government bond markets we use these to examine oecd labor taxes estimate the excess burden of taxation and assess the ability of optimal tax models to match the data optimal labor taxes are driven by i a term reflecting ramsey considerations which makes labor taxes vary positively with employment and ii a martingale component reflecting the excess burden of tax which shows persistent responses to shocks to the government s intertemporal budget constraint under complete markets when governments can issue a full set of contingent securities only the first factor is relevant we find substantial evidence that incorporating incomplete markets into the optimal taxation model is critical for empirical success however we find strongest support for the martingale component and only weak evidence for the ramsey component

explaining u s federal deficits 1889 1998 i introduction seater 1993 attempted to provide a common basis for assessing empirical studies of the effects of deficit spending he concluded that evidence of the existence of appreciable effects of u s deficits on macroeconomic variables is questionable in other words the data do not allow for a confident rejection of ricardian equivalence in a world with no macroeconomic effects from deficit spending full information and no distinctions between political and economic markets fluctuations in deficits merely reflect government financing considerations of secondary importance in contrast to this view of the world deficits and surpluses are treated as an important topic in everyday affairs and discourse politicians talk about deficits and surpluses regularly when calling for higher or lower taxes more or less spending revisions in social security funding and other changes in public policy economists and political analysts continue to debate why deficits became a regular feature of federal fiscal management from the late 1960s into the 1990s these debates have spurred divergent theories and conjectures leading to different empirical hypotheses and variables of interest moreover existing empirical studies of the subject have utilized diverse econometric techniques and specifications as a result the competing hypotheses concerning deficit spending have not been tested against one another in a systematic fashion in this article our principal aim is to analyze the different explanations of u s federal deficits jointly estimating competing hypotheses about deficit fluctuations in a generalized reduced form empirical model to achieve this goal we collected and utilized a time series of data running from 1889 to 1998 the apparent paradox between the seemingly innocuous effects of deficits and the political preoccupation with them may owe its existence to one or more reasons limited and noisy information among voters differences between economic and political markets inaccuracy in the measured macroeconomic effects of deficits or other reasons we do not attempt an explanation of why deficits which seemingly exhibit no or small real effects ricardian equivalence could lead politicians and voters to treat deficits as if the ricardian hypothesis were rejected instead we treat explanations of deficits that stem from ricardian premises as one of several hypotheses to be tested ii competing hypotheses we first describe the leading explanations of deficit spending organizing them around common theoretical principles 1 tax smoothing the explanation of deficits which follows directly from a ricardian equivalence theory is the tax smoothing theory developed by barro 1979 2 if deficits generate no real macroeconomic effects and the influences of political institutions and politicians are ignored then optimal public financing considerations govern the use of deficit spending simply put fiscal authorities raise revenue to meet spending needs through income taxation but both spending and income the tax base are subject to uncertain and temporary movements minimization of the deadweight costs of raising a given amount of revenue requires keeping tax rates steady in the face of purely temporary changes in income or spending this is accomplished by running deficits when income is temporarily low or spending is temporarily high and running surpluses in the opposite case imposing a binding no ponzi game npg constraint leads to similar long term behavior of deficits as implied by optimal finance models the npg condition requires that the present value of taxes must equal the present value of spending plus the initial value of debt spending and revenue must share a long term common trend so that primary deficits will be stationary over a long time series deficits and surpluses will offset each other

inflation unemployment and public opinion polls it is well known that public opinion polls report that the public regards inflation as a more serious problem than unemployment in this paper we examine public opinion surveys with the aim of discovering what if anything the poll results mean we describe in some detail the questions about inflation and unemployment asked in the surveys and analyze the determinants in both cross section and time series of answers to those questions the typical opinion poll question about inflation and unemployment is which of the two problems inflation or unemployment do you think will cause the more serious economic hardship for people during the next year or so 1 section 1 discusses the possible issues to which opinion poll questions about inflation and unemployment might be relevant section 2 tabulates a variety of questions that have been asked along with the responses and examines the views expressed and their consistency both internal and across different polls section 3 presents a regression analysis of the cross sectional determinants of responses to the michigan poll question cited above while section 4 studies determinants of changes over time

theory and estimation in the economics of housing demand the main purpose of this paper is to review recent theoretical and empirical developments in the economics of housing demand in particular we ask what is known concerning the permanent income elasticity of housing demand vis a vis the current or measured income elasticity what is known concerning price elasticities what is the appropriate functional form for housing demand equations what is the role of demographic variables what is known concerning dynamic aspects of housing demand what appear to be the major sources of bias in existing estimates of demand equations

is the political business cycle for real abstract this paper constructs and examines a macroeconomic model which combines features from both real and political business cycle models we augment a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities first that on average the economy expands early under democratic presidents and contracts early under republican presidents second that presidents whose parties successfully retain the presidency have stronger than average growth in the second half of their terms the model generates both of these features that conform to u s post world war ii data

model uncertainty and intertemporal tax smoothing in this paper we examine how model uncertainty due to the preference for robustness rb aects optimal taxation and the evolution of debt in the barro tax smoothing model 1979 we rst study how the government spending shocks are absorbed in the short run by varying taxes or through debt under rb furthermore we show that introducing rb improves the model s predictions by generating i the observed relative volatility of the changes in tax rates to government spending ii the observed comovement between government decits and spending and iii more consistent behavior of government budget decits in the us economy finally we show that rb can also improve the model s predictions in the presence of multiple shocks

decomposing canada s growing housing affordability problem do city differences matter this article examines the role of eight factors that affect the prevalence and incidence of housing affordability problems geography demography migration immigration ethnicity income recipients income source employment and education it develops bivariate probit models that use the 1991 and 1996 canadian census public use microdata to predict the joint probability that a household spends more than half of its income on housing and that its income is below the poverty line the conclusions show that city and regional differences are negligible after the effects of the factors common to all the cities have been accounted for changing employment levels and sources of household income are the most important factors explaining the prevalence and growth of housing poverty while single parents have the highest incidence the growth of the problem is mostly in the young non family households migration immigration and ethnicity play a role that is independent of the other factors education has almost n

uniform labor income taxation and economic efficiency abstract this paper uses a two period representative agent optimal taxation model to characterize government tax policy when the interest rate is determined in equilibrium and is affected by policy choices it shows that dynamic tax smoothing may not be optimal and the response of the interest rate with respect to policy choices is extremely important in characterizing government s tax policy

the fundamentals of land prices and urban growth abstract in a very simple model in which capital is durable and landowners have perfect foresight the price of urban land has four additive components the value of agricultural land rent the cost of conversion the value of accessibility and the value of expected future rent increases a growth premium in rapidly growing cities the growth premium may easily account for half of the average price of land and may create a large gap between the price of land at the boundary minus conversion cost and the value of agricultural land rent

optimal taxation with private government information the ramsey model of fiscal policy implies that taxes should be smooth in the sense of having small variances in contrast empirical labour tax processes are smooth in the sense of being random walks they provide prima facie evidence for incomplete government insurance this paper considers whether private government information might lie behind such incomplete insurance it shows that optimal incentive compatible policies exhibit limited use of state contingent debt and greater persistence in taxes and debt and it argues that they are better approximations to empirical fiscal policies than those implied by the ramsey model the paper also establishes that optimal incentive compatible allocations converge to allocations such that the government s incentive compatibility constraint no longer binds generally these limiting allocations are ones in which the government is maximally indebted their credibility and the interaction of incentive compatibility and credibility is briefly discussed

testing a present value model of the current account evidence from us and canadian time series abstract this paper presents a simple model of current account determination based upon the permanent income hypothesis of private consumption behavior under rational expectations the model employs a representative national agent who is forward looking and can borrow and lend at a constant world interest rate a present value relationship for the current account is derived and its implications are tested on post war data for the united states and canada testing is done using the framework developed by campbell and shiller 1987 which allows the forcing variables in the model to be difference rather than trend stationary our empirical results indicate the most stringent restrictions of the present value model are strongly rejected by the us and canadian data however less formal procedures suggest the consumption smoothing model has some ability to track the dynamic behavior of the us current account jel f32

measuring the average marginal tax rate from the individual income tax the economic effects of taxation depend on the configuration of marginal tax rates we consider here the appropriate measure of a marginal tax rate for the federal individual income tax which has a graduated rate structure and allows for numerous legal and illegal deductions from total income our conclusion is that the explicit marginal rate from the tax schedule is the right concept for many purposes hence we construct approximately weighted averages of these marginal tax rates for 1916 80 when weighted by adjusted gross income the arithmetic average of marginal tax rates is 5 in 1920 2 in 1930 6 in 1940 20 in 1950 23 in 1960 24 in 1970 and 30 in 1980 we also discuss the dispersion of marginal tax rates as well as the behavior of average tax rates and deductions from taxable income one noteworthy result concerns the fraction of adjusted gross income that accrues to families that face a marginal tax rate of at least 35 this fraction quadruples from 1964 to 1980 this abstract was borrowed from another version of this item

asymmetric information and the electoral momentum of public opinion polls this paper demonstrates that the existence of public opinion polls amplifies the effects of shifts in the distribution of the public s preferences over the issue space on the election s results voters evaluate candidates by their positions on the issue space and by a valence or general ability dimension some individual s the informed have more precise information about the relative abilities of candidates than others the uninformed since public opinion polls reflect the information of the informed high approval for a candidate at the polls signals to the uninformed that he is more likely to be abler however high approval may also reflect changes in the distribution of the public on the issue space as a result the uninformed partly confuse the two effects and public opinion polls tend to reinforce the effects of shifts in the public s ideological preferences on election results a shift to the right that shows up as more support for the right wing candidate at the polls is partly interpreted as a higher efficiency of this candidate as a result he wins with a higher margin than the margin he would have won with in the absence of polls or under perfect information

the macroeconomic effects of war finance in the united states world war ii and the korean war during world war ii government expenditures were financed primarily by issuing debt during the korean war expenditures were financed almost exclusively by higher taxes reflecting president truman s preference for balanced budgets this paper evaluates quantitatively the economic effects of the different policies used to finance these two wars counterfactual experiments are used to explore the implications of financing world war ii like the korean war and financing the korean war like world war ii the author finds that using a korean war policy during world war ii would have resulted in much lower output and welfare relative to the actual policy copyright 1997 by american economic association

debts and deficits with fragmented fiscal policymaking abstract this paper develops a political economic model of fiscal policy one in which government resources are a common property out of which interest groups can finance expenditures on their preferred items this setup has striking macroeconomic implications transfers are higher than a benevolent planner would choose them to be fiscal deficits emerge even when there are no reasons for intertemporal smoothing and in the long run government debt tends to be excessively high peculiar time profiles for transfers can emerge with high net transfers early on giving rise to high taxes later on

the tax smoothing hypothesis evidence from sweden 1952 1999 this paper tests barro s 1979 tax smoothing hypothesis using swedish central government data for the period 1952 1999 according to the tax smoothing hypothesis the government sets the budget surplus equal to expected changes in government expenditure when expenditure is expected to increase the government runs a budget surplus and when expenditure is expected to fall the government runs a budget deficit the empirical evidence suggests that the model provides a useful benchmark and that tax smoothing behavior can explain about 60 percent of the variability in the swedish central government budget surplus

u s states the medicaid program and tax smoothing this paper tests the tax smoothing theory by focusing on its implication that a change in permanent government spending should result in an equal sized change in the tax rate the effect of medicaid a state administered federal and state funded medical insurance program for the poor on state tax rates is investigated the medicaid program provides a natural experiment for this test as states are required to cover certain groups in order to receive federal matching money additionally during the 1980s a series of federal mandates greatly increased state medicaid expenditures two stage least squares is used on a panel of u s states 1978 1994 to test whether changes in permanent state medicaid expenditures resulted in equal sized tax rate changes tax smoothing as a positive theory of state government behavior is rejected additionally it is found that this rejection cannot be attributed to the stringency of balanced budget rules