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

estimates of effective marginal tax rates on factor incomes this chapter describes a method of calculating summary measures of effective factor income tax rates in the united states using readily available data the numbers resulting from application of this method in a study are reported in the chapter and some of their possible uses are discussed the estimated factor income tax rates behave over time in a manner quite consistent with the behavior of other broad measures of federal tax policy the postwar movement in the tax rate on income from labor relative to that on income from capital or more accurately the relevant components of these tax rates provides suggestive support for the miller scholes hypothesis that the federal personal income tax has been moving in the direction of a pure consumption tax the tax rates reported in the chapter are consistent with other studies that show a decrease since the 1950s in rates of taxation at the corporate level of income from corporate held capital they are also consistent with the view that rates of taxation of such income at the noncorporate level have risen but not quite sufficiently to offset the decline in the corporate tax burden

toward explaining earlier retirement after 1970 this study investigates why after 15 years of virtual stability u s labor force participation rates for men aged 55 to 64 fell by approximately 20 from 1970 through 1986 the author s analysis of rule changes in the social security system and pension plans suggests that part of this reduction was caused by an increase in social security benefits by almost 50 during the 1970s half of which is not reflected in legislation which worked to create unexpected wealth effects similar to those that characterized the system during the early 1950s but an equally important cause was a widespread change in private pension plan rules toward encouraging earlier retirement these conclusions challenge the common notion that earlier retirement is largely a supply side phenomenon

transition to fully funded pension schemes a non orthodox criticism summary the paper examines the dominant views on the adoption of mandatory fully funded pension schemes ff as a partial or complete substitute for the unfunded payg three obstacles to the ff reform are envisaged to begin with the reform may fail to boost workers marginal propensity to save since workers may contract their voluntary saving to compensate the larger mandatory saving to ff schemes secondly if payg s payroll contributions are reduced and diverted to a ff scheme the larger private saving supply will be balanced by a lower government saving if the government is committed to honour the current pension payments thirdly keynes saving paradox reinforced by the capital theory critique initiated by sraffa suggests that the effect of the rise in the marginal propensity to save is not an increase in capital accumulation but rather a fall of income and employment

social security in panama a multiperiod analysis of income distribution abstract a unique multiperiod data set is used to look at the income distribution effects of the retirement portion of the social security system of panama while it is clear that the system is an important source of income for workers it is argued that its true redistributive importance is greatly exaggerated using a multiperiod view it is found that previously high wage and urban workers are disproportionately represented among current recipients it is also argued that social security has substantially reduced the work effort of these workers hence the appropriateness of the present social security system is questioned on both equity and efficiency grounds

interdependency of personal savings and labour force participation of the elderly and social security wealth a time series analysis using japanese annual time series data covering the period 1950 1982 our study shows that social security wealth during this period depressed personal savings as a result there was a reduction of approximately 79000 yen of wealth per capitain real terms from 1960 to 1980 however the declining labour force participation of elderly males brought about for example by earlier retirement stimulated personal savings by an estimated 13000 yen over the same period the results indicate that the benefit effect tends to outweigh the retirement effect furthermore this study has identified a negative interdependency between the level of personal savings and the retirement behaviour of elderly males a typical male worker saves more before retirement if that individual expects to stay a shorter time in the labour market retirement behaviour is less responsive to a change in personal savings behaviour than vice versa

the rise and evolution of public pension systems security crisis basically the crisis manifests itself by the fact that if young participants in the existing public pension plans were allowed to withdraw and invest voluntarily in their own preferred privately marketed insurance plans they would be able to secure a rate of return that is substantially higher than the rate of return under the existing plan of course this would not be the case if public pension plans were financed by a funding system rather than the existing pay as you go payg system given the paygsystem and the actual decline of birth rates in many western countries future pension tax rates can reach levels as high as 40 percent or more it might be suspected that future generations will not be willing to contribute to the system by the necessary amount making declining benefit rates inevitable if not the altogether elimination of the system notice that if the present generations expects this future development to arise they can calculate their rate of return under the present benefit tax structure to be even lower the inevitable conclusion thus seems to be that if the implicit claims build up under the existing system can be expected not to be allowed by future generations the present generation will do likewise with respect to the claims of the now living older generation however the popular support for public pension plans is not detoriating at present in many western countries thus falsifying the foregoing observation

inflation and tax evasion an empirical analysis this paper contains an analysis of the effect of inflation on aggregate tax evasion in the united states over the period 1947 81 it is found that tax evasion in both absolute and relative terms is positively related to the inflation rate further the results indicate that aggregate evasion has risen in both absolute and relative terms with increases in the marginal tax rate but has fallen with increases in the detection probability the penalty rate and the wage share of income finally evasion has risen in absolute terms but has fallen in relative terms when real true income has risen

marginal tax rates and income new time series evidence this paper estimates the dynamic effects of marginal tax rate changes on income reported on tax returns in the united states over the 1950 2010 period after isolating exogenous variation in average marginal tax rates in structural vector autoregressions using a narrative identification approach i find large positive effects of tax cuts in the top 1 of the income distribution in contrast to earlier findings based on tax return data i also find large effects in other income percentile brackets a hypothetical tax reform cutting marginal rates only for the top 1 leads to sizeable increases in top 1 incomes and has a positive effect on real gdp there are also spillover effects to incomes outside of the top 1 but top marginal rate cuts lead to greater inequality in pre tax incomes

tax disturbances and real economic activity in the postwar united states abstract this paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates it finds that systematically including tax variables in a standard real business cycle model substantially improves the model s ability to reproduce basic facts about postwar u s business cycle fluctuations in particular modeling fluctuations in personal and corporate income tax rates increases the model s predicted relative variability of hours and decreases its predicted correlation between hours and average productivity fluctuations in tax rates produce large substitution effects that alter the leisure labor supply decision

marginal income tax rates in the united states a non parametric approach abstract the objective of this paper is to estimate both the u s federal marginal income tax rate and the state and local marginal income tax rates we use the non parametric regression method and data on income and tax extracted from u s individual tax model files for the period 1985 1995 the flexibility of the non parametric approach and the information at the individual level enable us to construct a more reliable time series of the average federal marginal income tax rates and that of the average state and local marginal income tax rates our results suggest that the average federal marginal income tax rate varies from 18 2 to 21 8 and the average state and local marginal income tax rate varies from 4 7 to 5 6 we also find that the state and local income tax accounts for roughly 18 of the total income taxes paid during 1985 1995 moreover our analysis shows that stephenson journal of monetary economics 41 1998 pp 389 409 provides the most consistent tax rate series for use in applications that require estimates of tax rates for years prior to 1985

an ex ante view of household portfolio choice the role of expected capital gains this paper highlights an issue not previously addressed in portfolio balance modelling the impact of assetspecific expected capital gains on the composition of the household wealth portfolio we extend the brainard tobin portfolio choice model to incorporate the distinction between expected and unexpected capital gains and estimate two versions of the model while our specification is more appealing on a theoretical basis we were unable to distinguish clearly between the ex ante and ex post models given currently available data

the social security payroll tax and the life cycle work pattern the distortion of the labor leisure choice by the social security payroll tax is well known this paper uses a life cycle model of labor force effort to show that the combination of the social security payroll tax and a maximum taxable income alters the optimum time path of work we analyze a time series data set to test the empirical importance of this combination on the market work of younger men we find that it has a measurable effect on the hours worked by prime aged men that is the individual works a greater number of hours when he can more easily earn an income that is higher than the payroll taxing maximum

reservation price as a range an incentive compatible measurement approach abstract drawing from the literature on buyers uncertainty in preference and product knowledge the authors suggest and empirically test the proposition that a consumer s reservation price for a product is more meaningfully and accurately represented as a range than as a single point given this conceptualization they propose an approach for incentive compatible elicitation of a consumer s reservation price range icerange that builds on becker degroot and marschak s 1964 point of purchase method two empirical applications of the approach provide an assessment of its practicality and its predictive performance relative to current methodologies for reservation price elicitation the results demonstrate that the proposed method significantly outperforms the benchmark approaches in terms of predictive validity and yields valuable incremental information about uncertainty in product valuation

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

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

experimental economics comment in two important studies charles plott 1982 and vernon smith 1982 assess the current state of the literature about laboratory experiments in economics as a profession we are becoming aware that experimental methods can be applied to our models with cautious but growing confidence that these procedures can help us evaluate alternative theories these are significant developments whose potential ramifications are only beginning to be explored given the importance of laboratory testing i would like to discuss a key feature of past experiments one that has not been fully appreciated because of its central role in standard economic theory in particular these experiments depend on inducing agents to respond according to a prespecified value structure this usually amounts to starting with a known and fully determinate set of demand and supply value schedules for all transacting agents smith for example specifies four major principles about how preferences are to be experimentally induced nonsatiation saliency dominance and privacy see pp 931 35

some indirect evidence on effective capital gains tax rates this paper presents estimates of effective marginal tax rates on capital gains excluding housing between 1960 and 1978 in the united states concern that the inflation of the 1970s may have worked through the tax system to reduce incentives to produce and save has focused attention on the effective marginal tax rates that apply to various sources of income joines 1981 sheds light on this issue by calculating the historical effective marginal tax rates on factor incomes for the united states part of the recent debate however has focused specifically on capital gains taxes and the desirability of reducing them to enhance incentives for saving and investment the effective marginal tax rate on capital gains henceforth emtg may be the most difficult rate to measure in addition to the usual problems of how to attribute deductions exclusions and tax credits further adjustment must be made because investors pay taxes only when they realize their capital gains 1 the expected emtg this paper reports estimates of effective marginal tax rates on capital gains by comparing reported capital gains with total capital gains on an annual basis the estimates show that the effective marginal tax rates on capital gains fluctuated between 3 4 and 6 6 between 1960 and 1978 and that capital gains are held on average between 24 and 31 years before they are reported

social security and private saving new time series evidence in an important article in the journal of political economy martin feldstein 1974 estimated that the introduction of the social security system had reduced personal saving by 50 percent with serious consequences for capital formation and output his conclusion was based on a consumer expenditure function estimated with u s time series data and incorporating a social security wealth variable of his construction this paper presents new evidence that casts considerable doubt on feldstein s conclusion first the social security wealth variable used by feldstein was seriously flawed as a result of a computer programming error simply correcting this error substantially changes the estimated effect of social security on saving second the statistical evidence depends upon assumptions which are embedded in the construction of the social security wealth variable assumptions that are not demonstrably preferable and are in some cases inferior to alternative assumptions these assumptions relate first to how individuals form their expectations about the social security benefits they expect to receive and the social security taxes they expect to pay and second to estimates of the number of workers dependent wives and surviving

the retirement health nexus a new measure of an old puzzle traditional empirical models of retirement which use a self assessed health measure have often found that the wage rate has a surprisingly small effect on retirement using both a self reported health measure and one not based on self report subsequent mortality experience in a more general reduced form joint demand framework we test the importance of the interaction effects of health and retirement our findings are consistent with a joint determination of health and retirement the wage elasticity using either health measure is about equal to that found in a single equation model when a mortality measure is used but all three elasticities are five times greater than one found using self reported health in a traditional single equation model

the role of pensions in the labor market a survey of the literature because employer sponsored group pension plans entail agreements between workers and their employers explicitly linking future payment and employment they offer an unusual window into long term employment relationships this review of recent research on pensions explores how pensions influence employee compensation retirement turnover and other matters central to the determination of labor s price and quantity over time the authors also outline some unanswered questions and difficult to reconcile findings because the pension promise involves an explicit and relatively well documented set of statements regarding future contingent payment and employment an examination of the design and operation of employersponsored group pension plans can yield important insights into the long term employment relationship specifically pension research illuminates some important labor market questions in two ways it offers insight into an important element of compensation in its own right and it furthers our understanding of labor markets in which long term

welfare and comparative statics implications of fair social security a steady state analysis abstract this paper examines the steady state welfare and comparative statics implications of fair social security in an overlapping generations model with uncertain lifetime the model is designed to capture the effects of lifetime uncertainty extending over the individual s entire lifespan the effects of intentional and unintentional bequests and the effects of the earning profile he shows that the welfare effects depend on the size of the benefits and the structure of the social security tax in particular even fair social security may have negative welfare implications if the underlying tax structure is ill designed some comparative statics implications are analyzed

housing investment in the united states a supply determined model of housing investment is estimated from quarterly data over the 1963 83 period the model is built on dynamic marginal cost pricing considerations and allows short and long run supply elasticities to differ these are estimated as 1 0 and 3 0 respectively but most of the long run response occurs within 1 year rapid adjustment speed and the sizable long run elasticity of supply are important factors in understanding the volatility of housing investment the data also suggest some anomalies in the expected present value theory of asset pricing for housing capital

the informational efficiency of experimental asset markets a fundamental difficulty in devising any test of general efficient market hypotheses is the specification of the relevant public and private information sets of traders without a consensus as to reasonable empirical specifications tests of the hypotheses remain minimal or controversial in this study we examine the efficiency of experimental asset markets in which one may unambiguously identify the public and private information sets of traders we focus on how market efficiency is affected by the presence of futures markets in settings that incorporate different types of uncertainty and inside information our experimental results support four conclusions 1 market outcomes tend to evolve toward strong form informationally efficient equilibria whether or not futures markets and or event uncertainty are present 2 the presence of futures markets clearly stabilizes spot prices 3 the presence of futures markets tends to speed the evolution of asset markets to more efficient equilibria where there

auctions experiments and contingent valuation laboratory experiments are a welcome development that promise to make a significant contribution to the study of economic behavior heiner 1985 plott 1982 smith 1982 1985 while relatively new to economics controlled laboratory studies of human behavior have long constituted the core of experimental psychology where there is a wealth of methodological experience from which experimental economists might profitably draw in particular current attempts to apply laboratory auction methods to valuing nonmarket environmental goods would be improved by more rigorous experimental design and data analysis procedures

public pensions as optimal social contracts abstract a simple overlapping generations model is modified to allow for an externality experienced by the young from consumption by the elderly this sets up a game between generations in which one generation s strategy may be to save too little and rely on gifts from the young e g public assistance for retirement income social security can therefore be viewed as a pareto optimal contract to restore efficient intertemporal allocation a funded public pension plan corresponds to forced saving but is vulnerable in that the next young generation may stop contributing rely on its children for retirement assistance and meanwhile reap the consumption externality from the current elderly s social security benefits this suggests a forced giving or pay as you go type of compulsory pension plan such as exists in most nations which also has the advantage of aiding the initial old generation and therefore generating an immediate consumption externality for the initial young the approach can also be used to explain other aspects of existing social security

checking out the effects of bank overdrafts on the 1992 house elections the revelation that hundreds of house members had regularly overdrawn their checking accounts with the house bank without penalty injected a new and unanticipated issue into the 1992 elections the consequences were profound the scandal was a major reason for the unusually high turnover of house seats in 1992 bank overdrafts contributed significantly to exit by all routes retirement defeat in the primary election and defeat in the general election overdrafts did not automatically spell disaster for incumbents however a record of bad checks was far more damaging when exploited by an experienced wellfinanced challenger

the electoral effects of incumbent wealth abstract the absence of limits on own source campaign contributions is widely thought to give wealthy candidates an advantage in congressional elections we employ a unique data set on the wealth of house incumbents running for reelection in 1992 we find that wealthy incumbents do not raise or spend more campaign funds and do not win greater vote shares in their reelection bids further incumbent wealth does not deter high quality challengers

elections political competition and bank failure abstract we exploit exogenous variation in the scheduling of gubernatorial elections to study the timing of bank failure in the us using hazard analysis we show that bank failure is about 45 less likely in the year leading up to an election political control i e lack of competition can explain all of this average election year fall in the hazard rate in particular we show that the reduction in hazard rate doubles in magnitude for banks operating in states where the governor has simultaneous control of the upper and lower houses of the state legislature i e complete control heading into an election

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

economic valuation by the method of paired comparison with emphasis on evaluation of the transitivity axiom the paired comparison pc method is used to investigate reliability transitiv ity and decision time for binary choices among goods and sums of money the pc method reveals inconsistent choices and yields individual prefer ence order over the set of items being compared the data reported support the transitivity as sumption and demonstrate high reliability for individual preference order the paper also discusses using the pc method to obtain conser vative median and mean estimates of willingness to accept compensation for public and private goods the pc method may prove useful for valu ing public goods and warrants further study jel 426

political hierarchies and political shirking abstract we analyze how citizens can screen candidates for high political office in a political hierarchy in our model politicians differ in willingness to misuse discretionary powers of office those politicians willing to abuse the powers of office knaves can be induced in a hierarchy to reveal their type while in low office thus disqualifying themselves for advancement hierarchy s capacity for screening knaves out of high office depends on the conditions for reappointment to low office a seemingly perverse rule that reappoints shirking politicians can perform well to demonstrate an empirical application we analyze shirking in the house bank check bouncing scandal

the growth effects of tax rates in the oecd this paper explores the merits of macro and micro based tax rate measures within an open economy fiscal policy and growth model using annual data for 15 oecd countries we find statistically small non robust long run growth effects of macro based average tax rates on capital income and consumption but some evidence for average labor income tax effects changes in micro marginal income tax rates at both the personal and corporate levels yield statistically robust gdp responses of modest size both domestic and foreign corporate taxes appear relevant in general tax effects on gdp operate largely via factor productivity rather than factor accumulation

estimating the fisher effect and the stochastic money growth process this paper demonstrates that a change in the stochastic process generating money can alter the relationships between money and inflation and between inflation and interest rates the extent to which inflation is forecastable is shown to depend significantly on the extent to which money is forecastable thus the greater the persistence and forecastability of money the greater the likelihood of observing a statistically significant fisher effect us data over the 1953 86 period are used to demonstrate that instability in the fisher effect coincides with changes in the stochastic process generating money there is a significantly stronger fisher effect during a subsample in which money and hence inflation are more predictable