institutional competition versus centralization quo vadis europe lots of steep and sometimes blind bends with harsh speed limits and frequent detours but still it has been one that has attracted more and more traffic after a successful period of shaping a customs union and a free trade area following the treaty of rome 1957 europe became infected with euro sclerosis in the seventies owing to an increased intensity of national regulation especially in the labour market the constructionist approach to harmonization from above slowed down the speed of integration almost to a halt only the change of two fundamental rules revitalized the european integration process namely the introduction of majority voting in the ec council and the mutual recognition of national regulations brought about by the 1979 ruling of the european court with the single european act and the launch of the internal market programme europhoria blossomed finally leading to the maastricht treaty which aimed to be the masterpiece of european integration only very recently the danish no and the unconvincing approval by the french voters cooled off hopes for a united states of europe signalling that european integration is at the crossroads once again

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

wealth accumulation over the life cycle and precautionary savings this article constructs and simulates a life cycle model of wealth accumulation and estimates the parameters of the utility function the rate of time preference and the coefficient of risk aversion by matching the simulated median wealth profiles with those observed in the panel study of income dynamics and in the survey of consumer finances the estimates imply a low degree of patience and a high degree of risk aversion the results are used to study the importance of precautionary savings in explaining wealth accumulation they imply that wealth accumulation is driven mostly by precautionary motives at the beginning of the life cycle whereas savings for retirement purposes become significant only closer to retirement

international effects of tax reforms in an open economy with international capital flows there is an equivalence relation between income tax consumption tax international borrowing tax and an external interest earning tax this paper analyzes tax reform involving shifts between income and consumption taxes in this setting it is shown that the real effects of such revenue neutral tax reform depend critically on the country s current account position and the nature of the reform in particular whether the world interest rate rises or falls as a consequence of a budget deficit depends on the tax system in force the analysis provides a clear rationale for the international coordination of tax policies copyright 1989 by royal economic society

entry into the market for large transport aircraft abstract european governments have been accused of unfair trading practices in providing subsidies for market entry in the large commercial aircraft industry a capacity game is calibrated for 1987 to 2006 showing that the disadvantage of late entry is overcome only after a long time hence market entry is unlikely without government subsidies the scale and scope effects of production outweigh the output reducing effects of a monopoly government supported market entry as an anti monopoly policy yields higher consumer welfare overall welfare is lower due to large losses in producer surplus

consumption path following a tax increase implications for the analysis of the welfare cost of taxation abstract the consumption path following a capital income tax increase is analyzed to demonstrate that short run increases in consumption dominate future declines in consumption for a considerable time it takes 25 years before a tax increase resutls in a loss of welfare

inflation capital taxation and housing the long run in a small open economy this paper deals with the consequences of inflation and capital income taxes for the accumulation of wealth in a small open economy with a housing sector particular attention is paid to the incentive and intergenerational redistribution effects stemming from the interaction of inflation and capital income taxation and to portfolio shifts between housing assets and other assets the authors find that the intergenerational distribution effects and the incentive effects on overall savings tend to offset and sometimes even to dominate several of the expected interasset substitution effects of a change in inflation and capital taxes

the transition from payroll to consumption receipts with endogenous human capital abstract the transition from payroll to consumption receipts is simulated in a life cycle growth model featuring adult human capital as in other studies savings are higher under the consumption base however unlike those studies much of the additional savings here take human form human capital production increases for all cohorts in or yet to join the labor market as of the tax change the additional human capital production tends to dampen physical capital accumulation when compared with otherwise identical simulations which hold human capital constant the implications for intergenerational incidence are similar to that found in other examinations of the transition to a consumption base

the variable rate of growth effect in the life cycle saving model the rate of growth in real gnp g affects the aggregate saving rate positively in life cycle saving models this rate of growth effect is invariably estimated as the coefficient of g in the saving function we show that other determinants of the saving rate influence the rate of growth effect in other words the rate of growth effect is not constant specifically the real rate of return on financial assets and the population dependency ratio determine the timing of saving over the life cycle and hence alter the rate of growth effect the dependency ratio also has an effect on the saving rate which is independent of g because it together with the foreign saving rate determines the level of saving over the life cycle

welfare effects of capital income taxation under variable and fixed labor supply not every model of economic behavior can allow for variable labor supply when attention is focused on other economic issues the effect on welfare change measurement of assuming labor to be in fixed supply becomes important the traditional view is that allowing labor supply to be variable will reduce the measured benefits of replacing an interest income tax with a payroll or consumption tax owing to the introduction or increase in a static distortion between consumption and leisure however this view ignores two mechanisms by which variable labor supply may actually increase the benefits of relaxing the capital income tax first an interest income tax distorts the intertemporal path of leisure and thus of labor supply second as explained below the interest elasticity of savings may be augmented by changes in the intertemporal labor supply path eliminating the labor supply path distortion and increasing capital accumulation can provide benefits which may potentially exceed the disadvantages of increased static distortion this paper tests which effects dominate by simulation in a life cycle growth model previous papers have not addressed these issues feldstein 3 discusses welfare measurement in a two period model in which an individual supplies labor in the first period and consumes in both periods feldstein s partial equilibrium efficiency measure incorporates the elasticity of labor supply with respect to the interest rate but his single period of labor supply may be misleading summers 8 demonstrates that in multi period models interest rate changes may have a large effect upon the present value of lifetime resources human wealth and consequently consumption that finding when applied to frameworks allowing for leisure consumption implies that both the compensated and uncompensated elasticities of labor supply with respect to the interest rate may be markedly different for multi period than for one period labor supply models summers exploits a multi period life cycle growth model to measure numerically the steady state efficiency gains following an elimination of interest income taxation he assumes labor to be fixed in supply at each moment consequently changes in human wealth cannot affect the leisure profile and the benefits of eliminating intertemporal leisure distortions are not captured summers concludes that steady state consumption and welfare would increase

the later you pay the higher the k this paper shows the importance of the age path life cycle timing of any tax for the accumulation of capital in the economy income consumption and wage taxes differ in their age paths as well as their incentive effects this paper studies how the differing age path of each tax affects the capital accumulation of the economy in an empirically calibrated life cycle model we investigate lump sum age taxes and find in every case that the later the person pays tax the higher the k of the economy to analyze the life cycle timing effect of conventional transactions based taxes income consumption and wage we replace each tax with a lump sum age tax that has the identical age path of tax payments over the life cycle we find that the timing effect is quantitatively important and often causes the impact of a tax on capital accumulation to be very different from what would be predicted from the incentive effect

assessing the dynamic efficiency gains of tax reform when human capital is endogenous this paper develops a life cycle growth model with endogenous human capital accumulation and variable leisure which is employed to simulate dynamic equal yield changes from an income tax to a consumption tax although endogenizing human capital investment decisions raises partial equilibrium estimates of the efficiency costs of capital income taxation general equilibrium welfare impacts of unanticipated tax changes are little affected by the inclusion of endogenous human capital this finding cannot be fully explained by the presence of general equilibrium adjustments in factor prices and can be attributed in part to the existence of transitional rigidities in capital stocks copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

fiscal incidence in an overlapping generations model with a fixed asset abstract we analyze a model of overlapping generations with a fixed factor land malleable capital and labor we consider the dynamic effects of various fiscal policies including taxes on rent wages and creation of public debt on capital accumulation land prices and intergenerational welfare minimal assumptions uniqueness and stability imply that a land tax may initially raise land values but the upper bound is less than one half of the tax revenues assuming homothetic utility the ratio between the long run capital responses to a land tax and to a lump sum transfer of equivalent revenue from the young to the old depends solely on the share of labor

taxes in a life cycle growth model with bequests and inheritances in a recent paper lawrence summers 1981 analyzes alternative taxes in a life cycle growth model this paper extends his analysis to include bequests and inheritances this inclusion is worth undertaking for several reasons first several recent empirical studies have suggested that bequests may account for an important share of the capital stock laurence kotlikoff and summers 1981 second it is important to explore whether the comparison of taxes is significantly affected when a bequest motive is introduced third the treatment of bequests under a consumption tax is controversial the endowment rationale calls for treating a bequest as taxable consumption by the deceased peter mieszkowski 1980 the real wage rationale calls for exempting bequests if such exemption raises the steady state capital intensity and real wage my 1980 article this paper confines itself to positive analysis of steady states transition paths and normative implications are explored elsewhere see my 1982 paper

do positional goods inhibit saving evidence from a life cycle experiment abstract we investigate the effect of positional goods goods for which one s consumption relative to others matters on saving based on results from a life cycle consumption saving experiment in a group treatment we allow inter personal comparisons by assigning subjects to groups and displaying rankings based partly on consumption a baseline individual treatment is similar but without the additional information we find more under saving saving less than the optimal amount and lower money earnings for subjects in the group treatment both effects are economically relevant with magnitudes of roughly 6 7 of expected income and 7 8 of average earnings respectively additional analysis shows that the result is driven by those subjects who are not ranked in the top three in their group keeping up with the joneses and males in particular

dynamic efficiency in the gifts economy abstract in the standard analysis of overlapping generations economies with gifts from children to parents each generation takes the actions of other generations as given the resulting equilibrium is dynamically inefficient in reality however parents realize that children will respond to higher parental saving by reducing gifts for a broad class of gift economies this implicit tax on saving pushes the equilibrium to dynamic efficiency this result reestablishes the potential relevance of the gift model to the us economy renders moot an important part of the ricardian equivalence debate and provides a motivation for a type of social security system

eliminating interest taxation and tariffs the underpinnings for recent canadian policy blanchard s 1985 formulation of the overlapping generations model and the so cial welfare function advocated by calvo and obstfeld 1988 are used to analyse interest taxation and tariffs in a small open economy when the revenue lost from the elimination of these taxes is replaced by raising the tax on labour as in recent canadian experience a low social discount rate is required for the model to support lower interest income taxes while a high discount rate is needed to support the elimination of tariffs we illustrate the empirical importance of this simultaneous need for both a high and a low discount rate eliminer l imposition des revenus d interet et les droits de douane les soubassements de la politique canadienne re cente les auteurs utilisent la formulation blanchard du modele des generations qui se chevauchent et la fonction de bien etre social de calvo et obstfeld pour analyser les effets de l imposition des revenus d interet et des droits de douane dans une petite economie ouverte quand la perte de revenus attribuable a l elimination de ces taxes est comblee par un imp6t sur le travail comme ce fut le cas au canada il faut postuler un taux d escompte social bas pour qu on puisse endosser une politique de reduction de l imposition des revenus d interet alors qu il faut postuler un taux d escompte social eleve pour endosser une politique de reduction des droits de douane les auteurs montrent l importance empirique de cette necessite d avoir un taux d escompte a la fois bas et haut

the present value criterion and environmental taxation the suboptimality of first best decision rules this paper examines the links between environmental taxes and distortionary taxation in a dynamic model of climate change and economic growth under first best conditions labor and capital would remain untaxed and carbon dioxide emissions would be taxed at a rate equal to the present value marginal cost they impose on future society setting the discount rate equal to the marginal productivity of capital under secondbest conditions however this decision rule substantially understates optimal emissions taxes when the resulting revenues are used to provide targeted cuts in distortionary taxes conversely relatively low emissions taxes are economically justified given lump sum revenue recycling

the regulation of environmental innovations abstract we offer mechanisms to regulate environmental r d projects that are intertemporal and indivisible and involve high monitoring cost screening and contracting the r d performer are based solely on the project completion time when the project duration is ex ante uncertain to all parties including the performing firm the mechanism is formulated in terms of a completion time limit the mechanism extends to other intertemporal public projects as well as to principal agent settings with dynamic agent s tasks

locational competition a neglected paradigm in the international division of labour krugman s verdict that competitiveness of countries is a largely meaningless concept is a serious misjudgement of the economics profession countries compete for the mobile factors of production most importantly for capital and technology the exit option of these factors and of firms changes the calculus of national governments this paper sets out the main elements of the concept of competition between locations locational competition and analyses its impact on welfare and employment of the capital exporting country it also looks at whether competition between countries necessarily results in a race to the bottom or whether it can function as a controlling mechanism for governments and as a discovery device the paper discusses under which conditions common rules are needed to reduce transaction costs and to prevent strategic opportunistic behaviour of countries and which common rules thus reduce transaction costs finally it deals with the question whether one institutional equilibrium in the world economy can be expected or whether many national equilibriums can coexist

the assessment european networks competition interconnection and regulation recent events such as the california energy crisis the failures of the uk s railways and the consequences of the third generation 3g mobile licence auctions have called into question the european reliance on a strategy of network industry liberalization substantial concentration in energy and telecoms markets has also raised the issue of the consistency of competition policy with the creation of internal energy and communications markets the paper considers the multiple market failures in these industries and the problems raised by a series of national policy approaches which fail fully to reflect the economies of scale and scope and the european level public goods security of supply in energy the roll out of broadband and the gains for an overarching approach to climate change require a more european focus this in turn will require institutional reform at the european level failure to address this europe wide agenda will leave europe behind the usa copyright 2001 oxford university press

is college financial aid equitable and efficient nk reed based financial aid is often defended both on grounds of equity and efficiency equity because it provides equality of opportunity and efficiency because it encourages the formation of productive human capital james 1988 however need is now determined in a way that is both inequitable and inefficient an informal survey of my colleagues who do not study financial aid revealed no one who named the financial aid system as a substantial tax on savings however once this interpretation was suggested they quickly revealed their unanimous and disturbing impression that savings are summarily confiscated from parents upon their first child s matriculation at university though exaggerated this impression is not without foundation two families with identical earnings paths pay dramatically different amounts for college if one saves more than the other thus while the financial aid system may contribute to vertical equity since the poor get more aid than the rich its horizontal inequities are substantial moreover the federal rules for financial aid raise significant efficiency concerns 1 they might conceivably distort many household decisions including family size and the spacing of children however this paper will focus upon the most important incentive distorted by present policies the incentive to save because saving leads to receiving less financial aid a family s return to saving is substantially below the social return this may lead to families making inefficient intertemporal choices and correspondingly to an inefficient loss of capital formation

the efficiency gains from dynamic tax reform this paper presents a new simulation methodology for determining the pure efficiency gains from tax reform along the general equilibrium rational expectations growth path of life cycle economies the principal findings concern the effects of switching from a proportional income tax with rates similar to those in the u s to either a proportional tax on consumption or a proportional tax on labor income a switch to consumption taxation generates a sustainable welfare gain of almost 2 percent of lifetime resources in contrast a transition to wage taxation generates a loss of greater than percent of lifetime re sources a second general result is that even a mild degree of progressivity in the income tax system imposes a very large efficiency cost this abstract was borrowed from another version of this item

measuring the welfare costs of inflation in a life cycle model abstract in a neoclassical growth model with life cycle households in which money is held to satisfy a cash in advance constraint the optimal steady state inflation rate is absurdly high in excess of 20 lump sum age independent money injections twist and flatten the lifetime profile of utility making this profile look more like the one that would be chosen by a planner the cost of monetary finance of lump sum payments is the distortion introduced to the labor leisure choice

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

current account dynamics in a finite horizon model abstract this paper examines the response of the current account in a small open economy to a permanent change in the price of imported intermediate goods to do so it extends blanchard s 1985 open economy model to incorporate the capital stock with adjustment costs a la hayashi 1982 a price increase in imported intermediate goods can be viewed as a combination of transfer payments abroad and capital taxation the former effect leads to a current account deficit and the latter leads to a current account surplus the overall effect depends on the relative magnitude of these effects

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

macroeconomic effects of factor taxation with endogenous human capital evolution theory and evidence the distortionary effect of factor income taxation has been one of the central issues in public finance theory for example see feldstein 4 boadway 3 homma 6 summers 14 and judd 8 a tax on capital income in contrast to a tax on labor income has been claimed to create an intertemporal distortion that affects the future paths of macro aggregates adversely through the decumulation of physical capital hence it is generally concluded in the aforementioned literature that capital taxation is more distortionary in the long run than labor taxation in this paper we revisit this issue by constructing a dynamic general equilibrium model with infinitely lived perfectly foresighted agents unlike most of the existing literature we develop a growth model in which both physical and human capital are endogenously accumulated 2 within this framework a tax on labor generates a distortionary effect on both human capital evolution and future dynamic paths of output and consumption analogous to the case of capital taxation in contrast to results in previous work labor income taxation in our economy can be more distortionary than capital income taxation even in the long run many studies for years have focused on welfare comparison of factor taxes in most cases calibration or simulation exercises are performed and there has been no empirical research to con

is public expenditure productive abstract this paper considers the relationship between aggregate productivity and stock and flow government spending variables the empirical results indicate that i the nonmilitary public capital stock is dramatically more important in determining productivity than is either the flow of nonmilitary or military spending ii military capital bears little relation to productivity and iii a core infrastructure of streets highways airports mass transit sewers water systems etc has most explanatory power for productivity the paper also suggests an important role for the net public capital stock in the productivity slowdown of the last fifteen years

optimal taxation in a growth model with public consumption and home production in a neoclassical growth model with public consumption we show the following pareto optimal tax rules the government should tax leisure and private consumption at the same rate and subsidize net investment at the same rate it taxes net capital income also it should tax capital income more heavily than labor income in an extension for home production the additional rule is to tax investment for home production at the same rate of the tax on private market consumption these tax and subsidy rates should be constant over time except the initial tax rate on capital income

capital income taxation in a growing open economy abstract the paper studies the dynamic macroeconomic effects of various forms of capital income taxation in a model of a small open economy with perfect mobility of financial capital and intertemporal optimization on the part of households and firms one of the noteworthy results is that the introduction of a low corporate income tax will not affect consumption in the long run but will simply lead to a replacement of shares by foreign financial assets in household portfolios it is also found that an anticipated investment tax credit can have and that an anticipated dividend tax will have contractionary effects on investment before they are introduced moreover it is shown that while an unanticipated dividend tax is neutral with respect to investment it will have real effects on consumption and net foreign assets in a growing economy

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

tax policy regulated interest rates and saving abstract the paper evaluates tax policy options designed to reduce distortions to savings behavior that occur when administered interest rates are set beneath market equilibrium levels while the removal of controls on interest rates might be the best option political legal or institutional circumstances might well preclude this solution it suggests that consumption or sales taxes can be designed so that in the short term the rate of return to saving can be changed to approximate the market determined interest rate the main advantage of the measure is that it can provide a time to develop appropriate legal and institutional structures for financial deregulation and b an additional policy instrument that allows the burden of adjustment in a stabilization policy setting to be distributed over more than one instrument

capital income taxation and the current account in a small open economy abstract this paper analyzes the effects of capital income taxation on the current account noting the difference between two international tax rules the residence principle and the source principle an increase in the residence tax rate reduces foreign asset holdings in the long run and creates a current account deficit on the other hand an increase in the source tax rate increases long run foreign asset holdings because the king fullerton 1984 effective tax rate responds positively to the increase in both taxes it does not predict the effects of taxation on the direction of international capital investments

crowding out in open economies results from a simulation study it has recently been shown that industrialized countries in the 1970s and 1980s are characterized by a high correlation between national saving and investment this regularly is considered puzzling in the context of highly integrated international capital markets in this paper the author shows that both the failure of real interest parity and productivity changes are each sufficient to generate a high positive correlation between national saving and investment these results indicate that it is easier than previously thought to reproduce a high correlation between saving and investment in models with perfect capital mobility

savings and wealth in models with altruistic bequests during recent years much attention has been given to the role of bequests in explaining various aspects of economic behavior for example authors have studied the impact of bequests on physical wealth accumulation laurence kotlikoff and lawrence summers 1981 the interest elasticity of savings owen evans 1983 tax reform laurence seidman 1984 and the distribution of wealth alan blinder 1976a more recently economists have begun to distinguish between human and physical bequests gary becker and nigel tomes 1986 acknowledging the presence of bequest in human form is important in analyzing each of the issues mentioned above outlays on children affect the shape of the family s labor supply and expenditure profiles upon which the level of aggregate savings crucially depends if these outlays are interest sensitive substitutes for physical bequests they will also influence the interest elasticity of savings in the area of tax reform the neutrality of the consumption tax depends on the ability of the government to identify human capital bequests from general consumption raymond batina 1987 if this is not possible the portfolio choice of investment in human versus physical capital may be distorted at the margin finally the unequal transmission of wealth across generations may be explained by the lack of physical bequests and the inefficiently low levels of human bequests made by wealthconstrained households becker and tomes 1986 to distinguish clearly the behavior of constrained households from unconstrained households who make sizeable physical bequests both types of bequests must be recognized this paper introduces a model that makes explicit examination of these issues possible it extends lord s 1989 multiperiod model of life cycle savings and adult human capital investment by adding altruistically motivated human and physical bequests 2 the model is calibrated using microeconomic data on earnings time and goods expenditures on children s human capital and physical bequests we then use the model to examine the contribution of bequests to wealth accumulation and the level of savings this topic is the source of an important but yet unresolved debate between franco modigliani 1988 and kotlikoff 1988 kotlikoff maintains that u s wealth accumulation is primarily the consequence of bequests as opposed to life cycle savings for retirement one type of evidence cited by kotlikoff comes from simulation results demonstrating the failure of realistically calibrated life cycle models to generate sufficiently high saving rates and wealth income ratios alan auerbach and kotlikoff 1987 we show however that if a pure life cycle

sweden s laffer curve taxation and the unobserved economy recent research on the unobserved economy suggests that the phenomenon has important implications for both macroeconomic policy and public finance attention is focused on the public finance implications by developing a simple macromodel from which it is possible to derive a laffer curve the model reveals that the shape and position of the laffer curve depend upon the strength of supply side effects the progressivity of the tax system and the size of the unobserved economy using alternative parameterizations of each of these effects it is possible to obtain rough empirical estimates of the laffer curve for sweden i introduction supply side economics the laffer curve and the unobserved economy are subjects which have captured the interest of economists in their effort to understand and design cures for the growing macroeconomic and public finance malaise which appears to be affecting many of the world s most developed economies high rates of unemployment and inflation combined with slower rates of real growth and ever widening government deficits have focused economists attention on the interrelated issues of macroeconomic stabilization and public finance policy the questions raised by the supply side laffer curve and unobserved economy literature focus on the effects of tax rates on economic performance and the ability of governments to sustain the ambitious social welfare programs established in the past decade while there is much controversy about what the laffer curve looks like and where various economies are on their curves it is generally accepted that the dependence of tax revenues on tax rates is too oversimplified in

international tax competition and gains from tax harmonization abstract in a world economy there are two types of distortions which can be caused by capital income taxation in addition to the standard closed economy wedge between the consumer saver marginal intertemporal rate of substitution and the producer investor marginal productivity of capital i international differences in intertemporal marginal rates of substitution implying an inefficient allocation of world savings across countries and ii international differences in the marginal productivity of capital implying an inefficient allocation of world investment across countries the paper focuses on the structure of taxation for countries which are engaged in tax competition and on potential gains from a tax harmonization we show that if the competing countries are sufficiently coordinated with the rest of the world then tax competition leads each country to apply the residence principle of taxation and there are no gains from tax harmonization if however there is not sufficient coordination then tax competition leads to low capital income taxes and the tax burden falls on the internationally immobile factors the outcome is nevertheless still efficient relative to the available constrained set of tax instruments

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

a theory of optimal deadlines abstract this paper sets forth a model of contracting for delivery in an environment with time to build and adverse selection the optimal contract is derived and characterized and it takes the form of a deadline contract such a contract stipulates a deadline for delivery for each possible type of agent efficiency the optimal contract induces inefficient delay by using delivery time as a screening device furthermore rents are increasing in the agent s efficiency in meeting the deadline the agent s effort is strictly increasing over time due to discounting it is shown that increasing the project s gross value decreases optimal delivery time while increasing the scale or difficulty of the project increases it last it is shown that the agent s rents are increasing in both project difficulty and gross project value

government debt in an overlapping generations model with bequests and gifts in 1974 robert barro argued that if individuals in successive generations were linked by bequests changes in the stock of government debt or in social security programs would have no effect on the steady state capital stock barro assumed that individuals held static expectations and that the size of the population was constant martin feldstein 1974 1977 had concluded that social security would reduce the capital labor ratio in models that did not admit a bequest motive and in his 1976 comment on barro argued that the introduction of government debt or social security into a perfect foresight dynamic growth model with bequests would still reduce the capital labor ratio barro replied that feldstein s criticisms were invalid if the steady state capital labor ratio were smaller than the golden rule level but would be correct if the opposite were true barro did suggest however that the latter possibility with overaccumulation of capital might be ruled out in his model as it was in miguel sidrauski 1967 but he was unable to demonstrate that the required behavior would be consistent with utility maximization by finite lived individuals 1976 p 345 although recent work by willem buiter 1979 jeffrey carmichael 1979 1982 truman bewley 1981 a b and others has helped to elucidate the nature of overlapping generations models with bequests and gifts and the issues in the barro feldstein debate they remain far from clear the purpose of this paper is to shed a little more light on the subject in what follows i contend that some of the authors cited above either have specified the individual s optimization problem in an asymmetric way or have failed to impose necessary conditions for a sensible optimization problem or both there is a natural specification of the barro model 1 that emphasizes the similarity between this model and optimal growth models see for example david cass 1965 peter diamond 1973 here in steady state equilibrium the aftertax interest rate r must equal the rate at which individuals discount the utility of their heirs p r p has become known as the modified golden rule and a meaningful individual optimization problem requires that p exceed n the natural growth rate of the economy my results confirm barro s hunch about his model in a barro model r must exceed n much of the barro feldstein 1976 interchange which assumed that r could have any relation to n is wrong headed barro and feldstein reach different conclusions about the effects of government debt and social security because they assume different individual utility functions also my results contrast sharply with those of buiter and carmichael for example carmichael concluded that with intergenerational transfers from parents to children bequests r must exceed n but with transfers in the opposite direction n must exceed r 1982 pp 205 06 indeed i believe that the buiter carmichael representation of the barro model is logically faulty see section ii in section i i outline an overlapping generations model with gifts and bequests and derive its steady state properties in the next section i discuss the shortand long run effects of introducing government debt into the model and contrast my results with those

the consumption tax in the presence of altruistic cash and human capital bequests with endogenous fertility decisions abstract we provide an analysis of the consumption tax policy in the presence of cash bequests human capital investments in children and endogenous fertility decisions it is shown that the consumption tax is no longer neutral if the tax rate is constant over the taxpayer s life cycle labor supply is exogenous and the parent expects the offspring to pay the same tax rate if the number of children is chosen optimally by the parent neutrality breaks down because the shadow prices of both bequests and fertility are interlinked it is more expensive to produce a child the larger either bequest is and it is more expensive to make a bequest of either type to each child the larger the number of children produced several examples are provided where imposing the consumption tax induces an increase in the number of children produced and a decrease in net capital formation

introduction tax policy issues for the 1990s in recent years in the wake of fiscal crisis developing countries have increasingly begun to restructure their tax systems to seek higher revenues or to improve the revenue elasticity and buoyancy of the tax structure chhibber and khalilzadeh shirazi 1988 these reform movements have also aimed to eliminate the disincentive effects of onerous levels of taxation to reduce the economic inefficiencies induced by the distortionary taxation of assets and sectors to protect the poorest of the poor from the tax net and to provide partial relief from the unwelcome effects of inflation this introduction to the following articles on tax policy first gives an overview of tax reform in developing countries it then distills lessons for tax reform from past developing country experiences and reviews selected issues that are expected to dominate tax policy research and discussions in the 1990s the five other articles in this symposium provide an in depth review of applications of tax policy models in developing countries and analysis of tax policy toward foreign direct investment taxation of agricultural land and financial assets and the redistributive impacts of various taxes