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

intertemporal substitution taste shocks and cointegration abstract the intertemporal elasticity of substitution is estimated by cointegrating regressions for the u s a the u k switzerland and west germany the results of this approach which is robust with respect to stationary taste shocks indicate a substantial extent of intertemporal substitution

a note on dynamic tax incidence under certain reasonable conditions for a growth model the path of adjustment between steady states generated by a change in an exogenous policy variable is solved for explicitly the overall welfare effect is then shown to be a weighted average of the short and long run effects for a large class of social welfare functions these results are applied to a simple neoclassical growth model for the purpose of investigating the dynamic incidence of a labor income tax contrary to the claims of previous investigators the long run effect is shown to be more important for a wide range of parameter values

differences between continuous and discrete contingent value estimates in a split sample contingent valuation study of willingness to pay wtp for food safety improvements the dichotomous choice dc elicitation method consistently generated much larger estimates of wtp than did a continuous method little or none of these differences was due to bias introduced by the statistical techniques used with the dc data most or all of the difference was due to differences in respondent behavior in addition the continuous wtp responses showed a significant scope effect while the dc responses did not the observed difference in behavior may be attributable in part to yea saying by dc respondents

separability partial demand systems and consumer s surplus measures abstract in practice complete demand systems are not estimated rather either an incomplete demand system is estimated or separability is invoked and a partial demand system is estimated this paper considers the relationship between the conventional compensating variation equivalent variation and the corresponding welfare measure that can be derived from a partial demand system and the current budget allocation to the separable group even assuming the separability assumption invoked is appropriate these partial measures provide in general only a limited amount of information about the compensating variation and no information about the equivalent variation great care is therefore needed when using partial welfare measures to evaluate policy

welfare analysis and intertemporal substitution abstract this paper explores the structure of welfare comparisons when direct utility is weakly separable over time the lifetime welfare effect of a reform is then the sum of atemporal hicksian variations and intertemporal variations reflecting intertemporal substitution these latter are shown to be of only second order importance in lifetime welfare comparisons approximations to the intertemporal variations when preferences are intertemporally additive are derived pointing to the welfare significance in this context of not only the intertemporal elasticity of substitution but also within period income effects numerical examples illustrate the analysis and suggest possible orders of magnitude

linkages among energy price exchange rates and stock markets evidence from emerging african economies this study examines the dynamic links among oil prices foreign exchange rates and stock markets in emerging africa using recent 10 years data and var bekk garch forecasting framework we find evid

modeling returns and volatility transmission between oil price and us nigeria exchange rate article i nfo this paper models returns and volatility transmission between oil price op and us nigeria exchange rate exr consequently it provides five main innovations i it analyzes op and exr using the recently devel oped test by narayan and popp 2010 np which allows for two structural breaks in the data series ii it employs the narayan and liu 2011 nl garch unit root test to evaluate robustness of np test iii it con siders the newly developed var garch model to capture the spillover effects in the returns and volatility of op and exr iv it modifies the var garch model to account for structural breaks obtained from the np procedure and v using the results obtained from the var garch model it examines the optimal weights of holding oil and foreign exchange fx assets and also computes the hedging ratios in the presence of oil risk based on the np and nl tests it finds robust structural breaks that coincide with the period of global fi nancial crisis as well as period of fx crisis in nigeria also it establishes a bidirectional returns and spillover transmission between oil and fx markets finally its findings reveal evidence of hedging effectiveness involving oil and fx markets in nigeria and thus the inclusion of oil into a diversified portfolio of fx will improve its risk adjusted return performance

assessing the economic costs of a foot and mouth disease outbreak on brittany a dynamic computable general equilibrium analysis abstract outbreaks of animal diseases such as foot and mouth disease fmd are of great concern for agriculture in this paper we quantify the potential dynamic impacts of such a disease on brittany a french region with an important livestock sector in order to do this we develop a dynamic computable general equilibrium model that allows us to measure the impacts on the livestock sectors and downstream food industries we study the impacts of a fmd outbreak including the culling infected animals a temporary decline in demand and restrictions on movements of live animals and meats during the fmd outbreak period our results show that economic losses following this disease are spread over many periods even with a one time shock we also find that the impacts on the various primary sectors and downstream food sectors are quite different depending on their initial trade position our general equilibrium results show the great incidence of potential constraints affecting factor markets capital and wage constraints severely increase the aggregate costs of such disease these results challenge the definition of a simple efficient management policy for this disease

tax policy and consumer foresight a general equilibrium simulation study this paper presents a dynamic computational general equilibrium model in which expectations regarding future prices can be varied systematically the model is employed to evaluate how expectations influence the effect of long run tax policy changes under policies like a consumption tax that reduce rates of return over time individuals with perfect foresight save less than individuals with myopic beliefs this is because consumers with foresight are better able to anticipate the lower returns lower saving means that existing distortions due to capital taxes are not offset as much so that welfare gains are smaller under perfect foresight

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

sensitivity of willingness to pay estimates to bid design in dichotomous choice contingent valuation models this paper addresses the sensitivity of dichotomous choice contingent valuation method dc cvm based mean willingness to pay wtp estimates to the dc cvm sample design and to alternative measures of wtp this issue is examined both analytically and empirically the analysis of ten different dc cvm data sets revealed a sensitivity in estimated mean wtp to the sample design and to the measure chosen to calculate mean wtp

welfare analysis of tax reforms using household data abstract this paper discusses a methodology for calculating the distribution of gains and losses from a policy change using data for a large sample of households estimates are based on the equivalent income function which is money metric utility defined over observable variables this enables calculations to be standardised and a computer program to compute the statistics presented in the paper is available for a general demand system equivalent income is related to measures of deadweight loss and standard errors are computed for each of the welfare measures an application to u k data for 5 895 households is given which simulates a reform that involves eliminating housing subsidies

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

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement

the effect of distance on willingness to pay values a case study of wetlands and salmon in california most contingent valuation studies in the literature utilized a pre determined geographic market area for their sample frame in other words they did not include variables that would measure the extent of the geographic areas over which to aggregate willingness to pay these studies implicitly assumed that the effects of geographic distance were moot an assumption that could have led to an understatement of the aggregate benefit values computed in these studies the overall goal of this study was to determine if distance affects willingness to pay for public goods with large non use values the data used came from a contingent valuation study regarding the san joaquin valley ca respondents were asked about their willingness to pay wtp for three proposed programs designed to reduce various environmental problems in the valley a logit model was used to examine the effects of geographic distance on respondents willingness to pay for each of the three programs results indicate that distance affected wtp for two of the three programs wetlands habitat and wildlife and the wildlife contamination control programs we calculate the underestimate in benefits if the geographic extent of the public good market is arbitrarily limited to one political jurisdiction

marginal cost of public funds for different tax instruments and government expenditures the marginal cost of public funds that is the size of the direct and indirect excess burden costs for marginal tax revenues is examined in this paper for an open economy with a savings response and using swedish 1979 data the marginal cost of public funds spent on transfer payments is estimated to vary from 1 47 for a distributionally neutral tax on labor and capital to 7 20 for a more progressive tax where average and marginal labor taxes increase by the same rates for changes in the most important tax instrument the marginal cost of public funds varies from 0 98 for expenditures on infrastructure to 2 27 for transfer payments

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

dynamic inconsistency in valuing environmental goods abstract intertemporal tradeoffs continue to intrigue both academics and policy makers this paper explores patterns of dynamic inconsistency in valuing environmental goods we develop a model that predicts an individual will value extended access to an environmental good less than avoiding delayed access if time and money are complementary this value disparity results in a low marginal rate of time preference for avoiding delayed access and a high rate for acquiring extended access using the contingent valuation method we find behavior partially consistent with predictions marginal rates of time preference are highly situation and individual specific

oil prices and real exchange rates in this paper we investigate the long run relationship between real oil prices and real exchange rates by using a monthly panel of g7 countries from 1972 1 to 2005 10 we first test whether exchange rates are cointegrated with real oil prices it is shown that real oil prices may have been the dominant source of real exchange rate movements and that there is a link between real oil prices and real exchange rates we then examine the ability of real oil prices to forecast future real exchange returns panel predictive regression estimates suggest that real oil prices have significant forecasting power the out of sample prediction performances demonstrate greater predictability over longer horizons

contemporaneous and intertemporal child costs equivalent expenditure vs equivalent income scales abstract parents may provide for their children by drawing on savings or borrowing as well as by reducing current consumption this means that child costs may be partly paid from reducing consumption in periods when the children themselves are not in the family static comparisons of consumption costs between households with and without children are therefore affected by the extent to which parents are willing and able to meet child costs through intertemporal transfers this paper analyses the implications of this argument for the estimation of adult equivalent scales and provides empirical illustrations using individual household data

the intertemporal substitution model of labour market fluctuations an empirical analysis the paper uses two approaches to study whether aggregate fluctuations in employment and unemployment may be explained within a market clearing framework as intertemporal substitution in labour supply first log linear equations for labour supply and unemployment are estimated using a forecasting model to measure wage and price expectations second a utility function is used to derive and estimate an equation for labour supply as a function of the current real wage and consumption the influence of expected future real wages and interest rates is captured by the consumption variable the empirical results do not support the intertemporal substitution model

modeling oil price us stock nexus a varma bekk agarch approach abstract this study adds to the existing literature on oil price us stock nexus in three ways first it employs the varma agarch model developed by mcaleer et al 2009 within the context of bekk framework using west texas intermediate wti and brent as proxies for oil market and s p stocks as a proxy for us stock market secondly it modifies the model to include endogenously determined structural break using the general structure for analyzing breaks with unit roots in perron 2006 third it uses the adopted model to compute optimal portfolio weight and hedge ratios between oil price and us stocks using different sample data based on the break date on average our empirical evidence suggests a significant positive return spillover from us stock market to oil market and bi directional shock spillovers between the two markets in addition there is significant own asymmetric shock effect in both markets while volatility spillover from oil market to stock market became pronounced after the break which coincides with the period of global economic slowdown similarly the results of portfolio management differ across the sample data more importantly we find that ignoring structural break when it exists may exaggerate hedging effectiveness

oil price shocks and stock market returns evidence for some european countries abstract in this paper we examine the impact of oil price shocks on stock returns in 12 oil importing european economies using vector autoregressive var and vector error correction models vecm for the period 1973 02 2011 12 we propose an alternative oil price shock specification that takes into account both world oil production and world oil prices in order to disentangle oil supply and oil demand shocks we find that the response of the european real stock returns to an oil price shock may differ greatly depending on the underlying causes of the oil price change the results suggest the existence of a negative and significant impact of oil price changes on most european stock market returns furthermore we find that stock market returns are mostly driven by oil supply shocks

tax reform and external balance abstract this paper examines the effect of a transformation from capital taxation to consumption in an open economy with the residential capital tax rate being endogenous an increase in the domestic consumption tax rate decreases the interest rate increases capital accumulation and increases the domestic country s net foreign asset holdings and trade surplus with the territorial capital tax rate being endogenous an increase in the domestic consumption tax rate may either increase or decrease the domestic country s interest rate net foreign asset holdings and trade surplus depending on the interest elasticity of capital demand

the indexation of interest depreciation and capital gains and tax reform in the united states abstract the treasury s 1984 tax plan suggests features of a comprehensive income tax including the indexation of interest depreciation and capital gains the 1985 president s proposal retains some of these indexing provisions but the tax reform act of 1986 does not this paper looks at the incentives under these tax regimes to make marginal investments in the corporate sector noncorporate sector and owner occupied housing it finds that inflation in the old system caused effective tax rates to rise for some assets and fall for others under the treasury or president s proposals the interference of inflation is virtually eliminated also the effects of inflation are substantially reduced by the 1986 act because mismeasured depreciation and interest deductions are taken at much lower rates

economic growth and the demand for education is there a wealth effect abstract human capital investment in developing countries is thought to be significantly constrained by household resources this paper studies the relationship between household resources and the demand for education using recent household survey data from vietnam the data cover a period 1993 1998 of exceptional income growth in vietnam during which secondary school enrollment rose substantially using consumption expenditures to measure household wealth we find a positive and significant relationship between changes in wealth and changes in the demand for education this wealth effect persists even after controlling for locality specific factors such as changes in education returns and the supply and quality of schools and for the opportunity costs of schooling

oil price fluctuations and u s dollar exchange rates adding oil prices to the monetary model of exchange rates we find that oil prices significantly explain movements in the value of the u s dollar usd against major currencies from the 1970s to 2008 our long run and forecasting results are remarkably consistent with an oil exchange rate relationship increases in real oil prices lead to a significant depreciation of the usd against net oil exporter currencies such as canada mexico and russia on the other hand the currencies of oil importers such as japan depreciate relative to the usd when the real oil price goes up

reconsidering heterogeneity and aggregation issues in environmental valuation a multi attribute approach the economic valuation of complex environmental goods composed of multiple attributes is an expanding field of research in ecological and environmental economics however several issues are still subjects of debate this paper focuses on three of them the linearity of the valuation function in the attributes aggregation criteria for obtaining social values and the heterogeneity of individuals utility functions a methodological approach based on multi attribute utility theory which enables us to contrast the impact of these concerns on the valuation of environmental goods is proposed we employ the methodology to value a protected natural area and from the results obtained we can conclude that the non linearity and the heterogeneity of the individual utility function are relevant aspects of environmental valuation that need to be taken into account when valuing environmental goods

saving pension contributions and the real interest rate a test of the hypothesis that estimates of the interest elasticity of personal and private saving may be biased downward by a failure to control for behavior related to defined benefit pension programs fails to reject existence of a positive interest elasticity of private saving correcting for pension funding bias the estimated interest elasticity of private saving is 0 04 well below michael j boskin s 1978 estimate of 0 4 obtained with a different data set and different estimation procedures the estimated interest elasticity of personal saving is 0 28 copyright 1989 by mit press

credit constraints and the labour supply of immigrant families in canada the hours of work decisions in immigrant and nonimmigrant families are compared using an intertemporal labor supply model estimated over data from the 1981 and 1991 census of canada surveys the family investment hypothesis is evaluated the hypothesis states that the immigrant family is unable to borrow in the first years after migration and that the immigrant wife responds by working longer hours so as to support family consumption and her husband s labor market adjustment the empirical evidence in general supports the hypothesis since credit constraints are found to significantly distort the labor supply decisions of recently arrived immigrant families

the contingent valuation debate why economists should care t he contingent valuation method involves the use of sample surveys questionnaires to elicit the willingness of respondents to pay for generally hypothetical projects or programs the name of the method refers to the fact that the values revealed by respondents are contingent upon the constructed or simulated market presented in the survey a spirited and occasionally mean spirited battle over such methods is currently being waged involving competing factions within the federal government economists and lawyers representing business and environmental groups and interested academics as well at issue is a seemingly quite specific question should environmental regulations currently under development at both the department of the interior and the department of commerce sanction the use of the contingent valuation method in estimating the damage done by spills of oil chemicals or other substances covered by federal law more generally the debate raises broad questions about what economists have to say about the values that individuals place on public or private goods the two papers that follow this one make cases for and against the use of the contingent valuation method my aim here is to provide an overview of the technique and the debate surrounding it i also want to suggest why this debate should matter to economists both professionally and in their roles as citizens and consumers

fat tails and truncated bids in contingent valuation an application to an endangered shorebird species a yes response function in a contingent valuation study is said to have fat tails if it has a high and slowly declining yes response rate at high bid levels truncated bids refer to the practice of dropping high bid offers before a yes response rate of near zero is reached this is a common practice in contingent valuation we explore the extent and implications of fat tails and truncated bids in a study of an endangered shorebird species we find among other things that mean willingness to pay is quite sensitive to the highest bid offered so much so that the choice of highest bid nearly dictates outcomes

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

life cycle expenditure allocations and the consumption costs of children abstract in this paper we assess whether it is changing needs or intertemporal substitution that dominate household expenditure responses to the presence of children over the life cycle we construct lifetime expenditure paths for households with different demographic profiles and consider the shape of these paths and some possible implications for welfare measures simulated expenditure paths based on consistent single period and multi period models indicate that it is indeed changing needs that dominate such paths in periods when children are present in the household however allowing for intertemporal substitution is still shown to be important since it can introduce new information relevant to the calculation of household welfare

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

long run equilibrium real exchange rates and oil prices abstract using cointegration and causality tests this paper demonstrates that the nonstationary behavior of us dollar real exchange rates over the post bretton woods era is due to the nonstationary behavior of real oil prices

semiparametric estimation of lifetime equivalence scales pashardes 1991 and banks et al 1994 use parametric methods to estimate lifetime equivalence scales their approaches put parametric restrictions on the differences in within period expenditure needs across household types the intertemporal allocation of expenditure and the shapes of commodity demand equations this paper puts parametric structure only on the differences in within period expenditure needs across household types this implies structure on the intertemporal allocation of expenditure but leaves the shapes of commodity demand equations unrestricted semiparametric methods are used to estimate within period and lifetime equivalence scales with canadian expenditure data and to test the restrictions imposed on within period expenditure functions estimated lifetime equivalence scales are similar in size to those estimated by banks et al 1994 and exhibit equal lifetime costs for first and second children copyright 2005 john wiley sons ltd

stock prices and the effective exchange rate of the dollar the literature on the relation between stock prices and exchange rates is very poor and includes few studies that have argued that exchange rate changes do effect stock prices by relying on the portfolio approach to exchange rate determination it is argued that a change in stock prices could also have an impact on exchange rates i e there could be a two way relationship between exchange rates and stock prices granger concept of causality as well as cointegration technique are employed to support this conjecture the empirical results show that there is bidirectional causality between stock prices measured by s p 500 index and the effective exchange rate of the dollar at least in the short run the cointegration analysis reveals that there is no long run relationship between two variables

the costs of using frisch demand functions that are additive in the marginal utility of expenditure abstract we outline the implicit restrictions involved in using frisch demand functions that are additive in the marginal utility of expenditure

using contingent pricing analysis to value open space and its duration at residential locations to estimate benefits from open space adjacent to residences this paper blends contingent valuation and conjoint analysis within a housing market context the resulting framework contingent pricing analysis represents the stated preference counterpart to hedonic pricing analysis by asking individuals to state prices for hypothetical housing locations which include an environmental amenity then it asks individuals to state their willingness to pay for a better and longer lasting environmental amenity as an advantage over hedonic pricing analysis it directly isolates willingness to pay results indicate that potentially short lasting open space adds no value while preserved open space adds 5 066 or 5 to housing value

the effect of part time work on wages evidence from the social security rules this article identifies the part time wage effect using hours variation caused by the social security rules we show that work hours and wages drop sharply at ages 62 and 65 we argue that the hours decline causes the wage decline resulting in a 25 wage penalty for men who cut their work week from 40 to 20 hours however we find little evidence for such an effect among women we also show that models that fail to account for the joint determination of hours and wages will understate the labor supply response to a tax change by about 26

spike models in contingent valuation spike models allow for a nonzero probability of zero willingness to pay in referendum style contingent valuation experiments they include many of the often used models as special cases and allow various analyses that are not possible in standard applications in this paper the economic rationale for the spike models and their estimation techniques are discussed and empirical illustrations are provided one study suggests that mean willingness to pay is zero and both studies strongly suggest that median wtp is zero these results have some bearing on the continuing debate of the incentive properties of hypothetical surveys and the construction of scenarios in contingent valuation experiments

intertemporal substitution in labor supply evidence from micro data the sensitivity of the supply of labor to intertemporal variation in the wage is an important issue in macroeconomics the analysis of social security and pensions and the study of life cycle patterns of work this paper explores two approaches to the measurement of intertemporal substitution that have appeared in the literature the first approach is to use consumption to control for wealth and unobserved expectations about future wages in the labor supply equation the second approach is to estimate a first difference equation for hours in which labor supply from the previous period serves as a control for wealth and wage expectations the results indicate that intertemporal substitution elasticity for married men is positive but small

consumption inequality and income uncertainty this paper places the debate over using consumption or income in studies of inequality growth in a formal intertemporal setting it highlights the importance of permanent and transitory income uncertainty in the evaluation of growth in consumption inequality we derive conditions under which the growth of variances and covariances of income and consumption can be used to separately identify the growth in the variance of permanent and transitory income shocks household data from britain for the period 1968 1992 are used to show a strong growth in transitory inequality toward the end of this period while younger cohorts are shown to face significantly higher levels of permanent inequality

valuation of tropical rainforests philosophical and practical issues in the use of contingent valuation abstract this paper explores the possibility of using a large scale multi country contingent valuation study for making decisions concerning global resources in the specific context of valuing a large set of tropical rainforests before considering the practical issues involved in implementing such a study the paper addresses philosophical issues related to the use of contingent valuation including the role of passive use motives such as altruism and the role of information the implications of empirically based criticisms which argue that contingent valuation results are unreliable are also considered the main portion of the paper sketches the practical difficulties likely to be encountered in actually implementing a large contingent valuation study in multiple countries which seeks to value a common set of tropical rainforests some key study design choices are discussed

consumer s surplus and welfare change in a simple dynamic model la somme escomptee d equivalents instantanes ou les variations compensees n est jamais un indicateur du bien etre economique exact pour un consommateur dont les preferences sont representees par une fonction utilite inter temporelle croissant

a general equilibrium model of housing taxes and portfolio choice we describe a model in which rental and owner housing are risky assets tenure choice is endogenous and each household is constrained to consume the same amount of owner housing that it has in its investment portfolio at each iteration in the search for an equilibrium we determine the new taxable income for each of 3 578 households from the survey of consumer finances and we use statutory schedules to find the marginal rate and tax paid equilibrium net rates of return are major determinants of the amount of owner housing but a logit model indicates that demographic factors are the main determinants of ownership rates in our simulation taxes on owner housing would raise welfare not only by reallocating capital but also by the government s taking part of the risk from individual properties and diversifying it away measures to disallow property tax or mortgage interest deductions do not help share this risk simulations of the 1986 tax reform indicate a small shift from rental to owner housing and

a two season agricultural household model of output and price uncertainty abstract this paper presents a two season model of a household s production consumption labor supply and storage decisions in an environment of output and price risk the analytical results in this study are markedly different from those of models prevalent in the mainstream of the agricultural household literature the empirical analysis that uses panel data from a village in india provides support for the theoretical results and underscores the seasonal dimension of the farmers choice problems the results also show that ignoring risk or risk averse preferences may introduce substantial downward bias in optimal response estimates

a simple model of endogenous tax reform abstract this paper presents a model of optimal taxation that is useful for understanding governments incentives to switch from wage to consumption taxation the key ingredient is the fact that governments cannot precommit policy although under precommitment governments would tax only wages there is an ex post incentive to switch to the consumption tax as savings grow numerical examples for a nested ces utility function find that for reasonable parameter values equilibrium features a switch to consumption taxation in particular the model produces this tax reform when parameterized as in auerbach and kotlikoff s 1987 study

consumption beyond certainty equivalence this paper discusses the recent research on the consumption function that has attempted to relax the assumption of certainty equivalence while there remain many open questions both theoretical and empirical it is clear that the assumption of certainty equivalence can be misleading under more plausible specifications of preferences toward risk uncertainty lowers the level of consumption increases the expected rate of growth of consumption and increases the response of consumption to news about income moreover changes in the amount of uncertainty are a potentially important source of fluctuations in consumption this abstract was borrowed from another version of this item

inverse demand systems and welfare measurement in quantity space most studies of welfare or cost benefit analyses are concerned with the welfare effects of price changes 11 19 27 33 50 there are however many situations in which policy options are directly related to quantity changes the welfare effects of price changes are analyzed with the traditional demand system in which commodity quantities are determined as functions of their prices the welfare effects of quantity changes on the other hand are associated with the inverse demand system in which commodity prices are dependent on their quantities in conventional welfare analysis of price change prices are taken to be exogenous or predetermined while quantities are endogenous in contrast in welfare analysis of quantity changes quantities are exogenous while prices are endogenous price based or dual welfare measures are relevant when there are well functioning competitive markets and quantities are fully adjusted to changes in prices on the other hand quantity based or primal welfare measures are useful in situations where there are constraints on commodity quantities or when transaction costs impede consumers from fully adjusting to changes in prices the choice between priceand quantity based welfare measures is empirical and proper measurement of welfare effects requires the knowledge as to which variable price or quantity is the exogenous one for individual consumers it may be reasonable to assume that the supply of commodities is perfectly elastic and therefore prices can be taken as exogenous but this assumption may not be tenable for consumers in the aggregate or if highly aggregated economy wide data are used to estimate demand relations at the aggregate level quantities are more properly viewed as exogenous than are prices although individual consumers make their consumption decisions based on given prices the quantities of commodities are predetermined by production at the market level and prices must adjust so that the available quantities are consumed 28 1 2

replacing the u s income tax with a progressive consumption tax a sequenced general equilibrium approach abstract this paper examines the welfare consequences of changing the current u s income tax system to a progressive consumption tax we compute a sequence of single period equilibria in which savings decisions depend on the expected future return to capital in the presence of existing income taxes the u s economy is assumed to lie on a balanced growth path with the change to a consumption tax individuals save more and initially consume less as the capital stock grows consumption eventually overtakes that of the original path and the economy approaches the new balanced growth path with higher consumption and a greater capital stock both the transition and the balanced growth paths enter our welfare evaluations we find the discounted present value of the stream of net gains is approximately 650 billion in 1973 dollars just over 1 percent of the discounted present value of national income larger gains occur if further reform of capital income taxation accompanies the change we examine the sensitivity of the results both to the design of the consumption tax and to the values of elasticity and other parameters the paper also contains estimates of the time required to adjust from one growth path to the other

tax treatment of housing in a dynamic sequenced general equilibrium model this paper evaluates the efliciency effects of possible changes in the tax treatment of housing using a dynamic sequenced general equilibrium model based on canadian data for 1972 our model is similar in structure to that used by fullerton shoven and whalley fsw 1983 to analyze the impacts of a switch to a consumption tax in the united states except that we include two assets rather than one the motivation for the paper arises from existing literature on the treatment of housing under the income tax most of this literature emphasizes the non taxation of imputed income from owner occupied housing as a deviation from the haig simons concept of income and approaches taxation of housing as a static resource allocation issue this implicitly argues for the inclusion of imputed income in the income tax base and suggests that a welfare gain would result when viewed from a dynamic perspective one s perception of the appropriate tax treatment for housing correspondingly changes evaluated relative to a pure consumption tax rather than a pure income tax housing is appropriately treated if imputed income goes untaxed since the income stream to the asset is not further taxed once the asset has been purchased the intertemporal misallocation problem arises not with housing but from taxation of non housing capital income this issue is however more complex than this discussion indicates because of inter asset distortions arising from the differential tax treatment of housing

tax policy and economic growth lessons from the 1980s the past seven years of u s economic policy and performance constitute a truly remarkable if confusing experiment few would have guessed in 1980 that inflation would fall rapidly to 4 percent and hold pretty steady during a lengthy recovery that productivity growth would partially rebound the national debt more than double capital imports reach 150 billion in a single year or that employment would continue to expand at rates envied by other advanced economies perhaps fewer still would have predicted two major and two minor tax reforms would be passed in six years a flip flop in depreciation schedules and a top personal tax rate below 30 percent while it is always easier to draw inferences concerning economic growth its determinants and policies affecting the determinants with long historical hindsight this paper will attempt to provide information evaluation and conjecture to draw some tentative lessons about the effects of tax policies in the 1980s on long run economic growth the good news from the 1980s is the remarkable achievement of substantially lower marginal tax rates making the government a much smaller silent partner in many economic decisions for example the tax advantage of debt finance is reduced substantially with the much lower marginal tax rates the bad news is that the nation could not afford all of the good news the very large budget deficits add to the instability in the tax code in addition to whatever other problems they cause moreover in a country with the lowest saving and investment rates in the advanced world the consequence of which may be to decrease our long run growth potential and short run trade competitiveness the remaining anti saving and investment features of our tax law while probably less important in the long run than the u s

oil prices and exchange rates the quotations show a sharply divergent pattern in the response of the foreign exchange market to announcements of oil price increases during the first oil shock news about oil price rises led to a strengthening of the dollar whereas during the i979 surge of oil prices the reverse was generally true when the news was not so bad as feared the dollar fell back in i974 but rose in i979 in 1980 the pattern shifted once again back to dollar appreciation is there a rational fundamental explanation for the behaviour of the foreign exchange market or is it a matter of traders responding to what other traders arbitrarily think it is difficult to resolve this question but some insight can be provided through an analytical examination of the relationship between oil price increases and exchange rates the paper begins with a theoretical framework for analysing the relation between oil prices and exchange rates and then uses the theory to explain the behaviour of the foreign exchange market

willingness to pay for environmental improvements in a large city evidence from the spike model and from a non parametric approach in this paper the contingent valuation method cvm is applied in order toestimate the social benefits of a set of environmental and urbanimprovements planned for the waterfront of the city of valencia spain asa consequence of the expansion and restructuring of its trading port asthe data show a high rate of zero responses we applied the spike model one of the most recent models in cvm literature since traditional models logit and probit are not suitable given the characteristics of our data the non parametric approach is also applied in order to test the validity ofthe spike model the results show certain similarities between the spikemodel and the non parametric approach

corporate tax integration in the united states a general equilibrium approach this paper presents estimates of static and dynamic general equilibrium resource allocation effects for four alternative plans for corporate and personal income tax integration in the united states a medium scale numerical general equilibrium model is used which integrates the u s tax system with consumer demand behavior by household and producer behavior by industry results indicate that total integration of personal and corporate taxes would yield an annual static efficiency gain of around 6 billion 1973 dollars partial integration plans yield less dynamic effects are larger and our analysis indicates that full integration may yield gains whose present value is as large as 500 billion or about 1 0 percent of the discounted present value of the gnp stream to the u s economy after correction for population growth plans differ in their distributional impacts although these findings depend on the nature of replacement taxes used to preserve government revenues the size of dynamic resource allocation effects is sensitive to the choice of the replacement tax while static gains are reasonably robust

the intertemporal allocation of expenditure on non durables services and durables this paper presents estimates of the parameters of a consumption function for u s quarterly seasonally unadjusted data on non durables services and durables the theoretical novelty in the approach we present is in the derivation of the consumption function from an underlying many goods allocation problem applying this model with an appropriate estimator to the data we find i the homogeneity restrictions suggested by theory are not rejected ii there is no evidence of excess sensitivity to income iii there is no evidence to suggest that agents cannot adjust their durable stocks as they would wish and iv the intertemporal substitution elasticity is not well determined

uncertain parameter values and the choice among policy options abstract we use a tax policy example to show how debate on the value of an elasticity parameter translates into a debate about policy choices to construct this example suppose that the choice among four particular tax reform options is based on a single measure of efficiency gain for each reform we show how the size of this gain depends upon the elasticity of saving with respect to the net rate of return moreover within quite narrow and reasonable bounds for the elasticity parameter we find regions in which each of three different tax reforms turns out to dominate the others

the value of online banking to small and medium sized enterprises evidence from firms operating in the uae free trade zones abstractthis study estimates the willingness to pay of small and medium sized enterprises smes for a business online banking services the estimation utilizes a contingent valuation method employing data from 400 smes in the united arab emirates free zones an interval regression model is used to identify company characteristics affecting wtp the results indicate an average wtp for online banking of 518 50 per month firms engaging in international trade value these services at least 10 more than those with only domestic operations other variables that significantly affect wtp include number of employees and the transportation cost of using traditional branch banking

addressing heterogeneous preferences using parametric extended spike models some public programs simultaneously provide a mix of non rejectable public goods and public bads consequently some individuals would pay for the program while others might instead need to becompensated in this paper we estimate twoparametric extended spike models that accountfor positive and negative preferences as wellas indifference for the public good weillustrate the models using data on valuationof prescribed burning of underbrush in forests which reduces the risk of catastrophicwildfires but also produces smoke emissions the public bad we compare the two empiricalapproaches to estimate willingness to pay wtp for the program and contrast these results withthose obtained from modeling specificationsthat only account for non negative preferences substantial differences in public net benefitswere found between the most flexible parametricextended spike model and the simple spike modelwhere negative responses were coded as zero anda standard binary logit of only positivebidders the results from the extended spikemodels demonstrated that accounting forindifference and negative values towards thepublic good resulted in substantially lowerwillingness to pay estimates

information bias in contingent valuation effects of personal relevance quality of information and motivational orientation abstract a laboratory experiment examined the potential for information bias in contingent valuation cv consistent with the view that information about a public or private good can function as a persuasive communication willingness to pay wtp was found to increase with the quality of arguments used to describe the good especially under conditions of high personal relevance under low personal relevance wtp for a public but not for a private good was higher when an altruistic as opposed to an individualistic orientation was activated it is concluded that the nature of the information provided in cv surveys can profoundly affect wtp estimates and that subtle contextual cues can seriously bias these estimates under conditions of low personal relevance

exploring welfare implications of resource equivalency analysis in natural resource damage assessments abstract resource equivalency analysis rea has become the dominant method for calculating natural resource damages for biological injuries from pollution incidents this methodology compares resources lost as a result of an incident to benefits that can be gained from a habitat or wildlife restoration project compensation is evaluated in terms of resource services instead of market currency recently this approach has been questioned regarding its ability to provide adequate compensation based on economic welfare principles the following paper examines these critiques and develops a model to quantify the welfare implications of using rea when some of its implicit assumptions are violated we focus on the situation where compensatory restoration projects provide services that are comparable to those lost as a result of an incident we examine simulation scenarios where the public has heterogeneous preferences for resources and where resource values change over time using the hicks kaldor criterion we find that the traditional rea provides an acceptable approximation of aggregate compensation for a reasonably wide range of economic and biological parameter combinations

modeling asymmetric comovements of asset returns existing time varying covariance models usually impose strong restrictions on how past shocks affect the forecasted covariance matrix in this article we compare the restrictions imposed by the four most popular multivariate garch models and introduce a set of robust conditional moment tests to detect misspecification we demonstrate that the choice of a multivariate volatility model can lead to substantially different conclusions in any application that involves forecasting dynamic covariance matrices like estimating the optimal hedge ratio or deriving the risk minimizing portfolio we therefore introduce a general model which nests these four models and their natural asymmetric extensions the new model is applied to study the dynamic relation between large and small firm returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies