taxation and the allocation of risk inside the multinational firm abstract this paper provides the first theoretical and empirical analysis of how taxation shapes the joint allocation of risk and profits inside the multinational firm theoretically we identify three mechanisms through which corporate taxes may shape the within firm allocation of risk 1 transfer pricing rules requiring risk to be compensated with higher expected returns create incentives to shift risk to low tax jurisdictions as a means to shift profits 2 risk averse owners create incentives to allocate risk to high tax affiliates to maximize risk sharing with governments 3 limited loss offset creates incentives to shift risk to affiliates in other countries empirically we show that multinational firms disproportionately allocate risk to low tax countries and that the key mechanism is the nexus between risk and profits established by transfer pricing rules within firm differences in risk explain a significant fraction of the well established correlation between profits and tax rates suggesting that risk shifting is a quantitatively non negligible channel for profit shifting

the effects of tax convexity on default and investment decisions the objective of this article is to examine how default and investment triggers change under different levels of tax asymmetry when firms face nonlinear tax schedules under a convex tax schedule profits are taxed at a higher rate while losses are taxed or rebated at a lower rate thus reducing the risk shared by the government this article presents a dynamic model based on the contingent claims framework to explore the impacts of tax convexity on the triggers and we find that the impacts vary significantly depending on several countervailing forces tax convexity has a nonmonotonic relationship with both the default and investment triggers because of the government s risk sharing role the default trigger is higher when tax convexity increases while the growth option exerts a counteracting effect that lowers this trigger creating an ambiguity in the investment trigger when changing the level of tax asymmetry

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

monetary policy matters abstract this paper addresses hoover and perez s comments on our 1989 paper we first show that the estimated impact of monetary policy shifts remains large and ranges from marginally to strongly significant when oil shocks are controlled for we then extend our previous work by expanding the sample period and identifying an additional policy shift in december 1988 with this extension the estimated effects of monetary policy shifts are large and highly significant for all reasonable specifications of oil shocks we also demonstrate that hoover and perez s other objections have little bearing on our conclusions

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

the rising skill premium and deunionization abstract during the past 50 years the us economy has seen a rapid decline in labor union membership and a substantial rise in wage inequality since labor unions compress wages between skilled and unskilled workers a rising skill premium encourages skilled workers to withdraw from the union if this withdrawal is accompanied by a fall in the productivity of unskilled workers firms become reluctant to hire the relatively expensive union workers reinforcing the decline in the unionization rate evaluating this hypothesis we find that the rise in the skill premium explains about 40 of the decline in the unionization rate

the effect of unions on the structure of wages a longitudinal analysis this paper studies the effects of unions on the structure of wages using an estimation technique that explicitly accounts for misclassification errors in reported union status and potential correlations between union status and unobserved productivity the econometric model is estimated separately for five skill groups using a large panel data set formed from the u s current population survey the results suggest that unions raise wages more for workers with lower levels of observed skills in addition the patterns of selection bias differ by skill group among workers with lower levels of observed skill unionized workers are positively selected whereas union workers are negatively selected from among those with higher levels of observed skill despite a large and sophisticated literature there is still substantial disagreement over the extent to which differences in the structure of wages between union and nonunion workers represent an effect of trade unions rather than a consequence of the nonrandom selection of unionized workers over the past decade several alternative approaches have been developed to control for unobserved heterogeneity between union and nonunion workers 2 one method that has been successfully applied in other areas of applied microeconometrics is the use of longitudinal data to measure the wage gains or losses of workers who change union status unfortunately longitudinal estimators are highly sensitive to measurement error even a small fraction of misclassified union status changes can lead to significant biases if the true rate of mobility between union and nonunion jobs is low this sensitivity led lewis 1986 to essentially dismiss the longitudinal evidence in his landmark survey of union wage effects in this paper i present some new evidence on the union wage effect based on a longitudinal estimator that explicitly accounts for misclassification errors in reported union status the estimator uses external information on union status misclassification rates along with the reduced form coefficients from a multi variate regression of wages on the observed sequence of union status indicators to isolate the causal effect of unions from any selection biases introduced by a correlation between union status and the permanent component of unobserved wage heterogeneity recognizing that unions may raise wages more or less for

irreversible investment and endogenous financing abstract we evaluate the effects of corporate taxation on firms investment and financing choices we focus on how the asymmetry of the corporate tax imperfect loss carry overs endogenous financing with credit constraints and different degrees of investment irreversibility affect both incremental investment and entry decisions we find that as long as capital can be financed with debt at the margin the tax distortions on the marginal investment decision are small this is particularly so if the technology is flexible in contrast the tax distortions on the entry decision are substantial the ability of firms to carry over their losses and choose their financial structure endogenously are important for reducing both types of distortions

evaluating the evidence on union employment and wages using current population survey data for the years 1973 86 this study tests the hypothesis that the steep decline of union employment shares since 1973 is related to increases in union wages relative to nonunion wages the authors show that although the aggregate union wage premium has changed little since 1973 some industry specific premiums have risen substantially and the industries with the rising premiums are those experiencing declines in union employment shares the increase in the premium explains from 21 to 64 of the decline in union shares depending on the equation specification the paper also presents a detailed set of union wage premiums and employment shares for the sample period

tax asymmetries the cost of capital and investment some evidence from united kingdom panel data a measure of the cost of capital is developed that incorporates the dynamic effects of tax changes and tax asymmetries estimates of the cost of capital are made using an unbalanced panel of 1987 u k quoted companies over the period 1971 to 1984 there is wide cross sectional variation in the cost of capital the measure is used in estimating an equation where this cross sectional variation is found to be a significant determinant of the level of company investment copyright 1989 by royal economic society

the significance of tax law asymmetries an empirical investigation this study uses tax return data for u s nonfinancial corporations for the period 1971 1982 to estimate the importance of restrictions on the ability of firms to use tax credits and to obtain refunds for tax losses our results suggest that the incidence of such unused tax benefits increased substantially during the early 1980s though we do not find these increases attributable to increased investment incentives during that period we present estimates of the marginal tax rate on interest payments which take into account unused tax benefits and emphasize the importance of distinguishing current tax payments from marginal tax rates in estimating the incentive to invest

price flexibility credit availability and economic fluctuations evidence from the united states 1894 1909 the importance of disturbances in financial markets for real economic activity and the positive association between price level and output movements typically are explained by appeal to a combination of nominal aggregate demand shocks particularly money supply shocks and rigid prices we argue that this view is inconsistent with evidence for short run responsiveness of prices and gold flows to nominal disturbances during the pre world war i gold standard era we offer an alternative explanation that connects financial markets and real activity through disturbances to the availability of credit this approach links comovements in prices and output through real effects in credit markets associated with price level shocks empirical analysis using monthly data for the pre world war i period supports the assumption of rapid price adjustment and the credit supply interpretation of the transmission of financial shocks disturbances to credit availability including price shocks contribute substantially to our empirical explanation of output fluctuations during this period

trade unions and the efficiency of the natural rate of unemployment decentralized wage setting in search equilibrium models is inefficient because the meeting firm and worker ignore the dependence of job matching probabilities on the number of firms and workers engaged in search this paper investigates whether risk neutral monopolistic unions will have an incentive to internalize this externality i find that the externality will be internalized only if the union s policy is chosen by unemployed persons if employed persons influence union policy both the union wage and unemployment will be too high a tax on the union wage combined with an employment subsidy to firms can correct this inefficiency

job destruction and propagation of shocks this paper considers propagation of aggregate shocks in a dynamic general equilibrium model with labor market matching and endogenous job destruction cyclical fluctuations in the job destruction rate magnify the output effects of shocks as well as making them much more persistent interactions between capital adjustment and the job destruction rate play an important role in generating persistence propagation effects are shown to be quantitatively substantial when the model is calibrated using job flow data incorporating costly capital adjustment leads to significantly greater propagation

paying to queue a theory of locational differences in nonunion wages abstract traditional theories of the effect unions have on nonunion wages are difficult to reconcile with firm and worker mobility we show how differences in nonunion wages can persist in a two city search model nonunion wage differences across cities are driven by transition rates into the union sector should union queues form in the nonunion sector union power decreases nonunion wages as workers are willing to take lower wages to line up for union jobs however if queues are formed in the unemployed sector union power increases nonunion wages as nonunion firms pay premiums to induce workers to leave the queue

intra firm bargaining under non binding contracts we present a new methodology for studying the problem of intra firm bargaining based on the notion that contracts cannot commit the firm and its agents to wages and employment we develop and analyse a general non cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party equilibrium firm profits are characterizable as both a weighted average of a neo classical non bargaining firm s profits and a generalization of shapley value for a corresponding cooperative game furthermore the resulting payoffs induce economically significant distortions in the firm s input and organizational design decisions

when credit bites back using data on 14 advanced countries between 1870 and 2008 we document two key facts of the modern business cycle relative to typical recessions financial crisis recessions are costlier and more credit intensive expansions tend to be followed by deeper recessions in financial crises or otherwise and slower recoveries we use local projection methods to condition on a broad set of macro economic controls to study how past credit accumulation impacts key macro economic variables such as output investment lending interest rates and inflation the facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle

union organizing costs and benefits this paper examines the costs and benefits to current union members in manufacturing of programs to organize the unorganized the marginal cost of organizing an additional employee in constant dollars is estimated for a sample of unions between 1964 and 1977 the primary benefit of organizing that is quantifiable is the extent to which the maintenance or extension of union coverage permits the maintenance of or increase in the union wage estimates of this benefit are derived from previous econometric research linking the union wage to the percentage of the industry organized this single benefit is found to be larger than the estimated marginal cost of extending union coverage in 19 of 20 manufacturing industries

unionization and the pattern of nonunion wage supplements negotiated standard wage policies reduce dispersion in the log earnings of union members when compared to those of otherwise equal nonunion members 5 6 as large as these dispersion differences are they may underestimate the true influence of union wage policy kahn and curme 14 have suggested that high degrees of unionization actually result in reduced nonunion wage dispersion this follows from a particular model of the union threat effect in which nonunion employers tilt induced wage increases toward low wage workers such tilting makes sense because lower paid workers are assumed to be more likely to support unions ceteris paribus this assumption fails to emphasize that low wage workers may be the least likely to be retained by a newly unionized employer and that this also influences their ultimate decision to support unionization in the face of union avoidance strategies that routinely imply the possibility of job loss low wage employees may recognize that the employer faces greater costs of bringing them up to a standard union wage and thus their chances for retention are lower including this realization results in ambiguous predictions about the influence of unionization on nonunion dispersion not only should the ambiguity of the proper theoretical prediction be highlighted but it should be recognized that the relevant prediction from theoretical models has not yet been tested previous tests are inappropriate because the threat induced wage increases could be tilted toward low wage workers without a necessary reduction in the typical measures of wage dispersion similarly those measures of wage dispersion may actually decline without a general tilt of wages toward low wage workers this possibility exists because of the sensitivity of the usual variance measures to outliers and because of aggregation and endogeneity problems affecting previous methodologies this paper uses 1983 and 1988 current population survey cps data to directly estimate the impact of unionization on the earnings of lowand high wage nonunion workers after controlling for traditional human capital locational and occupational variables unionization increases the log earnings of low wage nonunion workers significantly more than those of high wage nonunion workers this result is found with the very data belman and heywood 2 used to demonstrate that

what happens during recessions crunches and busts we provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 oecd countries over the period 1960 2007 in particular we analyse the implications of 122 recessions 113 28 credit contraction crunch episodes 114 28 episodes of house price declines busts 245 61 episodes of equity price declines busts and their various overlaps in these countries over the sample period our results indicate that the interactions between macroeconomic and financial variables can play a major role in determining the severity and duration of a recession specifically we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions stijn claessens m ayhan kose and marco e terrones

nonunion wage rates and the threat of unionization i investigate how the threat of union organization affects the wage paid to nonunion workers i start by outlining the standard model of wage determination by a nonunion employer when faced with the threat of union organization the model suggests that the nonunion wage will be directly related and the union wage gap will be inversely related to the threat i use repeated cross section data from the cps from 1977 2002 to develop a measure of the threat as the predicted probability of union membership i use this measure to estimate earnings functions that use several sources of variation in the likelihood of union membership to identify the threat effect in a manner that reduces the likelihood of omitted variable bias finally i investigate two cases where there has arguably been a change in the likelihood of union organization that is not correlated with changes in the demand for labor these include the wage changes surrounding the introduction of rightto work rtw laws in two states during the period studied and wage changes surrounding deregulation of key industries in the late 1970s and early 1980s the results are mixed the preferred estimates from the analysis using predicted probability of unionization as the threat measure imply very little relationship between either nonunion wages or the union wage gap and the threat the estimates that rely on the introduction of rtw laws show a significant relationship between nonunion wages and the introduction of rtw laws in one of the two states stronger evidence of threat effects is found in the experience of deregulated industries where regulation was a central factor in union strength

union effects on nonunion wages evidence from panel data on industries and cities the authors test for threat and crowding effects of unions on non union wages at the industry and city levels using panel data on the percent organized and nonunion industry and city wage differentials constructed from current population surveys over the period 1973 89 at the industry level increases in the percent organized were associated with decreases in the nonunion industry wage differential suggesting that crowding effects were the predominant union effect on nonunion industry wage differentials in contrast at the city level increases in the percent organized were associated with increases in the nonunion city wage differential suggesting that threat effects predominated the authors also find evidence of negative cross occupation union effects on nonunion industry wage differentials supporting their hypothesis that the industry level results were partly driven by complementarity between union and nonunion labor

fundamentals panics and bank distress during the depression we assemble bank level and other data for fed member banks to model determinants of bank failure fundamentals explain bank failure risk well the first two friedman schwartz crises are not associated with positive unexplained residual failure risk or increased importance of bank illiquidity for forecasting failure the third friedman schwartz crisis is more ambiguous but increased residual failure risk is small in the aggregate the final crisis early 1933 saw a large unexplained increase in bank failure risk local contagion and illiquidity may have played a role in pre 1933 bank failures even though those effects were not large in their aggregate impact

asymmetric phase shifts in u s industrial production cycles abstract we identify cyclical turning points for 74 u s manufacturing industries and uncover new empirical regularities a industries tend to comove between expansion and contraction phases over the business cycle b clusters of industry turning points are highly asymmetric between peaks and troughs troughs are much more concentrated and sharper than peaks c the temporal pattern of phase shifts across industries supports the spillovers through input output linkages and d macroeconomic shocks such as unanticipated changes in monetary policy government spending oil prices and financial conditions are significant drivers of industrial phase shifts

recessions growth and banking crises abstract we examine the relationship of banking crises with economic growth and recessions our data cover 21 economies from around the world most from 1870 to 2009 with the rest starting in 1901 or earlier the data include capital investment and human capital formation we have two major findings first there is very large heterogeneity in growth of gross domestic product gdp and capital investment after banking crises most strikingly twenty five percent of counties experience no decrease in real gdp per capita in the year of the crisis or the following two years some countries see an increase in long run growth after a crisis while others see a fall with no clear overall pattern second we find clear evidence consistent with zarnowitz s law if there is a contraction in economic activity after a banking crisis larger decreases in real gdp per capita are followed by faster subsequent growth

the rise and fall of unions in the united states abstract union membership in the united states displayed a shaped pattern over the 20th century while income inequality sketched a a model of unions is developed to analyze these facts there is a distribution of productivity across firms in the economy firms hire capital plus skilled and unskilled labor unionization is a costly process a union chooses how many firms to organize and the union wage simulation of the model establishes that skill biased technological change which affects the productivity of skilled labor relative to unskilled labor can potentially explain the observed paths for union membership and income inequality

intra firm bargaining and shapley values we study two wage bargaining games between a firm and multiple workers we revisit the bargaining game proposed by stole and zwiebel we show that in the unique subgame perfect equilibrium the gains from trade captured by workers who bargain earlier with the firm are larger than those captured by workers who bargain later as well as larger than those captured by the firm the resulting equilibrium payoffs are different from those reported in stole and zwiebel as they are not the shapley values we propose a novel bargaining game the rolodex game which follows a simple and realistic protocol in the unique no delay subgame perfect equilibrium of this game the payoffs to the firm and to the workers are their shapley values

the union threat this paper studies the impact of unions on wage inequality output and unemployment to do so it proposes a search and matching model of union formation in which unions arise endogenously through a voting process within firms in a union firm workers bargain their wages collectively in a nonunion firm each worker bargains individually with the firm because of this wage setting asymmetry a union lowers the profit of a firm and compresses the wage distribution of the workers furthermore to prevent unionization nonunion firms distort their hiring decisions in a way that also lowers the dispersion of wages after being calibrated on the united states the model shows that even though a partial equilibrium estimate would predict a small impact of unions on inequality removing the threat of unionization increases the variance of wages substantially completely outlawing unions increases wage inequality further moreover outlawing unions increases welfare and output and lowers unemployment these results suggest that even with a small membership unions might have a significant impact on the economy through general equilibrium mechanisms and the way they distort firms decisions i am greatly indebted to nobuhiro kiyotaki esteban rossi hansberg and oleg itskhoki for their invaluable advice and support throughout this project special thanks go to esteban for suggesting the title i also wish to thank manuel amador orley ashenfelter francisco buera jeff campbell pablo fajgelbaum henry farber baris kaymak david lee thomas lemieux benjamin moll justinas pelenis edouard schaal andrew shephard christopher sims liz tennant as well as seminar participants at princeton university and the chicago fed rookie seminar for helpful comments and suggestions i gratefully acknowledge financial support from the fonds quebecois de recherche sur la societe et la culture email mtascher princeton edu address 001 fisher hall department of economics princeton university princeton nj 08544 for the most recent version go to http sites google com site mathtd

unions and nonunion wage dispersion previous research has found that union standard rate policies lower the dispersion of union wages and that unions indirectly raise nonunion wage levels as firms weigh the probability of unionizing and wage costs these two findings imply that unions lower the dispersion of nonunion wages since for a given payroll a nonunion firm can achieve the greatest reduction in the probability of unionism by giving raises to those who would benefit most from a union this hypothesis is confirmed on current population survey data taking into account the endogeneity of unionism ceteris paribus nonunion wage dispersion is lower in more highly unionized industries copyright 1987 by mit press

corporation tax asymmetries and investment evidence from uk panel data theoretical work has emphasised the potentially powerful impact of corporation tax asymmetries on investment behaviour but empirical work has mainly been confined to the measurement of effective tax rates this paper uses panel data from 597 u k companies to ask are tax asymmetries important to understanding observed investment behaviour an optimising investment model is developed and estimated both as a q equation and a euler equation in which the cost of capital appears careful modelling of asymmetries does not noticeably improve the empirical performance of these equations possible explanations are discussed

leasing taxes and the cost of capital abstract a model of firm financial and investment behaviour when there is a possibility of tax exhaustion is used to analyse the incentives for firms to act as lessees or lessors and the determination of the equilibrium rental rate in the leasing market a number of results emerge which are relevant for public policy it is shown that i leasing may diminish aggregate investment by comparison with the situation when it does not occur ii rents are likely to be earned on leasing activities and iii a purely tax induced positive relationship exists between aggregate investment and corporate profits

wage differentials across labor markets and workers does cost of living matter wage differentials studies rarely account for interarea differences in cost of living owing both to data limitations and theoretical ambiguity this study develops a price index for 185 metropolitan areas comprising about 70 of the u s labor force current population survey data for 1985 95 and data on sitespecific amenities are used to estimate earnings differentials based on nominal wages wages fully adjusted for measured cost of living and a simple approximation of real wages with partial adjustment for pricelevel differences dispersion in approximate real wages across 185 labor markets and differentials by region and city size are substantially lower than dispersion in nominal or full adjustment wages estimates of racial and ethnic differentials display moderate sensitivity to choice of a wage measure whereas other standard differentials do not both nominal wages and wages fully adjusted for cost of living may provide misleading estimates of real wage differentials absent data on interarea prices and amenities researchers should include detailed controls for region and city size in nominal wage equations jel j31 r23

a theory of wages and labor demand with intra firm bargaining and matching frictions this article provides a model of labor market equilibrium with search and within firm strategic bargaining we yield explicit closed form solutions with heterogeneous labor inputs and capital the solution exhibits overemployment we show that higher relative bargaining power for some groups of workers may lead to overemployment relative to other groups with such other groups being underemployed instead if they have a lower relative bargaining power similarly the hold up problem between capitalists and employees does not necessarily lead to underinvestment in physical capital beyond the neo classical analysis firms are the field of several strategic interactions between capital owners and labor between marginal employees and incumbents and more generally between different groups with various bargaining positions within the firm it is usually considered that the bargaining power of workers entails an employment level that is lower than in a competitive labor market and any increase in the bargaining power of workers raises unemployment these results are true for a wide class of models and notably in the now standard framework to analyze unemployment namely search and matching models of pissarides 2000 however stole and zwiebel 1996a 1996b show that the above results are totally changed in the intra firm bargaining model where employees engage in individual wage negotiation with the firm in fact under the assumption that contract incompleteness does not enable either party to commit to future wages and employment decisions they show that intra firm bargaining yields no rent for employees and gives rise to overemployment compared to a competitive labor market the basic idea of stole and zwiebel is that a firm with a diminishing marginal productivity of labor can decrease the bargained wage which increases in the marginal productivity of labor by raising employment in stole and zwiebel s setting firms overemploy strategically up to the point where workers get their reservation wage

union effects on white collar compensation this paper uses two new data sources each of which combines information on worker and establishment characteristics with detailed information on the components of employee compensation to examine union nonunion pay differentials for white collar workers estimates reveal that nonunion wages and total compensation are more responsive than union pay levels to worker productivity differences such as education and work experience also large firms pay 10 to 15 percent more to their white collar employees than small firms in the nonunion sector but only 5 percent or less in the union sector overall the white collar union wage differential appears to be 3 5 to 4 0 percent rising to 7 1 percent when fringe benefits are included in the dependent variable significant spillovers to nonunion white collar workers which appear to erode the measured union nonunion pay differentials are also found

economic impacts of new unionization on private sector employers 1984 2001 economic impacts of unionization on employers are difficult to estimate in the absence of large representative data on establishments with union status information estimates are also confounded by selection bias because unions could organize at highly profitable enterprises that are more likely to grow and pay higher wages using multiple establishment level data sets that represent establishments that faced organizing drives in the united states during 1984 1999 this paper uses a regression discontinuity design to estimate the impact of unionization on business survival employment output productivity and wages essentially outcomes for employers where unions barely won the election e g by one vote are compared with those where the unions barely lost the analysis finds small impacts on all outcomes that we examine estimates for wages are close to zero the evidence suggests that at least in recent decades the legal mandate that requires the employer to bargain with a certified union has had little economic impact on employers because unions have been somewhat unsuccessful at securing significant wage gains

facts and challenges from the great recession for forecasting and macroeconomic modeling this paper provides a survey of business cycle facts updated to take account of recent data emphasis is given to the great recession which was unlike most other postwar recessions in the united states in being driven by deleveraging and financial market factors we document how recessions with financial market origins are different from those driven by supply or monetary policy shocks this helps explain why economic models and predictors that work well at some times do poorly at other times we discuss challenges for forecasters and empirical researchers in light of the updated business cycle facts

dissecting the cycle a methodological investigation following burns and mitchell we define the cycle as a pattern in the level of aggregate economic activity an algorithm to locate turning points is developed as is a new measure of pro cyclicality a link between turning points and the moments of the series is established thereby providing the statistical foundation that burns and mitchell s work lacked using these tools we are able to dissect cycles in terms of the contributions made by trend growth volatility serial correlation and non linear effects we dissect several models and find little evidence that certain non linear effects are important to the nature of business cycles

an empirical estimate of corporate tax refundability and effective tax rates the provisions of generous tax incentives during the 1970s and the recession of the early 1980s led to a marked increase in the number of nontaxable corporations in canada during the 1977 to 1982 period over 40 percent of investment was done by corporations that were rarely taxable 30 percent by corporations that were normally taxable and the balance undertaken by corporations that were taxable about half the time 1 the degree to which taxable losses can be used to shelter other forms of taxable income has important implications with regard to the study of effective tax rates on capital income this paper attempts to quantify the impact of imperfect loss offsetting or refundability on industry effective tax rate measurements section ii of this note provides an estimate of the extent to which tax losses are written off current or future taxable income in a present value sense refundability is measured by discounting the estimated proportion of a taxable loss written off by companies through carryback and carryforward provisions section iii uses the refundability measures to estimate effective tax rates on canadian firms by industry three cases are compared i the taxpaying firm this firm expects to use all deductions and credits immediately ii the nontaxpaying firm this firm expects to be nontaxpaying with probability 1 in the period in which new investment is undertaken marginal tax losses on new investment are used up slowly over time

cross border loss offset can fuel tax competition following recent court rulings cross border loss compensation for multinational firms has become a major policy issue in europe this paper analyzes the effects of introducing a coordinated cross border tax relief in a setting where multinational firms choose the size of a risky investment and host countries non cooperatively choose tax rates we show that coordinated cross border loss compensation may intensify tax competition when following current international practice the parent firm s home country bases the tax rebate for a loss making subsidiary on its own tax rate in equilibrium tax revenue losses may thus be even higher than is implied by the direct effect of the reform in contrast tax competition is mitigated when the home country bases its loss relief on the tax rate in the subsidiary s host country

shocks structures or monetary policies the euro area and us after 2001 abstract the us federal reserve cut interest rates more vigorously in the recent recession than the european central bank did by comparison with the fed the ecb followed a more measured course of action we use an estimated dynamic general equilibrium model with financial frictions to show that comparisons based on such simple metrics as the variance of policy rates are misleading we find that because there is greater inertia in the ecb s policy rule the ecb s policy actions actually had a greater stabilizing effect than did those of the fed as a consequence a potentially severe recession turned out to be only a slowdown and inflation never departed from levels consistent with the ecb s quantitative definition of price stability other factors that account for the different economic outcomes in the euro area and us include differences in shocks and differences in the degree of wage and price flexibility

deep recessions fast recoveries and financial crises evidence from the american record do steep recoveries follow deep recessions does it matter if a credit crunch or banking panic accompanies the recession moreover does it matter if the recession is associated with a housing bust we look at the american historical experience in an attempt to answer these questions the answers depend on the definition of a financial crisis and on how much of the recovery is considered but in general recessions associated with financial crises are generally followed by rapid recoveries we find three exceptions to this pattern the recovery from the great contraction in the 1930s the recovery after the recession of the early 1990s and the present recovery the present recovery is strikingly more tepid than the 1990s one factor we consider that may explain some of the slowness of this recovery is the moribund nature of residential investment a variable that is usually a key predictor of recessions and recoveries

estimating the effects of unions on wage inequality in a panel data model with comparative advantage and nonrandom selection this article considers the estimation of the structure of wages in union and nonunion sectors it proposes an estimator that extends standard panel data techniques to the case in which the return to the permanent component of the error term is differently rewarded in the two sectors the econometric model is used to estimate the effect of unions on both the level and the variance of wages in canada the findings indicate that unions increase the average wage of workers and compress the returns to observable measures of skill and to a time invariant unobservable measure of skill

unions in a frictional labor market abstract a labor market with search and matching frictions where wage setting is controlled by a monopoly union that follows a norm of wage solidarity is found vulnerable to substantial distortions associated with holdup with full commitment to future wages the union achieves efficient hiring in the long run but hikes up wages in the short run to appropriate rents from firms without commitment in a markov perfect equilibrium hiring is too low both in the short and the long run the quantitative impact is demonstrated in an extended model with partial union coverage and multiperiod union contracting

the effect of unions on wage inequality in the u s labor market this study uses current population survey micro data for 1973 74 and 1993 to evaluate the effect of changing union membership on trends in male and female wage inequality unionization rates of men fell between the two sample periods with bigger declines among lower skill groups these trends account for 15 20 of the rise in male wage inequality union membership rates of low wage women also declined while unionization increased among higher wage women on balance shifting unionization accounts for very little of the rise in female wage inequality economy wide trends in unionization mask a sharp divergence between the private sector where unionism was declining and the public sector where it was rising comparisons across sectors suggest that unionization substantially slowed the growth in wage inequality in the public sector

deposit interest rate ceilings as credit supply shifters bank level evidence on the effects of regulation q abstract how did deposit interest rate ceilings an important feature of the u s regulatory regime until the mid 1980s affect individual banks lending and the transmission of monetary policy to credit i estimate the effect of deposit rate ceilings inscribed in regulation q on commercial banks credit growth using a historical bank level data set starting in 1959 banks credit growth contracted sharply when legally fixed deposit rate ceilings were binding interaction terms with monetary policy suggest that the policy impact on bank level credit growth was non linear and significantly larger when rate ceilings were in place bank size and capitalization mitigate these effects at the bank level short term interest rates exceeding the legally fixed deposit rate ceilings identify policy induced credit supply shifts that disappeared with deposit rate deregulation and thus weakened the bank lending channel substantially since the early 1980s

the effect of company campaigns on certification elections law and reality once again recent studies have challenged the conclusion getman goldberg and herman reached in their 1976 study that company campaigns have little if any effect on how workers vote in union certification elections this study attempts to reconcile these conflicting results by re analyzing data collected by getman goldberg and herman for their study the author estimates a probit model of voting that controls for several variables not considered in other studies he finds that employer threats and actions taken against union supporters some written communications and captive audience speeches all have statistically significant effects on voting election simulations based on the voting model also show that the effects of these employer tactics can be important in determining election outcomes

public sector earnings and the extent of unionization many studies have examined the influence of union density union members as a percentage of all workers on earnings in the private sector but few such studies have looked at the public sector using data from the 1991 current population survey this study estimates the determinants of earnings for state and local government employees in both the union and nonunion sectors the extent of public sector unionization appears to be positively correlated with earnings for both state and local government workers and for those covered and not covered by collective agreements although the effect for non covered employees is smaller than that for covered employees both effects are larger than those typically found in similar estimates for the private sector the authors also find that bargaining structure has some influence on earnings with the most consistent effect being a positive influence of arbitration on the earnings of local government workers

wage effects of increased union coverage methodological considerations and new evidence although many studies show a positive relationship between extent of unionization and union members wages some analysts suggest that this relationship could reflect a concentration of labor organization in industries with potentially high wage gains rather than unions efficacy in raising wages consistent with that speculation studies across occupations or geographic areas generally show a much weaker relationship between unionization and wages than do studies across industries the authors of this study argue however that the weakness of the relationship found in some empirical research is due to the use of data sets mixing local market industries characterized by local bargaining with national market industries characterized by national bargaining an empirical analysis supports this hypothesis wages are positively correlated with the extent of unionization in a local market industry supermarkets but not in a national market industry aerospace

investment incentives and corporate tax asymmetries abstract recent facts on the importance of corporate losses motivate more careful study of the impact of tax incentives for investment on firms that lose money i model firm investment decisions in a setting featuring financing constraints and carrybacks and carryforwards of operating losses i estimate investment responses to tax incentives allowing effects to vary with cash flows and taxable status results suggest that asymmetries in the corporate tax code could have made recent bonus depreciation tax incentives at most 4 less effective than they would have been if all firms were fully taxable cash flows have more important effects on the impact of tax incentives recent declines in cash flows would predict a 24 decrease in the effectiveness of bonus depreciation results thus suggest that tax incentives have the smallest impact on investment exactly when they are most likely to be put in place during downturns in economic activity when cash flows are low

the dynamic effects of tax law asymmetries under the laws of most countries a distinction is made between gains and losses by businesses losses that must be carried forward are subjept to two penalties a loss of interest and expiration previous examinations have focused on the higher expected tax payments such a tax system without full loss offset imposes on risky projects this paper presents a dynamic analysis of the impact of taxation on investment when gains and losses are treated asymmetrically the results demonstrate how firm characteristics and the timing of taxes can influence behaviour under current u s tax law a distinction is made between gains and losses by businesses for corporations gains are taxed at what is essentially a flat rate of 46 while losses do not necessarily qualify for a refund at the same rate to obtain an immediate refund the taxpayer must have had taxable income during the three previous years in excess of the current loss any losses that cannot be carried back in this fashion must be carried forward subject to two implicit penalties such loss carryforwards earn no interest and they expire after fifteen years similar provisions apply in other countries hence businesses investing in risky projects for which the probability of having to carry losses forward is positive can expect to pay higher taxes than they would under a system with full loss offset i e the immediate refund of taxes for losses incurred many corporations

credit crises money and contractions an historical view abstract the relatively infrequent nature of major credit distress events makes an historical approach particularly useful using a combination of historical narrative and econometric techniques we identify major periods of credit distress from 1875 to 2007 examine the extent to which credit distress arises as part of the transmission of monetary policy and document the subsequent effect on output using turning points defined by the harding pagan algorithm we identify and compare the timing duration amplitude and co movement of cycles in money credit and output regressions show that financial distress events exacerbate business cycle downturns both in the 19th and 20th centuries and that a confluence of such events makes recessions even worse

the effect of unionism on fringe benefits this study analyzes the impact of unionism on fringes paid to production workers using data on individual establishments it compares fringe expenditures in establishments having the same level of compensation per hour and finds that unionism raises the share of compensation allotted to fringes particularly to pensions vacation pay and life accident and health insurance in addition since unionism also raises the straight time wage rate itself a prime determinant of expenditures on fringes unionism has a very sizeable impact on total fringe expenditures as well as on the fringe share of compensation the union fringe effect exceeds in percentage terms the union wage effect and is sufficiently large to suggest that standard union wage studies understate the union effect on total compensation the study also compares the fringe expenditures of production and non production workers within the same establishment controlling for within establishment pay policies the findings suggest that the pres

tax incentives for business investment a primer for policy makers in developing countries abstract the use of tax incentives is widespread even though the available empirical evidence on the cost effectiveness of such incentives in stimulating investment is highly inconclusive this paper is primarily intended as a primer on the use of tax incentives for policy makers especially those in developing countries it discusses the objectives cost effectiveness and transparency of implementing tax incentives assesses the comparative merits of alternative forms of such incentives and provides a review of the empirical literature its main conclusions are that the justification for the use of tax incentives should be limited to the rectification of market failures and that the preferred form of tax incentives are those that provide for faster recovery of investment costs

fiscal policy profits and investment this paper evaluates the effects of fiscal policy on investment using a panel of oecd countries we find a sizeable negative effect of public spending and in particular of its wage component on profits and on business investment this result is consistent with different theoretical models in which government employment creates wage pressure for the private sector various types of taxes also have negative effects on profits but interestingly the effects of government spending on investment are larger than those of taxes our results can explain the so called non keynesian i e expansionary effects of fiscal adjustments jel e22 e62

taxation and the cost of capital the uk experience since the 1960s the uk has witnessed a series of reforms to its corporation tax system these include the creation of corporation tax as an independent tax in 1965 the gradual introduction of generous capital allowances in the early 1970s the introduction of the partial imputation system in 1973 and stock relief in 1975 and the 1984 reforms which reduced the tax rate and capital allowances and abolished stock relief a number of these reforms were designed with the specific intention of influencing company decisions regarding investment and finance through the real cost of capital

dynamic factor demands and the effects of energy price shocks a dynamic model is used to understand how sharp changes in energy prices affect investment behavior employment and energy use the authors discuss the theory behind their model selection model specifications estimation methods and data list parameter estimates and elasticities for the selected model and describe the simulations they conclude that 1 the data strongly reject the hypothesis of constant returns to scale within their specification of aggregate production 2 the data indicate adjustment costs on labor are small and 3 their results help reconcile some of the conflicting estimates of energy demand elasticities appearing in recent literature 23 references 3 figures 3 tables

a new econometric model of union threat effects the union threat effect is the propensity of non union employers to resist union organization by raising wages this study introduces an empirical model of the non union employer s optimal wage in the presence of threat effects estimates of an equation of a firm s unionization probability provide key variables unlike previous models this specification dervies directly from a theoritical model separstes threat effects from the influence of other union non union spillovers and efficiency wages and includes many factors affecting the probability of unionization wage equation estimates reveal that the predicted threat of unionization did not significantly raise non union wages in the united states in 1980

corporation tax finance and the cost of capital this paper examines the influence of corporate tax exhaustion on the firm s financial and investment decisions a dynamic programming model is used to establish effective marginal tax rates in the presence of a tax system that permits the carry forward of losses to future periods the paper demonstrates that internal optimal financial structures may result which do not require the imposition of external constraints the cost of capital is highly sensitive to the current taxable earnings of the firm and the implications of this for such tax transfer activities as leasing are discussed

monopolistic competition and the q theory of investment abstract in this paper we analyse the implications for q models of investment of replacing the assumption of perfect competition in the output market with the assumption of monopolistic competition the structural investment equation that can be derived in this case has a richer dynamic structure than the conventional one and it contains in addition to present and future q output as an explanatory variable in the applied section we discuss the extent to which monopolistic competition helps in providing a remedy for the empirical weaknesses of q models the estimates are obtained using aggregate data for u k industrial and commercial companies for the period 1951 1979

contraction and expansion the divergence of private sector and public sector unionism in the united states the institutional structure of the american labor market changed remarkably from the 1950s and 1960s to the 1980s in the 50s and 60s trade unions seemed permanently established in the private sector of the economy a third of nonagricultur al wage and salary workers and over half of blue collar workers were union members hundreds of thousands of workers voted annually in national labor relations board nlrb representation elections to join unions most large firms sought stable collective bargaining relations with their unions by contrast in the public sector only 10 12 percent of workers were union members fewer were covered by collective bargaining contracts and most experts regarded public employees as intrinsically nonorganizable according to afl cio president george meany it was impossible to bargain collectively with the government kramer 1962 p 14 the massive contraction of unionism in the private sector and expansion in the public sector in the 1970s and 1980s see exhibit 1 has produced an utterly different situation today in the private sector the proportion of wage and salary workers in unions plummeted to 14 percent in 1986 a level comparable to that in the great depression only a minuscule number of workers joined unions through nlrb elections and national companies openly proclaimed their intent to establish a union free environment by contrast in the public sector over a third of the work force was unionized some 40 percent were covered by collective contracts 1 and 1 estimates of organization in the public sector differ somewhat among sources though all data show greater organization than in the private sector see freeman ichniowski and zax forthcoming for a detailed analysis of the various statistics

dynamic factor demands under rational expectations we model the industrial demands for structures equipment and blue and white collar labor in a manner consistent with rational expectations and stochastic dynamic optimization in the presence of adjustment costs but allowing generality of functional form we represent the technology by a translog input requirement function that specifies the amount of blue collar labor needed to produce an output level given quantities of three quasi fixed factors nonproduction workers equipment and structures a complete description of the production structure is obtained by simultaneously estimating the input requirement function and three stochastic euler equations we find adjustment costs are small in total but large on the margin and differ considerably across factors

nominal and real union wage differentials and the effects of industry and smsa density 1973 83 many studies have examined the influence of union density union members as a percentage of all workers on earnings in the private sector but few such studies have looked at the public sector using data from the 1991 current population survey this

the shifting scully curve international evidence from 1871 to 2016 scully curves estimating growth maximizing public sector size are constructed using panel data covering 17 industrialized nations from 1870 2016 results suggest that government expenditure to gdp

corporate tax incentives and capital structure new evidence from uk firm level tax returns abstract we investigate how companies capital structure is affected by corporate income taxes using confidential company level tax returns for a large sample of uk firms exploiting variation in companies marginal tax rates we find a positive and substantial long run tax effect on leverage leverage responds more to decreases in the marginal tax rate and it responds to changes in the marginal rather than the average tax rate most importantly we find that the marginal tax rate based on tax returns has greater explanatory power for companies leverage than the marginal tax rate based on financial statements our study suggests that errors in the measurement for tax incentives using financial statements could lead to underestimation of the tax effects on capital structure

the synchronization of credit cycles abstract this paper proposes a simple econometric procedure to test for the synchronization of credit cycles using a century of data for 14 advanced economies we find that credit cycle synchronization dropped in the early 1920s from initially relatively high levels between the 1920s and the 1970s synchronization was overall low and concentrated within five predominantly regional clusters however synchronization has significantly increased in the post bretton woods era and has become less associated with geographic proximity australia denmark france italy japan norway spain switzerland the uk and the us form a single major credit cycle cluster since the 1970s a smaller cluster is formed by canada the netherlands and sweden while the german credit cycle follows a distinct path using logistic regressions we find that the synchronization of credit and business cycles go hand in hand our findings are especially relevant for the international coordination of macroprudential policy as well as to spur and inform further analysis on credit cycle dynamics

the banking panics in the united states in the 1930s some lessons for today in this paper we discuss the lessons learned from the us banking panics in the 1930s for the response by the federal reserve to the crisis of 2008 we revisit the debate over illiquidity versus insolvency in the banking crises of the 1930s and provide empirical evidence that the banking crises largely reflected illiquidity shocks in the recent crisis the fed under bernanke had well learned the lesson from the banking panics of the 1930s of conducting expansionary monetary policy to meet demands for liquidity however unlike in the 1930s the deeper problem of the recent crisis was not illiquidity but insolvency and especially the fear of insolvency of counterparties a number of virtually insolvent us banks deemed too big and too interconnected to fail were rescued by fiscal bail outs

credit reallocation deleveraging and financial crises this paper studies how the process of reallocation of credit across firms behaves before and after financial crises applying the methodology typically used for measuring job reallocation we track credit reallocation across korean firms for over three decades 1980 2012 the credit boom preceding the 1997 crisis featured a slowdown of credit reallocation after the crisis and the associated reforms the creditless recovery deleveraging masked a dramatic intensification and increased procyclicality of credit reallocation the findings suggest that the intensification of reallocation was efficiency enhancing

the relation between firm growth and q with multiple capital goods theory and evidence from panel data on japanese firms we derive from a model of investment with multiple capital goods a one to one relation between the growth rate of the capital aggregate and the stock market based q we estimate the growth q relation using a panel of japanese manufacturing firms taking into account the endogeneity of q identification is achieved by combining the theoretical structure of the q model and an assumed serial correlation structure of the technology shock which is the error term in the growth q equation for early years of our sample cash flow has significant explanatory power over and above q the significance of cash flow disappears for more recent years for the heavy industry when japanese capital markets was liberalized the estimated q coefficient implies that the adjustment cost is less than a half of gross profits net of the adjustment cost

a theory of the firm with non binding employment contracts this paper examines an employment relation in which individual workers enjoy some bargaining power vis a vis the firm although they are not unionized the main elements of the situations studied here are that the employment contracts are non binding across periods of production and that the firm has opportunities to replace workers the paper analyzes a dynamic model in which the processes of contracting and recontracting between the firm and its workers are intertwined with the dynamic evolution of the firm s workforce the analysis of the model is somewhat complicated because the employment level is a nondegenerate state variable that evolves over time and is affected by past decisions the main analytical results characterize certain important equilibria the profit maximizing and stationa ry equilibria the unique stationary equilibrium is markedly inefficient it exhibits inefficient over employment and the steady state wages coincide with the workers reservation wage it confirms earlier results derived by stole and zwiebel 1996a b in the context of a static model and shows that they are very robust even when the firm has nearly frictionless hiring opportunities in contrast in the profit maximizing equilibrium the outcome is nearly efficient and the wage exhibits a mark up over the reservation wage

unions and the labor market status of white and minority youth this paper presents data showing that unions have a very substantial effect on the wages of young union workers particularly young blacks but that they also have a negative effect on the wages of young blacks who are not unionized the effects of unions on employment are negative for both groups and especially for blacks in addition the data indicate that young blacks within the labor force have union membership rates that are roughly comparable to those of young whites but rates for young blacks are lower after accounting for differences in the rate of labor force participation of young blacks and whites young blacks also continue to be underrepresented in strongly unionized crafts and in the construction industry while being overrepresented in the weakly organized and low wage service sector these results suggest the need to improve further the access of blacks to unionized employment

a multisectorial matching model of unions abstract we develop an equilibrium matching model where unions have an important institutional presence monopolistic competition characterizes the goods market where only some sectors are unionized thus the model can vary the coverage of collective bargaining it can vary the degree of coordination between unions and alternatively consider national and sectorial unions calibration to the union premium implies a workers rent extraction parameter much lower than assumed in the matching literature we introduce unemployment insurance to study the interactions of policies with unions and find that unions only push for more generous benefits if this does not entail higher payroll taxes

why bank credit policies fluctuate a theory and some evidence in a rational profit maximizing world banks should msdntain a credit policy of lending if and only if borrowers have positive net present value projects why then are changes in credit policy seemingly correlated with changes in the condition of those demanding credit this paper argues that rational bank managers with short horizons will set credit policies that influence and are influenced by other banks and demand side conditions this leads to a theory of low frequency business cycles driven by bank credit policies evidence from the banking crisis in new england in the early 1990s is consistent with the assumptions and predictions of the theory

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

what determines output losses after banking crises abstract we examine the output costs associated with 150 banking crises using cross country data for years after 1970 many banking crises do not lead to contractions and most banking crises do not lead to large contractions a result that holds for developed and developing economies we examine which variables help to predict output changes after a banking crisis using bayesian model averaging for developed economies we find that the output losses are positively related to prior economic conditions such as credit growth for low income economies we find that other factors such as having a stock market and deposit insurance are more important

union membership determination and industry characteristics recent literature on the economics of unionism has expanded beyond its customary focus on the wage and nonwage effects of collective bargaining and given increased attention to the determinants of union membership previous union membership studies have been couched primarily within an individual choice framework whereby utility maximizing individuals choose either to join or not to join a union empirical work typically treats membership as a function of some vector of personal characteristics 1 2 10 11 21 it is our contention that such studies can best be interpreted as explaining the determination of the union status of jobs and that several industry and firm characteristics in addition to personal characteristics can be expected to affect significantly union membership in this paper theory and evidence relating to the effects of firm and industry characteristics on union membership are presented industry level data are bridged with a large microdata set containing individual characteristics in order to examine the determinants of unionism among workers in manufacturing utilizing a simultaneous model and controlling for sample selection bias we find that product market concentration capital intensity establishment size and job risk significantly affect the likelihood of union membership

the impact of the threat of bankruptcy on the structure of compensation this article builds and tests a model of the impact of a firm s bank ruptcy probability on its propensity to offer deferred compensation schemes using 1983 current population survey data we find that ceteris paribus lower failure rates raise the incidence of pensions for nonunion workers outside manufacturing further we find some evidence that among those workers with a pension a higher industry failure rate steepens tenure earnings profiles jointly controlling for union nonunion and pension no pension selectivity such a result suggests that workers discount implicit promises of future earnings increases by the likelihood that the firm will not survive