tax policy asset prices and growth a general equilibrium analysis abstract this paper presents a computable general equilibrium tax policy model that combines a consideration of disaggregate industry effects with an integrated treatment of short and long run adjustments to policy initiatives the model s explicit consideration of forward looking investment decisions and adjustment dynamics permits assessments of short run effects of tax policy on asset values as well as long term impacts on capital accumulation simulations reveal that effects on asset values and investment depend critically on whether policies are oriented toward new or old capital investment tax credits yield significant increases in investment without conferring windfall gains to corporate shareholders corporate tax cuts with the same revenue cost on the other hand yield large windfalls to shareholders while providing only a modest investment stimulus incidence and growth effects differ considerably across sectors particularly between business and housing

the deadweight loss from non neutral capital income taxation abstract this paper develops an overlapping generations general equilibrium model that treats explicitly the role of capital goods in the production process and uses the model to measure the relative magnitudes of different distortions associated with capital income taxation across industries assets and time one of the main results is that uniform capital income taxation is almost certainly suboptimal theoritically but that optimal deviations from uniform taxation are empirically inconsequencial the paper also introduces and applies a general technique for distinguishing intergenerational transfers from efficiency gains in the analysis of the impact of policy changes on long run welfare

supply chain relationships and contracts the impact of repeated interaction on capacity investment and procurement consider a firm developing an innovative product due to market pressures production must begin soon after the product development effort is complete which requires that an upstream supplier invests in capacity while the design of the product and production process are in flux because the product is ill defined at this point in time the firms are unable to write court enforceable contracts that specify the terms of trade or the supplier s capacity investment however the firms can adopt an informal agreement relational contract regarding the terms of trade and capacity investment the potential for future business provides incentive for the firms to adhere to the relational contract we show that the optimal relational contract may be complex requiring the buyer to order more than her demand to indirectly monitor the supplier s capacity investment we propose a simpler relational contract and show that it performs very well for a broad range of parameters finally we identify characteristics of the business environment that make relational contracting particularly valuable

taxation of outbound direct investment economic principles and tax policy considerations this paper reviews economic principles for optimality of the taxation of international profit from both a global and national perspective it argues that for traditional systems based on the residence of the investor or the source of the income nothing less than full harmonisation across countries can achieve global optimality the conditions for national optimality are more difficult to identify but are most likely to imply source based taxation however source based taxation requires an allocation of the profits of multinational companies to individual jurisdictions this is not only very difficult in practice but in some cases is without any conceptual foundation the taxation of interest income on a residence basis is also hard to justify if the aim of the tax system is to tax only the income arising from economic activity in a given country

women as policy makers evidence from a randomized policy experiment in india this paper uses political reservations for women in india to study the impact of women s leadership on policy decisions since the mid 1990 s one third of village council head positions in india have been randomly reserved for a woman in these councils only women could be elected to the position of head village councils are responsible for the provision of many local public goods in rural areas using a dataset we collected on 265 village councils in west bengal and rajasthan we compare the type of public goods provided in reserved and unreserved village councils we show that the reservation of a council seat affects the types of public goods provided specifically leaders invest more in infrastructure that is directly relevant to the needs of their own genders

the general equilibrium effects of inflation on housing consumption and investment in a mean variance portfolio choice model each of 3 578 households from the 1983 survey of consumer finances has calculated preferences over housing other consumption and risk each household is constrained such that any owner occupied housing in portfolio must match housing services consumed corporate taxes are modeled in some detail and regression coefficients are used to estimate the adjusted gross income itemizable deductions and statutory marginal tax rate of each household general equilibrium simulation results indicate that inflation does not necessarily increase total owner housing top bracket households increase their owner housing while others switch into bonds the greater number of households in low brackets implies that the homeownership rate can fall even if the amount of owner housing rises this abstract was borrowed from another version of this item

why political reservations many countries are amending their political systems to set aside positions to groups such as women and racial or religious minorities that are perceived as being disadvantaged using evidence from india this article assesses the case for these reservations jel h4 o15 several countries have introduced procedures either explicit quotas or forms of gerrymandering to ensure political representation of disadvantaged groups such as women or ethnic minorities in 2001 quotas for women in parliaments were in force in more than 30 countries in india seats are reserved for historically disadvantaged groups scheduled castes or sc and scheduled tribes or st in federal or state legislative assemblies and for both historically disadvantaged groups and women at all levels of the panchayat system the system of decentralized decision making on the basis of evidence accumulated about the indian experience this paper reviews the case for reservation

grandfather rules and the theory of optimal tax reform abstract this paper analyzes grandfather rules gr within the context of the optimal tax reform problem and a reform that eliminates differential capital taxation two general conclusions are suggested first gr can be a very effective reform implementation tool appropriately structured gr can convert potential losers from reform into gainers so that the reform becomes pareto improving alternatively gr can often be used to distribute the gains from reform more equitably second gr should nevertheless be used with caution market adjustments often imply that losses are sufficiently small that little grandfathering is needed moreover the effects of gr are very sensitive to the length of time they are in force and their implementation may lead to efficiency losses

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

revisiting between group inequality measurement an application to the dynamics of caste inequality in two indian villages standard approaches to decomposing how much group differences contribute to inequality rarely show significant between group inequality and are of limited use in comparing populations with different numbers of groups this study applies an adaptation to the standard approach that remedies these problems to longitudinal household data from two indian villages palanpur in the north and sugao in the west the authors find that in palanpur the largest scheduled caste group failed to share in the gradual rise in village prosperity this would not have emerged from standard decomposition analysis however in sugao the alternative procedure did not yield any additional insights because income gains applied relatively evenly across castes

are small firms less efficient this paper compares the technical efficiency of small and medium sized enterprises smes with that of large firms and studies the factors influencing technical efficiency for taiwan s electronics industry unlike conventional studies we use two alternative approaches to control for the influence of size effect one is the two stage switching regression to correct for endogenous size effect on technical efficiency and the other is a metafrontier production function for firms in different groups the main results are as follows first the average technical efficiency for large firms is higher than that of smes without considering the size effect and lower when considering the endogenous choice on firm size this study cannot therefore conclude that there is a negative size technical efficiency relationship it however sheds light on the importance of size effect on the size technical efficiency nexus second the estimates on the determinants of technical efficiency show that being a subcontractor has a statistically significant positive influence on smes technical efficiency but the effect decreases with firm size

treasury i and the tax reform act of 1986 the economics and politics of tax reform abstract during president reagan s state of the union address in january 1984 he requested that treasury secretary donald regan prepare a plan for action to simplify the entire tax code so that all taxpayers big and small are treated more fairly in response the department of the treasury spent ten months preparing a report to the president that has come to be called treasury i this three volume study explained the need for tax reform and the general directions such reform should take provided a comprehensive set of proposals for reform of the income tax and analyzed the feasibility and desirability of an american value added tax following almost two years of public debate the tax reform act of 1986 became law on october 22 1986 though widely hailed as the most far reaching reform of the nation s tax system since the 1940s the 1986 act falls far short of the promise of treasury i it is useful to devote attention to treasury i even though much of it failed to survive the legislative process

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

toward an economic model of the japanese firm i owe a great deal to professor moses abramovitz who suggested that i write this article i appreciate his constant encouragement and guidance which aided me throughout its preparation i am also indebted to three anonymous referees of the journal and to professors ryutaro komiya and michael riordan for their critical comments and helpful suggestions needless to say i am solely responsible for the views expressed in this paper

the efficiency of capital allocation in this paper we present an intertemporal general equilibrium model of the u s economy the purpose of this model is to analyze the efficiency of capital allocation we have implemented our model econometrically for annual data covering the period 1955 80 the model encompasses the critical features of u s tax laws applicable to income from capital equilibrium is determined by market clearing conditions for consumption and investment goods and for capital and labor services in each time period under perfect foresight there exists a unique balanced growth equilibrium corresponding to any stationary tax policy an intertemporal general equilibrium model of the u s economy is presented in this paper the purpose of this model is to analyze the efficiency of capital allocation the model is kindred in spirit to the model of the swedish economy developed by ragnar bentzel 1978

optimal tax reform in the presence of adjustment costs abstract the optimal implementation of an efficiency enhancing capital taxation reform is examined when the government is concerned about arbitrary reform induced redistributions and investment causes firms to incur adjustment costs theoretical results indicate that immediate partial enactment of reform is optimal with concave adjustment costs while with convex adjustment costs the optimal reform implementation policy is either i immediate partial enactment with sufficiently low adjustment costs ii phased in partial enactment with intermediate adjustment costs or iii postponed partial enactment with sufficiently high adjustment costs numerical results suggest that relative to the optimal one step implementation policy little is gained by phasing in reform

approaches to efficient capital taxation leveling the playing field vs living by the golden rule this paper analyzes intersectoral and intertemporal efficiency effects of the tax reform act of 1986 using a general equilibrium model that considers impacts of taxes on the allocation of capital across industries assets sectors and time the model pays close attentiona to capital adjustment dynamics we find that the 1986 reform worsened the intertemporal efficiency of resource allocation by increasing marginal effective tax rates on various uses and types of capital this negative efficiency effect is more that offset however by postivie effects from an improved intersectoral allocation of capital and a reduction of labor market distortions

a disaggregate equilibrium model of the tax distortions among assets sectors and industries this paper encompasses multiple sources of inefficiency into a single general equilibrium model of the u s tax system the authors measure interasset distortions using disaggregate calculations of user cost and intersectoral distortions from the differential treatment of the corporate sector noncorporate sector and owner occupied housing industries in the model have different uses of assets and degrees of incorporation results indicate that distortions between sectors or among industries are much smaller than previously thought distortions among assets are larger but the total of all these welfare costs is still below one percent of income copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

negotiating cultures in corporate procurement abstract in a repeated procurement problem the incumbent can undertake a relationship specific investment that generates opportunity costs of switching for the buyer we investigate the impact of the negotiating culture on investment incentives favoritism in the procurement contract allocation and buyer profit we compare a stylized competitive negotiating culture with a stylized protective culture the cultures differ in the way the buyer uses the entrance threat to exert pressure on the incumbent our main result is that the relative performance of the cultures depends non monotonically on the expensiveness of the investment

donations in a recursive dynamic model this paper studies how donations respond to unexpected permanent changes in income and tax rates in a recursive dynamic model the dynamic approach yields several interesting insights if marginal tax rates are progressive a permanent jump in a household s income increases its consumption and donations in the short run but has no effect in the long run the permanent income elasticity of current donations is likely to exceed one if the marginal tax rate is flat the jump in income raises consumption and donations in both the short and the long run a permanent marginal tax rate cut raises consumption and donations in the long run if marginal tax rates are progressive while it reduces donations in the short run if it has little direct impact on tax payments if the marginal tax rate is flat a tax cut has a positive effect on consumption in both the short and the long run but has an ambiguous effect on donations jel classification e20 j24 015 041 dons dans un modele dynamique recursif ce memoire etudie comment les dons repondent a des changements non anticipes dans le niveau de revenu et les taux d imposition dans un modele dynamique recursif l approche dynamique revele des resultats interessants si les taux marginaux d imposition sont progressifs un saut permanent dans le revenu du menage accroit sa consommation et ses dons a court terme mais il n a aucun effet a long terme l elasticite des dons par rapport au revenu permanent est vraisemblablement plus grande que l unite si le taux marginal d imposition est plat le saut dans le revenu entraine une augmentation de la consommation et des dons a court et a long termes une reduction permanente dans le taux d imposition augmente consommation et dons a long terme si les taux d imposition sont progressifs alors qu elle reduit les dons si cela n a que peu d effet sur les paiements d impots si le taux marginal d imposition est plat une reduction d impot a un effet positif sur la consommation a la fois a court et a long termes mais a un effet ambigu sur les dons

the politics of public good provision evidence from indian local governments this paper uses village and household survey data from south india to examine how political geography and politician identity impacts on public good provision we provide evidence that the nature of this relationship varies by type of public good for high spillover public goods residential proximity to elected representative matters in contrast for low spillover public goods sharing the politician s group identity is what matters jel d78 h40

tax reform theory and practice abstract the tax reform act of 1986 is the most significant piece of tax legislation enacted since the income tax was converted to a mass tax during world war ii after decades of erosion the indi

the political economy of public goods some evidence from india we are interested in how public goods get allocated by a centralized state we use data on public goods and social structure from parliamentary constituencies in rural india to understand the allocation of these goods over the 1970s and 1980s national policies and political agendas during this period emphasized universal access to basic amenities and financed a rapid expansion in rural infrastructure we find evidence of considerable equalization in many of these facilities reflecting perhaps the importance of these commitments among the historically disadvantaged social groups those that mobilized themselves politically gained relative to the others measures of social heterogeneity that have been emphasized in the recent empirical literature on public goods are relevant but not overwhelming in their importance

is this tax reform or just confusion based on the experience of recent decades the united states apparently musters the political will to change its tax system comprehensively about every 30 years so it seems especially important to get it right when the chance arises based on the strong public statements of economists opposing and supporting the tax cuts and jobs act of 2017 a causal observer might wonder whether this law was tax reform or mere confusion in this paper i address that question and more importantly offer an assessment of the tax cuts and jobs act the law is clearly not tax reform as economists usually use that term that is it does not seek to broaden the tax base and reduce marginal rates in a roughly revenue neutral manner however the law is not just a muddle it seeks to address some widely acknowledged issues with corporate taxation and takes some steps toward broadening the tax base in part by reducing the incentive to itemize deductions

does access to formal agricultural credit depend on caste summary this paper analyzes whether caste impedes access to formal agricultural credit in india credit is provided mainly through cooperative and commercial banks using national data we find that cooperative banks discriminate against lower caste borrowers and find weak evidence that commercial banks instead bias lending in their favor in accordance with affirmative action policies we compare the organizational structures of the two types of bank and explain discrimination by cooperative banks in terms of interest group capture at the district level by showing that discrimination takes place in those districts where higher castes dominate

discrimination social identity and durable inequalities what are the mechanisms by which societal discrimination affects individual achievement and why do the effects of past discrimination endure once legal barriers are removed we report the findings of two experiments in village india that suggest that the mechanisms of discrimination operate in part within the individuals who are members of the groups who have been discriminated against we demonstrate that publicly revealing an individual s membership in such a group alters his behavior in ways that make the effects of past discrimination persist over time a growing literature in social psychology on stereotype threat finds that stereotyped based expectations affect individual performance in the domain of the stereotype a study by jeff stone et al 1999 is illustrative when college students were asked to perform a task described as diagnostic of natural athletic ability blacks stereotyped as better athletes but worse students than whites performed better than whites when the same test was presented as diagnostic of sports intelligence the performance of blacks declined that of whites improved and the racial gap was reversed evidence suggests that a mediating factor in stereotype threat is a change in self confidence mara cadinu et al 2005 in our studies we investigated whether the public revelation of social identity caste affects cognitive task performance and responses to economic opportunities by young boys in village india subjects were sixth and seventh graders drawn from the two ends of the caste hierarchy we asked subjects to learn and then perform a task under incentives and we manipulated whether their peers in the experimental session knew their caste caste is well suited to this manipulation because unlike race gender and ethnicity there are no unambiguous outward markers of caste among young boys six subjects generally from six different villages participated in each experimental session in the control condition the subjects were anonymous within the six person group in the experimental conditions the experimenter publicly revealed subjects names and caste in the task solving mazes in which performance was studied here the low caste subjects in the anonymous condition did not perform significantly differently from high caste subjects but when caste identity was publicly revealed in a mixed caste group a significant caste gap emerged the caste gap was due to a 20 percent decline in the average number of mazes solved by the low caste the study shows that publicly revealing the social identity of an individual can change his behavior even when that information is irrelevant to payoffs our results are a generalization of the literature on stereotype threat like that literature we find that individuals performance is more in accordance with the stereotype of the group when group membership is made salient in some way unlike that literature salience in our experiments depends on the public revelation of social identity and more importantly we do not argue that the domain of the tasks undertaken by discussants rachel croson university of pennsylvania iris bohnet harvard university stefano dellavigna university of california berkeley

affirmative action in education evidence from engineering college admissions in india abstract this paper examines an affirmative action program for lower caste groups in engineering colleges in india we study both the targeting properties of the program and its implications for labor market outcomes we find that affirmative action successfully targets the financially disadvantaged the upper caste applicants that are displaced by affirmative action come from a richer economic background than the lower caste applicants that are displacing them targeting by caste however may lead to the exclusion of other disadvantaged groups for example caste based targeting reduces the overall number of females entering engineering colleges we find that despite poor entrance exam scores lower caste entrants obtain a positive return to admission our estimates however also suggest that these gains may come at an absolute cost because the income losses experienced by displaced upper caste applicants are larger than the income gains experienced by displacing lower caste students limited sample sizes in our preferred econometric specifications however prevent us from drawing strong conclusions from these labor market findings

keiretsu and relationship specific investment a barrier to trade this article develops a model of informal procurement within japanese keiretsu so as to consider effects on intermediate good imports such as auto parts parts suppliers make relationship specific investments that benefit the automaker and prices are determined by bargaining after investment has been sunk although this investment raises efficiency it limits the range of imports to less important parts such as tailpipes and it is possible that no parts are imported despite lower foreign costs lack of information concerning investment rents combined with counterintuitive responses of imports to changes in output and costs could create unwarranted perceptions of a trade barrier

competition or compensation supplier incentives under the american and japanese subcontracting systems two fundamentally different subcontracting systems arise as distinct solutions to the quality control problem facing an input buyer the american system involves competitive bidding on each contract large orders and inspections the japanese system involves repeat purchases from a supplier who earns a premium small orders and no inspections both systems may coexist as local solutions but the global optimum is determined by the ratio of set up to inspection costs this suggests that the adoption of flexible manufacturing equipment and rising product complexity may be responsible for the shift from the american to the japanese system observed in many industries copyright 1997 by american economic association

can mandated political representation increase policy influence for disadvantaged minorities theory and evidence from india accountable governments often fail to reflect the interests of disadvantaged minorities this paper exploits the institutional features of political reservation as practiced in indian states to examine the role of mandated political representation in providing disadvantaged groups influence over policy making ifind that political reservation has increased transfers to groups which benefit from the mandate this finding also suggests that complete policy commitment may be absent in democracies as is found in this case jel d72 d78 hl 1 h50

the impact of federal deposit insurance on savings and loan failures this study empirically investigates the hypothesis that a higher real ceiling on federal deposit insurance leads to an increased failure rate for savings and loans s ls after providing a history of federal deposit insurance a formal model is developed the empirical analysis thereof examines both the percentage of federally insured s ls that failed and the number thereof that failed the results were consistent for both sets of estimates among other things the time series estimates reveal that the s l failure rate over the 1965 1989 study period were a decreasing function of the real price of imported crude oil the mortgage portfolio yield and the average capital asset ratio in addition the s l failure rate was found to be an increasing function of the cost of deposits the volatility of the mortgage portfolio yield recession and finally the real ceiling per account on federal deposit insurance

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

tax reform unraveling the tax reform act of 1986 was widely heralded as the most significant change in our nation s tax law since the income tax was extended to the masses during world war ii it was the crowning domestic policy achievement of president ronald reagan who proclaimed it the best antipoverty measure the best pro family measure and the best job creation measure ever to come out of the congress of the united states the law s rate reductions and base broadening reforms were mimicked throughout the countries belonging to the oecd even at the time however reading the paeans to this legislation was like watching a tennessee williams play something was terribly wrong but nobody was talking about it two decades later the changes wrought by the 1986 act have proven neither revolutionary nor stable tax experts now regard the 1986 act as a promise failed the public seems to agree and considerable public support exists for a flat tax or a national sales tax to replace the income tax i shall examine the most important individual and corporate income tax changes since 1986 before turning to proposals for restructuring the nation s tax system

relational contracts and the value of loyalty this paper examines how relational contracting afiects the pattern of trade across the economy we suppose a flrm principal repeatedly chooses among of a set of potential trading partners agents under the threat of holdup the possibility of ex post opportunism allows agents to collect rents which act like a flxed cost that the principal must pay when initiating a new relationship the principal responds by dividing agents into insiders with whom she has previously traded and outsiders with whom she has never traded if the principal is su ciently patient the proflt maximising contract then uses insiders e ciently while being biased against outsiders this optimal strategy can be implemented by a maintenance contract that is robust to asymmetric information

inference tests for gini based tax progressivity indexes distribution free statistical inference procedures for changes in lorenz and gini based indexes of tax progressivity are developed and applied related but distinct tests for the reynolds smolensky index of residual progression and the kakwani index of liability progression are provided the inference procedures are illustrated by applying them to luxembourg income study microdata for sweden the united kingdom and the united states before and after periods of tax reform in each country a finding of significant change depends on the choice among progressivity indexes no single index exhibits a consistent pattern of significant change in all countries across time

did the tax reform act of 1986 simplify tax matters this paper attempts to assess whether the tax reform act of 1986 simplified tax matters significantly or at all i conclude that despite a few scattered signs that tax related financial planning has declined the compliance cost of the income tax system is probably higher now than it was in the early 1980s this suggests that the tax reform act achieved little if any simplification in the tax system although it remains possible that the act dampened what would have been an even greater increase in compliance cost

the corporate tax in an intertemporal equilibrium model with imperfectly mobile capital this paper examines how alternative capital mobility assumptions affect the inci dence and efficiency of corporate income taxation it uses a two sect or intertemporal equilibrium model in which imperfectly elastic inves tment captures the notion of imperfectly mobile capital if investmen t is infinitely elastic which implies perfectly mobile capital a lo wer corporate income tax yields substantial efficiency gains and bene fits all agents if investment is less elastic however the economy wide efficiency gains are smaller and labor suffers welfare losses i f the goods supplied by the two sectors are close substitutes noncor porate capital loses also and only corporate capital benefits copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

selection on observed and unobserved variables assessing the effectiveness of catholic schools in this paper we measure the effect of catholic high school attendance on educational attainment and test scores because we do not have a good instrumental variable for catholic school attendance we develop new estimation methods based on the idea that the amount of selection on the observed explanatory variables in a model provides a guide to the amount of selection on the unobservables we also propose an informal way to assess selectivity bias based on measuring the ratio of selection on unobservables to selection on observables that would be required if one is to attribute the entire effect of catholic school attendance to selection bias we use our methods to estimate the effect of attending a catholic high school on a variety of outcomes our main conclusion is that catholic high schools substantially increase the probability of graduating from high school and more tentatively attending college we find little evidence of an effect on test scores

does oil corrupt evidence from a natural experiment in west africa abstract this paper explores the oil discovery announcements in sao tome and principe 1997 1999 to assess the role of natural resources in determining corruption for this purpose we use a natural experiment framework which contrasts sao tome and principe to cape verde a control west african country sharing the same colonial past and important recent economic and political shocks our measurement is based on tailored household surveys we conducted in both island countries the unique survey instrument was retrospective and used personal histories to elicit memories from the respondents we analyze changes in perceived corruption across a wide range of public services and allocations we find clearest increases on vote buying education namely in the allocation of scholarships and customs ranging from 31 to 40 of the subjective scale we interpret these findings as symptoms of increased competition for core state resources

linking conflict to inequality and polarization in this paper we study a behavioral model of conflict that provides a basis for choosing certain indices of dispersion as indicators for conflict we show that a suitable monotone transform of the equilibrium level of conflict can be proxied by a linear function of the gini coefficient the herfindahl hirschman fractionalization index and a specific measure of polarization due to esteban and ray jel classification d74 d31

the importance of asymmetric tax policy and dangers of aggregation existing tax policies have many complex features that make distinctions across goods factors and financial structures that distort economic allocations their importance is ignored when tax policy is summarized by an effective tax rate in fact the losses due to asymmetries are often larger than the losses due to the level of taxation

the allocation of future business dynamic relational contracts with multiple agents we consider how a firm dynamically allocates business among several suppliers to motivate them in a relational contract the firm chooses one supplier who exerts private effort output is non contractible and each supplier observes only his own relationship with the principal in this setting allocation decisions constrain the transfers that can be promised to suppliers in equilibrium consequently optimal allocation decisions condition on payoff irrelevant past performance to make strong incentives credible we construct a dynamic allocation rule that attains first best whenever any allocation rule does this allocation rule performs strictly better than any rule that depends only on payoff relevant information

don t touch my road evidence from india on affirmative action and everyday discrimination summary this article investigates whether affirmative action in the form of electoral quotas affects group based discrimination the redistributive effect of quotas is subject to debate and their ultimate target is discrimination to identify the effect of electoral quotas i take advantage of their rotation across space and over time in india to proxy discrimination i use a measure of caste based exclusion from a public infrastructure namely streets in 2006 44 5 household members of the marginalized castes labeled scheduled castes sc still suffered from caste based exclusions i document that ongoing sc quotas reduce the likelihood of caste based exclusion for members of the scs by about one fifth the results also imply that the effect is not persistent it disappears with the end of the sc quota from a policy maker s perspective these results are mixed since electoral quotas do affect everyday discrimination even if the effect does not last these results are consistent with a temporary change in the behavior of members of the dominant castes after a one shot electoral quota these results are inconsistent with either a change in the stereotypes held by members of the dominant castes or a change in the aspirations of members of the lower castes

sustaining long term supply chain partnerships using price only contracts abstract in this paper we study how an informal long term relationship between a manufacturer and a retailer performs in turbulent market environments characterized by uncertain demand we show that the long term partnership based on repeated interaction is sustainable under price only contracts when the supply chain partners are sufficiently patient that is the channel can be coordinated over a long time horizon when the factor whereby the members discount the future value of this trusting relationship is sufficiently high second above the minimum discount factor a range of wholesale prices exists that can sustain the long term partnership and there are different possible profit divisions between the two players third when the market is turbulent i e either the expected demand or the demand variance changes from period to period according to a probabilistic law it is typically less possible to sustain the long term partnership in a booming market or in a market with low demand variability finally obtaining more information about future market fluctuation may not help the supply chain to sustain the long term partnership due to partners strategic considerations with the availability of the market signal total supply chain profits increase but the retailer may even be worse off

the structure of the tax system versus the level of taxation an evaluation of the 1986 act in this paper i assess the 1986 tax reform act relative to the tax system that might have evolved over the several years following 1986 had that particular tax reform not been enacted had tax reform not been enacted i believe that the pattern of steady tax increases particularly corporate tax increases and tax increases on high income individuals such as occurred in the 1982 and 1984 tax acts would have continued i also believe that the 1986 tax reform act introduced an income tax system that will be quite stable broad changes in particular changes that raise a large amount of income tax revenues are unlikely for many years so i am comparing the tax structure of the 1986 tax reform act to a system that in part has an inferior structure but that provides more revenues since i believe that the most important tax policy goal in 1986 and later should have been to raise revenues not to revise the structure of the tax system i believe that the 1986 tax reform act was harmful tax reform not only did not raise revenues it has made it more difficult to raise revenues in the future without providing significant offsetting benefits

multilateral contracting and the employment relationship this paper studies the structure of the employment relationship in organizations it investigates the trade off firms face between making commitments to their workforce as a whole multilateral relational contracts and making more limited commitments to individuals or smaller groups of employees bilateral relational contracts multilateral contracts bind the firm more strongly to implicit commitments improving motivation but are difficult to adjust in response to changes in the environment bilateral contracts make workforce changes easier to implement the framework helps to explain the use of relative performance evaluation why firms rely on temporary employees and the adoption of two tier workforces

income taxation uncertainty and stability abstract this paper develops a political model to analyze the stability of income tax schedules it is assumed that agents perceive any proposed alternative tax policy as more uncertain than the status quo a tax policy is stable if it is a condorcet winner it is well known that in a model without uncertainty the existence of such a policy is very rare we show however that in real cases this might not be a serious problem since small amounts of uncertainty can bring stability to the status quo it is also shown that linear tax functions can only be stable in economies with very egalitarian income distributions and high taxation levels

dynamic income progressive taxes and the timing of charitable contributions using an econometric model of charitable giving and a 10 year panel of tax return data i find that previous studies have underestimated the effects of permanent income and overestimated the effects of permanent changes in tax prices the significant statutory tax changes that occurred during the 1980s especially in 1986 serve to identify the key model parameters my results imply that people smooth their giving when transitory income changes but also time their giving to exploit transitory changes in tax prices the results also raise questions about how effectively the tax incentives permanently influence the level rather than just the timing of charitable giving by individuals

voluntary donations and public expenditures in a federal system proponents of the new federalism argue that nonprofit organizations and local governments will fully offset federal social service expenditure cutbacks the author analyzes this proposition as a competitive game in which donations are motivated by private and public good considerations the author characterizes the response of political economic equilibrium to exogenous changes in federal expenditures when local voters are cognizant of donor reactions partial replacement is the most likely outcome though others are possible copyright 1987 by american economic association

evaluating effective income tax progression abstract an algorithm to compute effective income tax progression is devised for use when taxes are a function of both money income and other socioeconomic attributes and the data is in grouped summary form suppressing non income information effective progression can be evaluated at percentiles in the distribution of either money or equivalent income the normative significance of the new measures is explained in both cases the methodology is illustrated by application to u s individual income tax annual data for 1950 1987 yielding contour plots which show how effective progression has varied across the income distribution and with the passage of time

strength in numbers networks as a solution to occupational traps the new classical theory states that families in low skill occupations with low levels of human capital can stay poor from one generation to the next while families in high skill occupations with correspondingly high levels of human capital stay wealthy despite being endowed with the same level of ability on average this paper proposes an informal institutional mechanism the community based network through which families belonging to the same neighbourhood or kinship group can bootstrap their way out of such low skill occupational traps the insight from the dynamic model that is developed is that once they form new networks providing mutual support to their members and substituting for inherited parental human capital and wealth will strengthen most rapidly in historically disadvantaged communities generating a correspondingly high level of intergenerational mobility these predictions are successfully tested using unique data from india the analysis in this paper coupled with an emerging empirical literature on networks and migration provides a new perspective on mobility in developing countries with restrictive traditional networks decaying even as new networks supporting collective mobility form and strengthen over time

the supply side effects of economic policy on october 24 and 25 1980 the center for the study of american business at washington university and the federal reserve bank of st louis cosponsored their fifth annual conference the supply side effects of economic policy this volume contains the papers and comments delivered at that conference proponents of supply side economics have challenged the policy recommendations that emerge from keynesian macroeconometric models these models focus on the effects of economic policy on the demand for output supply side economics in contrast emphasizes the response of output to changes in the supply of inputs decisions affecting the capital stock and employment in particular saving and investment decisions and labor force participation and hours decisions are the focus of the supply siders attention the 1980 conference examined most of the major themes associated with supply side economics the papers in part i of this volume develop the theory underlying various supply side propositions and present empirical evidence in support of some of these propositions in part ii the effect of taxes on capital formation and the effect of increased capital formation on output growth and inflation are examined the effect of tax and transfer programs on labor supply employment and unemployment are examined in part iii the final section contains the special luncheon and dinner presentations

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

estimation of limited dependent variable models with dummy endogenous regressors applied economists have long struggled with the question of how to accommodate binary endogenous regressors in models with binary and nonnegative outcomes i argue here that much of the difculty with limited dependent variables comes from a focus on structural parameters such as index coefcients instead of causal effects once the object of estimation is taken to be the causal effect of treatment several simple strategies are available these include conventional two stage least squares multiplicative models for conditional means linear approximation of nonlinear causal models models for distribution effects and quantile regression with an endogenous binary regressor the estimation strategies discussed in the article are illustrated by using multiple births to estimate the effect of childbearing on employment status and hours of work

the comparative advantages of firms markets and contracts a unified theory the most efficient labour market mechanism depends on the advantages of specialization workers costs of switching between entrepreneurs and the frequency with which needs change multilateral mechanisms are more efficient when specialization is more advantageous when it is cheap for workers to switch between entrepreneurs and when individual entrepreneurs cannot occupy a worker on a full time basis given a bilateral mechanism employment a firm is more efficient than contracts when in process adjustments arise more frequently there exist three regions in which firms markets and sequences of bilateral contracts are weakly more efficient than all other mechanisms in a big class

the boundaries of the firm revisited why do firms exist what is their function and what determines their scope these remain the central questions in the economics of organization they are also central questions for business executives and corporate strategists the worldwide volume of corporate mergers and acquisitions exceeded 1 6 trillion in 1997 it is hard to imagine that so much time effort and investment bankers fees would be spent on adjusting firm boundaries unless there was some underlying economic gain indeed the exceptional levels of merger and acquisition activity over the past two decades are a strong indication that economically significant forces do determine organizational boundaries the study of firm boundaries originated with the famous essay by coase 1937 who raised the question of why we observe so much economic activity inside formal organizations if as economists commonly argue markets are such powerful and effective mechanisms for allocating scarce resources coase s answer was in terms of the costs of transacting in a world of imperfect information when the transaction costs of market exchange are high it may be less costly to coordinate production through a formal organization than through a market in large part thanks to the work of williamson 1975 1985 recent decades have seen a resurgence of interest in coase s fundamental insight that firm boundaries can be explained by efficiency considerations our understanding of firm boundaries has been sharpened by identifying more precisely the nature and sources of transaction costs in different circumstances in the process the focus of

optimal taxation and optimal tax systems the theory of optimal taxation has for the pas two decades been the reigning normative approach of taxation this paper argues that in its current state optimal tax theory is incomplete as a guide to action concerning many critical issues in tax policy it is incomplete because it has not yet come to terms with taxation as a system of coercively collecting revenues from individuals who will tend to resist the coercive nature of collection taxes implies that the resource cost of implementing a tax system have been and will continue to be a critical determinant of appropriate tax policy the paper first presents the three cornerstone propositions of optimal tax theory and then it discusses the influence of these propositions on recent tax policy developments it concludes by sketching an alternative to optimal taxation called the theory of optimal tax systems which embraces the insights of optimal taxation but also considers the technology of raising taxes and the constraints placed upon tax policy by that technology the optimal tax systems perspective is shown to shed light on the choice of tax instruments the problem of tax evasion and the appropriate tax treatment of capital income this abstract was borrowed from another version of this item

policy watch cutting capital gains taxes from 1922 to 1986 long term capital gains were taxed at lower rates than other income generally by allowing a portion of long term capital gains to be excluded from taxable income while taxing capital gains at the same rates as other income has been hailed by some as a major accomplishment of tax reform it has been criticized by others as one of its main flaws as a result there have been proposals each year since 1986 to restore some type of capital gains preference these proposals have sparked a lively debate centered on three main questions would reducing the capital gains tax lower or raise federal revenues who benefits most from cutting the capital gains tax would lower tax rates on capital gains improve economic performance

escaping and falling into poverty in india today the study examines the dynamic nature of movements into and out of poverty over a period when poverty has fallen substantially in india the analysis identifies people who escaped poverty and those who fell into it over the period 2005 to 2012 the analysis identifies people who escaped poverty and those who fell into it over the period 2005 to 2012 using panel data from the india human development survey for 2005 and 2012 we find that the risks of marginalized communities such as dalits and adivasis of falling into or remaining in poverty were higher than those for more privileged groups some but not all of these higher risks are explained by educational financial and social disadvantages of these groups in 2005 results from a logistic regression show that some factors that help people escape poverty differ from those that push people into it and that the strength of their effects varies

progressive income taxes and the substitution effect of rrsps within a progressive income tax system registered retirement saving plans rrsps generate a substitution effect that decreases saving the key point made here is that when an rrsp is introduced to a system that taxes capital income the rate of return on marginal saving within the rrsp is driven to equality with the rate of return on non rrsp saving since rrsp contributions redistribute taxable income across periods they also have the effect of increasing future marginal income tax rates which lowers the after tax return to saving this result stands in contrast to the conventional view from the public finance literature

democracy and demography societal effects of fertility limits on local leaders we investigate whether restricting elected leadership positions to candidates with desirable characteristics leads to society wide adoption of those characteristics in a low income democracy with high political participation exploiting quasi experimental variation in fertility limits imposed on village council members in india to curb population growth we find that rural couples significantly decreased fertility in response socially disadvantaged families exhibit the greatest reduction in marginal fertility immediately following the passage of these limits but the decline in the long run stock of children is more evenly spread across socioeconomic groups the limits however also increased the already male biased sex ratio at birth in castes with strong son preference therefore while restricting access to elected office may aid in achieving social objectives it can also worsen inequality

women in politics evidence from the indian states abstract this paper uses panel data from the 16 larger states in india during the period 1967 2000 to study the effects of female political representation in the state legislatures on public goods policy and expenditure it finds that politicians gender affects policy but that their social position i e their caste should be taken into account as well female legislators in seats reserved for lower castes and disadvantaged tribes invest more in health and early education and favor women friendly laws such as amendments to the hindu succession act which was designed to give women the same inheritance rights as men they also favor redistributive policies such as land reforms in contrast female legislators from higher castes do not have any impact on women friendly laws oppose land reforms invest in higher tiers of education and reduce social expenditure the causal effect of female legislators is estimated using close elections between women and men

short of euphoria abstract the tax reform act of 1986 is the most sweeping reform since the early 1940s when the pressures of war finance forced the transformation of the income tax into a mass tax and made it the core of the federal tax system since then many adjustments have been made but the basic structure of the tax has remained unchanged behind this nominal stability however a slow erosion of the tax base appears to have been at work the widening of loopholes and emergence of high income shelters gained momentum in recent years and undermined the public s faith in the income tax the compounding of the investment tax credit and accelerated depreciation diluted and distorted the base of the corporation tax the current reform reverses these trends a major accomplishment that all reformers will welcome but the reform is far from complete its base broadening goes only part of the way and though substantial gains have been made they have not come without a price the pattern of rate reduction involving a dra

a signaling explanation for charity this article examines a novel but plausible motive for charitable giving charitable donations which are observable can signal wealth or income the signaling equilibrium of charitable donations has attractive properties donations increase proportionally with population size governmental funding for public goods affects private charity only through an income effect crowding out need not be complete income redistribution is generically nonneutral increasing the spread between the poorest and richest person in a community tends to increase private donations our theory are based on the assumption that people are willing to make charitable donations even if they will not increase provision of the public good the data on charitable giving support the hypothesis that donors donate at least partly for signaling purposes rather than only to aid the recipient or to obtain satisfactions unrelated to status though charitable organizations usually report donations within categories thus not allowing perfect revelation for analytical tractability we shall consider an equilibrium with perfect revelation and a continuum of types as characterized in george j mailath 1987 and norman j ireland 1994

taxes institutions and innovation theory and international evidence we develop an international model of the design of institutions for regulating innovative activities of private corporations informational limitations faced by the social planner preclude complete contracting with private firms corporate innovation creates positive and negative externalities the social planner in each country takes into account the legal system in place and designs an umbrella of institutions that include a menu of organizational forms liability structures corporate taxes and subsidies we show that limited liability may be accompanied by excessive innovation however when the nonmonetized benefits are very high private firms may be too conservative in innovation policies firms choose their organizational form and level of innovation consistent with private optimality with the optimal institutional design for each country we demonstrate that private innovation choices are aligned with social optimality in particular we show that the optimally designed corporate tax rate in each country is a decreasing function of its legal effectiveness using data from 63 countries over 2003 2018 we document supporting evidence mncs can take advantage of differential liability and corporate tax structures across national boundaries to circumvent institutional design constraints however when mncs generate positive externalities to host countries their governments may provide subsidies and incentives

on the effects of investment tax credits on economic efficiency and growth abstract this paper explores the overall efficiency effects of itcs in the context of a disaggregated dynamic general equilibrium simulation model of the u s economy this model postulates forward looking investment decisions and allows for optimal government borrowing and financial crowding out simulation results confirm the conventional wisdom that itcs are distortionary but challenge the equally conventional wisdom that itcs necessarily spur investment and gdp in addition results point to an important policy trade off introducing itcs without neutralizing their budgetary effects would lead to low efficiency losses but would reduce investment and gdp due to financial crowding out in turn imposition of itcs while blocking their budgetary effects would lead to relatively large efficiency losses while minimizing the negative impact on investment and gdp

caste stratification and wealth inequality in india summary we analyze the relationship between wealth inequality and caste divisions in india using nationally representative surveys on household wealth conducted during 1991 92 and 2002 03 according to our findings the groups in india that are generally considered disadvantaged known as scheduled castes or scheduled tribes have as one would expect substantially lower wealth than the forward caste groups while the other backward classes and non hindus occupy positions in the middle using the anogi decomposition technique we estimate that between caste inequality accounted for about 13 of overall wealth inequality in 2002 03 the stratification parameters indicate that the forward caste hindus overlap little with the other caste groups while the latter have significantly higher degrees of overlap with one another and with the overall population using this method we are also able to comment on the emergence and strengthening of a creamy layer or relatively well off group among the disadvantaged groups especially the scheduled tribes

tax reform and u s economic growth in this paper we evaluate the impact of the tax reform act of 1986 on u s economic growth we first calculate effective tax rates on income from capital employed in corporate noncorporate and household sectors we then project the future growth of the u s economy with and without the 1986 tax reform we find that much of the potential gain in welfare was dissipated through failure to index the income tax base for inflation the most promising avenue for future reform is to include income from household assets in the tax base while reducing tax rates on business income