a model on municipal water demand a case study of northeastern illinois the main aim of this paper is to quantify the impact of a rate structure which includes a free allowance on residential water consumption the analysis here differs from most previous research in that it explicitly recognizes that water consumption above

evidence on the varying effect of expected inflation on interest rates boskin michael j mark gertler and charles taylor the impact of inflation on u s productivity and international competitiveness washington d c national planning association 1980 carlton dennis w the disruptive effect of inflation on the organization of markets in robert e hall ed inflation causes and effects chicago the university of chicago press 1982 fama eugene short term interest rates as predictors of inflation american economic review 65 june 1975 269 282 freund william c and paul b manchester productivity and inflation in john d hogan ed dimensions of productivity research vol i houston american productivity center 1980 53 71 geweke john richard meese and warren t dent comparing alternative tests of causality in temporal systems analytic results and experimental evidence journal of econometrics 21 feb 1983 161 194 granger c w j investigating causal relations by econometric models and cross spectral methods econometrica 37 july 1969 424 438 guilkey david k and michael k salemi small sample properties of three tests for granger causal ordering in a bivariate stochastic system this review 64 nov 1982 668 680 houthakker hendrik s growth and inflation analysis by industry brookings papers on economic a ctivity 1979 241 256 hsiao cheng autoregressive modelling and money income causality detection journal of monetary economics 7 1981 85 106 autoregressive modeling and causal ordering of economic variables journal of economic dynamics and control 4 1982 243 259 jarrett j peter and jack g selody the productivity inflation nexus in canada 1963 1979 this review 64 aug 1982 361 367 kendrick john w and elliot s grossman productivity in the united states trends and cycles baltimore the johns hopkins university press 1980 sims christopher a money income and causality american economic review 62 sept 1972 540 552 u s department of commerce bureau of economic analysis the national income and product accounts of the united states 1929 76 statistical tables washington d c superintendent of documents 1981 u s department of labor bureau of labor statistics tables headed industry analytical ratios for the business sector all persons indexes 1977 100 and basic industry data for the business sector all persons printout dated april 27 1983

alcohol consumption and human capital a retrospective study of the literature grossman proposed an individual s health can be viewed as one aspect of their human capital following this line of thought a number of recent papers have reported a positive impact of alcohol consumption on earnings the rationale for the existence of such a relationship is the positive impact of alcohol on physical and mental health we conduct a meta analysis to determine whether such factors as the estimation technique the presence of ex drinkers in the sample possible sample selection bias and publication bias may all contribute to these findings an additional suggestion for the positive relationship between alcohol and wages is the presence of a common set of personality traits that determines drinking behaviour and also leads to higher earnings we examine this relationship by reviewing the literature that investigates if the personality influencing aspects of alcohol consumption influences measures of human capital we also survey the significant body of research that has examined how alcohol consumption has been found to influence educational outcomes and the work force participation of problem drinkers

interest rate policy taxation and risk abstract it is now an established orthodoxy that real interest rates should be positive raising the nominal interest rate above the rate of inflation however does not achieve a positive cost of borrowing if the interest cost of borrowing is tax deductible furthermore high rates of interest and inflation impose heavy risks on borrowers these points are illustrated with data from a sample of countries in eastern and southern africa they strengthen the case for preferring lower inflation to higher nominal interest rates as a way of making real interest rates positive

the morning after alcohol misuse and employment problems using a rich recent and nationally representative longitudinal survey specifically designed to examine alcohol use and associated problems we investigate the effects of alcohol misuse on a series of understudied and perhaps less common employment problems such problems include being fired or laid off from a job sustained unemployment and conflicts with a supervisor and or co worker after controlling for time invariant omitted variables via fixed effects estimation we find evidence that three measures of alcohol misuse are significantly related to employment problems the results offer new information on the potential adverse labour market effects of alcohol misuse and shed light on potential mechanisms through which alcohol misuse may impact intensive labour supply and or wages

can futures market data be used to understand the behavior of real interest rates this paper examines whether futures market data can be used to understand the behavior of real interest rates several ways of examining the data indicate that futures market data are not particularly informative about real interest rates not only does this evidence cast some doubt on results in previous research that make use of futures market data to draw inferences about real interest rates but it also indicates that future research on real interest rates may need to turn to a different line of attack understanding the behavior of real interest rates is a central issue in financial economics in previous research on this topic several approaches have been used to measure real interest rates in one approach real interest rates have been calculated by subtracting survey data on inflation expectations such as the livingston data from nominal interest rates the problem with survey based measures of real interest rates is that they are only as good as the survey measure of inflation expectations and there may be little incentive for the survey respondents to answer accurately an even more telling criticism of survey based measures often ignored in the literature is that the behavior of market expectations in driven by economic agents ai the margin who are eliminating unexploited profit opportunities market expectations are unlikely therefore to be well measured by the average expectations of survey respondents 2 because of doubts about survey based measures of real interest rates other

the effects of different taxes on risky and risk free investment and on the cost of capital this paper analyzes the major factors which determine the effects of taxation on the value of risky assets and on the cost of capital and shows how the magnitudes and even the signs of these effects depend on the values assumed for a few key parameters in the model using plausible values for these parameters it is shown that the results obtained are frequently counter intuitive

estimating residential water demand in the presence of free allowances the main aim of this paper is to quantify the impact of a rate structure which includes a free allowance on residential water consumption the analysis here differs from most previous research in that it explicitly recognizes that water consumption above the free allowance being sensitive to price responds less to social and climatic factors than consumption below the free allowance while the model specification and estimation procedures used here should be of interest to those interested in the demand for water the results using data for adelaide south australia on the determinants of water consumption should be of interest to water authorities

money output and the expected real interest rate this paper tests the exclusion of lagged growth rates of money and output from regression equations with serially correlated disturbances for the expected real interest rate the authors empirical approach is an extension of the empirical strategies of eugene f fama 1975 and frederic s mishkin 1981 which invoke the orthogonality of the inflation forecast error to predetermined regressors under the maintained hypothesis of rational expectations they discuss the implications of their tests for simple real business cycle models copyright 1991 by mit press

do drinkers earn less theoretical work by becker and others on human capital led initially to empirical research on the determinates of earnings interest in human capital has now spread to other areas especially health this movement is in conjunction with societal concerns regarding the role of diet and environmental factors on human well being and performance following becker 1 and grossman 9 economists expect to find a significant relationship between health and earnings health aspects of human capital have been extensively explored since the early work of grossman 9 10 good health is both beyond the control of the individual exogenous as a result of genetic factors and random events and controllable endogenous through the regulation of activities such as smoking drinking eating exercise and other informed choices this study examines the relation between earnings and drinking curiously little rigorous empirical work has been done on the relation between earnings and drinking irving fisher s claim to the contrary 1 there is little evidence that prohibition led to substantial if any productivity increases although it is established that excessive drinking leads to poor health the empirical evidence regarding earnings and drinking is mixed and inconclusive according to the u s government abusive drinkers earn less in their biennial reports to congress the national institute on alcohol abuse and alcoholism niaaa estimates the economic cost to society of alcohol abuse approximately half of this cost arises from the estimated loss in earnings productivity due to abusive drinking 2 their approach consists of estimating a wage equation which includes human capital variables as well as a dichotomous abusive drinking variable and quantity of alcohol consumed 3 berger and leigh 3 used a sample selection model to test whether drinkers earned more or less than nondrinkers they divided their sample from the 1972 73 quality of employment survey into two categories drinkers and nondrinkers using a sample selection correction estimator hedonic wage regressions for each category and by sex were estimated they found that drinkers moderate and abusive combined earned more than nondrinkers comparisons were then made between wages from each regression with demographic and human capital variables set at

drinking and academic performance in high school i investigate the extent to which negative alcohol use coefficients in grade point average regressions reflect unobserved heterogeneity rather than direct effects of drinking using 2001 and 2003 youth risk behaviour survey data on high school students results illustrate that omitted factors are quite important drinking coefficient magnitudes fall substantially in regressions that control for risk and time preference mental health self esteem and consumption of other addictive substances moreover the impact of binge drinking is negligible for students who are less risk averse heavily discount the future or use other drugs however effects that remain significant after accounting for unobserved heterogeneity and are relatively large for risk averse future oriented and drug free students suggest that binge drinking might slightly worsen academic performance consistent with this the relationship between grades and drinking without binging is small and insignificant on the extensive margin and posi

government deficits capital flows and interest rates 1988 government deficits capital flows and interest rates applied economics vol 20 no 6 pp 753 765

a study of economists consensus forecasts this study examines the ability of economists to forecast ten major economic series the data for this study were provided by j a livingston of the philadelphia inquirer who since 1947 has collected forecasts for the upcoming 6 and 12 months the results reveal that in general for the period from 1947 through 1978 the economists in livingston s sample did not produce efficient forecasts and were not able to outperform simple statistical models it should be noted however that a substantial and consistent improvement in forecasting performance by economists in livingston s sample did occur over this same period these results contain important information for managers who use macro economic consensus forecasts

are tax effects important in the long run fisher relationship evidence from the municipal bond market are nominal bonds appropriately discounted for taxes empirical estimnates of the response of nominal interest rates to changes in inflation the fisher effect have failed to produce a definitive answer four reasons have been put forward as possible explanations i tobin effects ii fiscal illusion iii peso problems and iv different estimators utilizing data on taxable and tax exempt bond interest rates and several different estimators we find that the fisher effect estimates are always larger for the taxable bond relative to the tax exempt bond suggesting that fiscal illusion and different estimators cannot account for the previous results how economic agents respond to the tax burdens of assets with different tax treatment is an important issue at both the level of the individual micro and the aggregate economy macro one clear source of evidence would appear to be the market for high quality debt trading in both taxable and tax exempt debt occurs on a daily basis the response of the rates of return on taxable and tax exempt debt to changes in expected inflation are described by the fisher relationship the fisher relationship is one of the oldest equilibrium relationships in financial economics fisher s original proposition was that if the real rate of interest is relatively constant over time a fully perceived change in the purchasing power of money as proxied by the inverse of the rate of inflation would be accompanied by a proportional increase in the nominal interest rate darby 1975 points out that when nominal interest income is taxed as are interest payments on u s treasury bills the fisher relationship implies a response from nominal interest rates that is greater than the change in expected inflation in order to maintain the constant ex ante real interest rate summers 1983 suggests that given average marginal tax rates in the united states the appropriate value of the fisher effect is 1 3 to 1 5 for tax exempt bonds the original fisher specification should be a good approximation implying a fisher effect close to unity in a seminal paper fama 1975 presents evidence to support the hypothesis that changes in nominal

what fisher knew about his relation we sometimes forget abstract expected consumption growth increases the real interest rate as one tries to smooth consumption over time we demonstrate that placing it in the fisher relation 1 is consistent with the euler equation governing the purchase of nominal bonds 2 explains observed procyclicality of the real interest rate 3 is supported empirically and 4 provides an alternative method for estimating the consumer s degree of relative risk aversion

does alcohol consumption reduce human capital accumulation evidence from the college alcohol study it is often conjectured that a significant cost of youthful drinking is the future labour market consequences of having accumulated a lower stock of human capital while several studies have investigated the effect of youthful drinking on the quantity of human capital stock accumulated measured by years of education completed or high school graduation this paper investigates the effect of alcohol consumption on the quality of human capital stock accumulated as measured by college students gpa using data from the harvard school of public health s college alcohol study the indirect effect of the quantity of alcohol consumed on gpa is estimated through hours spent studying as well as the direct effect results show that the net total effect of alcohol consumption on gpa is negative for the sample of college students and that the main effect is via a reduction in the hours spent studying this finding confirms that high levels of alcohol consumption have an overall negative consequence for academic achie

more flexible use of survey data on expectations in macroeconomic models a flexible procedure is proposed whereby both the random and systematic errors in measurement of survey data on inflation expectations can be appropriately handled when these surveys are used in the estimation of macroeconomic models during the period 1952 1980 livingston s two expectations series and the src series systematically underestimated inflation expectations by nearly 25 the asa nber survey however does not exhibit such underestimation thus the use of the livingston or src data as an unbiased measure of the true expectations of inflation would result in overestimation of the fisher effect and the ex ante real interest rate

government borrowing and tax adjusted real and nominal interest rates the purpose of this paper is to test for the effect of federal government budget deficits on one year tax adjusted nominal and real interest rates in an is lm as model the results suggest that the specification of the dependent variable is a crucial issue in the debate over the linkage between deficits and interest rates the evidence shows a positive and significant effect of various measures of the federal government deficit and debt on the real tax adjusted treasury bill rate in both the levels and the first differenced equations but not on the nominal tax adjusted rate the positive and significant deficit debt coefficients are also confirmed when the first differenced equation is estimated by instrumental variables and when the equation is estimated over various time periods thus there is robust evidence of a positive linkage between federal government borrowing and the tax adjusted real but not nominal interest rates

alcoholism work and income this article reports on an empirical analysis of the relationships between alcoholism and income and working we show that the relationships between alcoholism and labor market success have important age or life cycle dimensions we present evidence that alcoholism may affect income more by restricting labor market participation than by affecting the wages of workers finally we demonstrate that the effects of alcoholism on earnings depend on the extent to which one controls for other covariates associated with alcoholism as such we suggest that there may be important indirect as well as direct effects of alcoholism on labor market success

taxation and inflation a new explanation for capital flows abstract in a world of mobile capital the current system of taxation implies that the after tax cost of capital and return to saving in each country are negatively correlated with the rate of inflation thus a country s net foreign asset position ought to be negatively correlated with its long run inflation rate the magnitude of these effects is shown to be potentially large for oecd countries cross section and time series regressions confirm that inflation rates are good predictors of net foreign assets the existing distribution of net foreign assets may therefore largely reflect tax distortions

measuring the income elasticity of water demand the importance of publication and endogeneity biases we present the first study that examines the effects of publication selection in the literature estimating the income elasticity of water demand paradoxically more affected by publication selection are the otherwise preferable estimates that control for endogeneity attempting to correct simultaneously for publication and endogeneity biases we find that the mean underlying elasticity is approximately 0 15 or less the result is robust to controlling for more than 30 characteristics of the estimates and accounting for model uncertainty the differences in the reported estimates are systematically driven by differences in the tariff structure regional coverage data granularity and control for temperature

parental problem drinking and adult children s labor market outcomes current estimates of the societal costs of alcoholism do not consider the impact of parental drinking on children this paper analyzes the consequences of parental problem drinking on children s labor market outcomes in adulthood using the nlsy79 i show that having a problem drinking parent is associated with longer periods out of the labor force lengthier unemployment and lower wages in particular for male respondents increased probabilities of experiencing health problems and abusing alcohol are speculative forces behind these effects while causality cannot be determined due to imprecise iv estimates the paper calls for further investigation of the intergeneration costs of problem drinking

does inflation affect real behavior the case of housing an important tradition in economics is to assume that demand depends upon relative prices and is homogenous of degree zero for the most part this has been interpreted as meaning inflation changes in the price level leaves demand unchanged recent work by a number of economists has challenged this position for the case of housing demand two arguments have been made that inflation acting in concert with existing institutions alters the quantity of housing demanded and the decision to rent or own a house the first argument states that inflation and the standard fixed payment mortgage combine to reduce the size of the mortgage loan a household can obtain for the purpose of buying a home this works to reduce the quantity of owner occupied housing demanded given the importance of mortgage finance to the demand for owner occupied housing the second argument focuses on the inflation adjusted after tax cost of owner occupied housing it simply states that an increase in the rate of anticipated inflation of the general price level reduces the after tax cost of housing thus increasing the demand for housing and the demand for homeownership there has been little empirical testing of these two arguments the purpose of this paper is to formulate and estimate a model which will give an indication of the quantitative significance of the two arguments a housing demand equation and a tenure choice equation own versus rent are estimated using a sample of about 6000 households from the 1975 annual housing survey 10 the estimates suggest that inflation dampens housing demand and homeownership opportunity for most households even though the inflation adjusted after tax cost of owner occupied housing declines as inflation heats up the paper consists of six sections including the introduction section two examines the ways inflation affects housing choices in more detail the third section contains the specification of the econometric model that forms the basis of the study section four is a discussion of econometric problems and the data used the results of the estimates are discussed in the fifth section the paper concludes with a presentation of the major conclusions and policy implications of the study

expected inflation and interest rates reply vito tanzi s comment on my earlier study 1982 is based upon his belief that the mundell effect alone could not likely account for the ex ante negative real rates observed in his simulations his suggestion is that perhaps a mundell effect together with a fiscal illusion provides the best explanation p 502 nowhere did i argue that the mundell effect was all encompassing the nominal interest rate is determined by many factors besides expected inflation x my reducedform nominal interest rate equation includes inflation uncertainty the current and lagged money stock and the lagged price level as well as expected inflation as arguments thus at any point in time the nominal rate will shift with a movement in any of these variables one way of looking at this is that holding s constant i will vary with the other predetermined variables so that the real rate changes since tanzi and previous researchers have used partial equilibrium analysis to highlight the relation between 1t and i we tend to forget that the level of the real rate depends upon all the predetermined variables of the system to concentrate on the partial derivative of i with respect to sr we must take as given some initial i holding constant the other factors influencing i tanzi s simulations set the real rate of interest r initially equal to 03 then by assuming different values for di d7r and v he generates implied values for the after tax real interest rate r since the after tax real rate turns negative at quite low rates of 7r tanzi concludes that fiscal illusion is present as interest rates did not adjust for the effect of taxes p 502 the simple fact that the after tax real rate turns negative need imply nothing regarding whether or not investors are cognizant of taxes there is nothing inherently unusual about negative real rates of interest in the short run during inflationary periods clearly if money can be costlessly stored the nominal rate of interest cannot be negative but this in no way rules out negative real rates in a world of incomplete markets there may be inflationary periods when a negative real rate of interest is the best that optimizing agents can earn if there was a suitable asset available that guaranteed a zero return we would not expect to observe ex ante negative real rates benjamin friedman 1980 emphasizes the limited nature of portfolio substitution possibilities by arguing that if holding goods was a feasible portfolio alternative then the expected rate of inflation could be viewed as simply the return from holding such real assets in such a case higher expected inflation would reduce the lenders supply of loans directly via portfolio substitutions from loans bonds to real goods the problem with this scenario as stated by friedman is in practice however the available opportunities for such portfolio substitutions involving consumption or other real commodities are usually extremely limited purchasing the consumer price index basket of goods is not a feasible portfolio alternative p 34 the lack of such a real asset allows market instruments to offer a negative yield of course with no inflation and costless storage one could hold money so that we don t expect to observe negative rates in noninflationary periods frederic mishkin provides corroborating evidence in this area as he finds the real rate whether adjusted or unadjusted for taxes is negatively correlated with inflation 1981 p 191 emphasis added and the real interest rate appears to have been positive in the 1950s and 1960s but has since turned negative in the midand late 1970s p 192 regarding tanzi s simulations i do not believe that they correctly assess the path of the real rate following an exogenous change in inflationary expectations nw a major theme of my earlier paper was the emphasis arizona state university i thank don schlagenhauf john schroeter and richard l smith for helpful discussions

human development and alcohol abuse in adolescence the aim of this article is to analyse the development of human capital in adolescents as represented by their state of health and educational attainment when this capital is affected by the abusive consumption of alcohol measured by grams of ethanol to that end we adopt a theoretical framework derived from the model of rational addiction the model of health demand and the model of schooling demand which is then estimated by using data drawn from the spanish national survey on drug use in the school population 1996 1998 2000 results confirm that higher alcohol consumption leads to worse health states and lower academic efficiency among adolescents which suggests the need to implement effective policies aimed at reducing alcohol abuse among this population group

alcohol and earnings does drinking yield a wage premium this paper examines the relationship between alcohol consumption and earnings for prime age males wage differentials for non moderate and heavy drinkers are estimated using a polychotomous choice model which accounts for the endogenous relationship be tween drinking and earnings we find that moderate alcohol consumption leads to increased earnings relative to abstention however heavy drinking leads to reduced earnings relative to moderate drinking heavy drinkers possess flatter age earnings profiles and attain lower returns for higher education than non and moderate drinkers these results are in contrast to previous research on substance abuse which finds no earnings drop off for heavy users

the effects of inflation and income taxes on interest rates some new evidence this paper reexamines the empirical relation between inflation and interest rates concentrating on the tax effect proposed by darby and feldstein using the random walk intercept model relative responses of taxable yields and tax exempt yields to expected infla tion are estimated the results show that for the sample period 1953 1982 the nominal yields on treasury bills rise at a rate greater than one for one with expected inflation while the nominal yields on default free municipal bonds rise approximately one for one with expected inflation thus the tax adjusted fisher hypothesis by darby and feldstein is empirically supported the components of treasury bills are also extracted and their variances are compared it is shown that variation of expected inflation is not overwhelmingly larger than that of the after tax real rate therefore on an after tax basis changes in the real rate explain a substantial portion of changes in the nominal rate of interest

evidence of the fisher effect from u k indexed bonds newly available data from the u k market for indexed securities are used to test the fisher hypothesis for monthly observations of interest rates at 14 maturities the hypothesis that the after tax nominal interest rate is a constant plus anticipated inflation proves to be a reasonable approximation of reality for longer maturities the coefficients on the expected rate of inflation are approximately equal to one the mundell tobin effect is in evidence for shorter maturities the inverted fisher effect is in evidence for shorter maturities the inverted fisher effect is decisively rejected the evidence suggests that past difficulties encountered in trying to prove the fisher effect have been due to the lack of a direct measure of inflation expectations and real interest rates copyright 1992 by mit press