inflation taxation and welfare with externalities and leisure this paper examines how inflation taxation affects resource allocation and welfare in a neoclassical growth model with leisure a production externality and money in the utility function switching from consumption taxation to inflation taxation to finance government spending reduces real money balances relative to income but increases consumption labor capital and output the net welfare effect of this switch depends crucially on the strength of the externality and on the elasticity of intertemporal substitution while it is always negative without the externality it is likely to be positive with a strong externality and elastic intertemporal substitution

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

time series forecasts of international travel demand for australia abstract this paper analyses stationary and non stationary international tourism time series data by formally testing for the presence of unit roots and seasonal unit roots prior to estimation model selection and forecasting various box jenkins autoregressive integrated moving average arima models are estimated over the period 1975 1 1989 4 for tourist arrivals to australia from hong kong malaysia and singapore the mean absolute percentage error and root mean squared error rmse are used as measures of forecast accuracy as the best fitting arima model is found to have the lowest rmse this model is used to obtain post sample forecasts tourist arrivals data for 1990 1 1996 4 are compared with the forecast performance of the arima model for each origin market the fitted arima model forecasts tourist arrivals from singapore for the period 1990 1 1996 4 very well although the arima model outperforms the seasonal arima models for hong kong and malaysia the forecasts of tourist arrivals are not as accurate as in the case of singapore

the economic consequences of federal deficits an examination of the net wealth and instability issues there is currently disagreement over the economic consequences of federal deficits some economists argue that deficits put upward pressure on real interest rates and thereby crowd out interest sensitive private spending others argue that deficits stemming from lump sum tax cuts do not raise interest rates because the response of individuals will be to increase their saving by the full amount of the resulting deficit to enable future generations to service i e make interest and principal payments on the additional debt without curtailing their consumption in other words individuals view debt and taxes as perfect substitutes because debt financed tax cuts imply higher taxes in the future to service that debt this effectively means that there really is no permanent tax cut so there is no increase in private net wealth current consumption or interest rates stated another way the debt that is issued to finance a tax cut does not add to private net wealth because it implies an offsetting future tax liability but if debt is not viewed as implying future tax increases then debt and taxes are not perfect substitutes and increases in debt resulting from tax cuts will indeed add to private net wealth stimulate consumption and raise interest rates 2

fire sales and the financial accelerator abstract during financial turmoil increases in risk lead to higher default foreclosure and fire sales this paper introduces a costly liquidation process for foreclosed collateral and pro cyclical recovery rates in a dynamic stochastic general equilibrium model of the financial accelerator links between endogenous recovery rates risk premia and default risk generate a liquidity spiral magnifying financial accelerator effects we illustrate how collateral liquidation and monetary policy alter the real impact of financial shocks operating through macro financial linkages and the way a government subsidy on collateral liquidity and required liquidity buffers can help dampen the liquidity spiral by shoring up recovery rates

endogenous government spending and ricardian equivalence many analyses of debt policy assume exogenous government expenditures instead the author uses an optimizing model in which the government endogenously selects values of taxes spending and debt to maximize welfare if demand for publicly provided goods is elastic a debt financed tax cut increases consumption because individuals rationally expect some reduced government spending in the future even though future taxes rise they do not offset the expansionary effect of the current tax cut on consumption depending on preferences the marginal propensity to consume out of tax cuts can take any value between zero and the marginal propensity out of ordinary income copyright 1992 by royal economic society

deficits and intergenerational welfare in open economies this paper deals with public debt in open economies extending diamond s overlapping generations model to a small open economy as well as an international equilibrium of two large economies it focuses on the intergenerational welfare redistributions caused by an increase in public debt triggered by a temporary government budget deficit and shows how these redistributions differ in open and closed economies the interplay between the deficits in the government budget and the current account is also analyzed it is shown how a single period with a government deficit can be followed by a sequence of periods with a deficit in the current account

taxation bequests and short and long run timber supplies an overlapping generations problem this paper uses an overlapping generations model with one sided altruism to study the effects of several forest taxes that target bequests and affect timber supply unlike previous work we investigate bequests and timber supply in both the short and long run when bequests are costly e g taxed the landowner s problem is examined in the short run while the government s problem is examined in the long run assuming the existence of a steady state we also consider taxes targeting harvests growth savings and bequests several new results are established concerning the interactions of taxes that might be used by a government to alter short and long run forest capital stocks i the presence of a forest bequest tax affects the neutrality of harvest tax in both the short and long run ii in the long run the bequest tax decreases bequests and timber supplies when the bequest tax is not present the capital income tax is neutral with respect to bequest and timber supply while the harvest tax is neutral only if forest productivity is also not taxed finally iii in the short run the substitution and total effects of taxes in landowner decisions generally depend on the presence of the bequest tax the results have implications for pigouvian tax design and second best tax choice

the overlapping generations model iii the case of log linear utility functions existence of competitive equilibria in the overlapping generations model has been studied in some detail see 4 6 9 we need to know more about the properties of these equilibria how many are there how do they depend on the basic parameters of the economy we also need to compare the set of monetary competitive equilibria with the set of nonmonetary competitive equilibria are there vastly more monetary equilibria than nonmonetary equilibria analysis of the properties of competitive equilibria is for the overlappinggenerations model an important but difficult task in his seminal article 8 samuelson put it this way if we take any finite stretch of time and write out the equilibrium conditions we always find them containing discount rates from before the finite period and discount rates from afterward we never seem to get enough equations lengthening our time periods turns out always to add as many new unknowns as it supplies equations samuelson suggested that rather than facing this difficulty directly we can try to cut the gordian knot by our special assumption of stationariness

altruism intergenerational transfers of time and bequests abstract this paper uses a standard two period overlapping generation model to examine the behavior of an economy where both intergenerational transfers of time and bequests are available while bequests have been examined extensively time transfers have received little or no attention in the literature assuming a log linear utility function and a cobb douglas production function we derive an explicit solution for the dynamics and show that altruistic intergenerational time transfers can take place in presence of a binding non negativity constraint on bequests we also show that with either type of transfers capital is an increasing function of the intergenerational degree of altruism however while with time transfers the labor supply of the young increases with the degree of altruism with bequests it may decrease

forecasting u s tourist arrivals using optimal singular spectrum analysis this study examines the potential advantages of using singular spectrum analysis ssa for forecasting tourism demand to do this it examines the performance of ssa forecasts using monthly data for tourist arrivals into the unites states over the period 1996 to 2012 the ssa forecasts are compared to those from a range of other forecasting approaches previously used to forecast tourism demand these include arima exponential smoothing and neural networks the results presented show that the ssa approach produces forecasts which perform statistically significantly better than the alternative methods in forecasting total tourist arrivals into the u s forecasts using the ssa approach are also shown to offer a significantly better forecasting performance for arrivals into the u s from individual source countries of the alternative forecasting approaches exponential smoothing and feed forward neural networks in particular were found to perform poorly the key conclusion is that singular spectrum analysis ssa offers significant advantages in forecasting tourist arrivals into the us and is worthy of consideration for other forecasting studies of tourism demand

combining forecasts encompassing and the properties of uk macroeconomic forecasts the idea of combining forecasts is of great interest to forecasters and a linear combination of different forecasts can be more accurate than any individual forecast for model builders forecast encompassing is a way of checking whether any extra important information is contained in forecasts from rival models efficient forecasts have errors which are unrelated to any information available when they are formed combinations of forecasts forecast encompassing and efficiency tests can all be achieved by a restricted or unrestricted regression of outcomes on the separate forecasts this paper links these three approaches and examines the implications for recent uk annual forecasts

comment on kotlikoff shoven and spivak in the absence of perfect annuity markets individual consumers generally undertake precautionary saving to provide resources for their future consumption in the event that they live longer than expected kotlikoff shoven and spivak in this issue hereafter kss have provided us with a well conceived and well executed study of the effects of various annuity arrangements on individual and aggregate saving in the presence of lifetime uncertainty each of these authors has had a long standing interest in this area and their current paper reflects their accumulated expertise their results indicate that a potentially sizable fraction of u s household wealth represents precautionary saving resulting from the absence of perfect annuity markets the strategy of the kss paper is to develop simple models of individual saving behavior on the basis of utility maximization and then to aggregate the behavior of individuals both intraand intertemporally by comparing the results of models that differ in the specification of bequest motives and opportunities for creating annuities kss provide insights about the effects of various annuity arrangements on saving and capital accumulation although the models are all conceptually simple analytic solutions cannot be obtained in many cases therefore kss provide numerical solutions to their models in addition because the models are conceptually

optimal monetary policy and financial stability in a non ricardian economy this paper develops a model with discontinuous asset market participation in which all agents are infinitely lived and non ricardian and where heterogeneity among market participants implies financial wealth effects on aggregate consumption derivation of a welfare based loss function shows that financial stability arises as an additional and independent target besides infl ation and output stability evaluation of optimal policy under discretion and commitment reveals that price stability may no longer be optimal even absent inefficient supply shocks some fluctuations in output and infl ation are optimal as long as they reduce financial instability ignoring the heterogeneity among market participants in this economy may lead monetary policy to induce substantially higher welfare losses

on barro s theorem of debt neutrality the irrelevance of net wealth the effects of national debt on real economic activity has been a recurring topic in the literature on macroeconomic policy analysis since the time of adam smith the problem is usually stated as follows for a given level of government spending is the economy sensitive to the financing mix between tax and debt historically attention has focused on the question of whether or not individuals perceive government bonds as net wealth the link between wealth and real activity being taken as given the main point of debate is well established the issue of bonds raises private assets by the full value of the bonds the corresponding tax liabilities for interest payments and retirement of the debt extend indefinitely into the future the perception of bonds as net wealth would then appear to depend on the length of the individual s optimization horizon the most recent contribution to this debate was made by robert barro 1974 in which he argued that despite the limitation of finite lives bonds will not be regarded as net wealth in a system characterized by operative intergenerational transfers the essence of his argument is that inclusion of a bequest motive effectively converts a finite horizon into an infinite one in that paper barro acknowledged a potential limitation on his proof of the neutrality result it was only valid for bonds that are redeemed at a known point in the future this limitation was raised again in a subsequent exchange with martin feldstein in which barro 1976 agreed that for a growing economy an increase in steady state per capita debt will generate net wealth if the rate of growth is greater than the interest rate however he argued that such a steadystate growth situation would not be consistent with rational utility maximizing behavior the main theme of this paper is that the literature has focused attention on the wrong question the real effects of national debt are independent of whether or not individuals perceive the debt as net wealth the correct question is whether or not changes in the level of debt force individuals into patterns of intertemporal consumption that they are unable to neutralize by adjustments in their portfolio behavior viewing neutrality in this light leads to some reinterpretation of the conditions under which neutrality is likely to hold my analysis starts where barro and feldstein leave off within the framework of the overlapping generations model with gift and bequest motives i show that steady state equilibrium growth is consistent with a growth rate in excess of the interest rate indeed without specific knowledge of the parameters of the economy there are no a priori grounds on which to expect any particular relationship between the growth and interest rates more importantly so long as it is valid to view the aggregate economy as behaving like a composite individual changes in the steady state level of government debt are neutral regardless of which relationship prevails provided one or the other of the intergenerational transfer motives is operative i will refer to this as the extended neutrality theorem section i presents an analysis of steadystate growth with gift and bequest behavior the steady state growth path is shown to lie above the golden rule solution if the gift

operative gift and bequest motives the ricardian equivalence theorem which is the proposition that changes in the timing of lump sum taxes have no effect on assumption or capital accumulation depends on the exist of operative altruistic motives for intergenerational transfers these transfers can be bequests from parents to children or gifts from children to parents in order for the ricardian equivalence theorem to hold one of these transfer motives must be operative in the sense that the level of the transfer is not determined by a corner solution resulting from a binding non negativity constraint this paper derives conditions that determine whether the bequest motive will be operative the gift motive will be operative or neither motive will be operative in a model in which consumers are altruistic toward their parents and their children this abstract was borrowed from another version of this item

property rights and efficiency in olg models with endogenous fertility is there an economic rationale for pronatalist policies we propose and analyze a particular market failure that leads to inefficiently low fertility in equilibrium the friction is caused by the lack of ownership of children if parents have no claim on their children s income the private benefit from producing a child can be smaller than the social benefit we analyze an overlapping generations model with fertility choice and parental altruism ownership is modeled as a minimum constraint on transfers from parents to children using the efficiency concepts proposed in golosov jones and tertilt 2007 we find that whenever the transfer floor is binding fertility choices are inefficient second we show that the usual conditions for efficiency are not sufficient in this context third in contrast to settings with exogenous fertility a payg social security system cannot be used to implement efficient allocations to achieve an efficient outcome government transfers need to be tied to fertility choice

the failure of ricardian equivalence under progressive wealth taxation abstract although the ricardian equivalence theorem holds under a linear estate tax schedule it fails to hold under a nonlinear estate tax schedule in a representative consumer economy a temporary lump sum tax increase reduces contemporaneous consumption if different consumers face different marginal estate tax rates because they leave bequests of different sizes a lump sum tax increase redistributes resources from consumers in low marginal estate tax brackets to consumers in high marginal estate tax brackets aggregate consumption may rise fall or remain unchanged these departures from ricardian equivalence hold more generally under any nonlinear tax on saving wealth or income accruing to wealth

rational expectations and the effects of government debt abstract this paper incorporates the effects of government debt into a standard rational expectations macroeconomic model due to limited current information even when the most extreme propositions about fiscal neutrality are true there are output and interest rate effects of unanticipated changes in government debt therefore the observation of a positive correlation between government deficits and output or interest rates does not imply that government bonds are net wealth

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

have large budget deficits caused rising trade deficits for the united states the 1980s have been years of both large and unprecedented trade deficits as well as massive federal budget deficits the trade deficit rose from 25 billion in 1980 to 124 billion in 1985 during this same period federal budget deficits soared from 74 billion in 1980 to more than 212 billion in 1985 it is widely believed that the u s trade deficit rose mainly because of the skyrocketing federal budget deficit presenting such a view are for example hutchison and pigott 25 hutchison and pyle 26 clark 11 modigliani 30 and aschauer 2 besides economists many labor unions i e afl cio and official government documents see the economic report of the president particularly of 1984 have all shared similar views the issues involved have important policy implications suppose that the basic reason for rising trade deficits is indeed the escalating federal budget deficit in this case policy makers may focus on curtailing the budget deficit in order to resolve the trade deficit problem that has adversely affected several sectors such as manufacturing industries and agriculture however if such a view concerning the causal role of the budget deficit is incorrect then reductions in the federal budget deficit may not resolve the trade deficit dilemma and moreover attention will be diverted from more relevant and urgently needed policy options 6 the purpose of this paper is to empirically investigate the conventional argument that high federal budget deficit has been the prime cause of the escalating u s trade deficit finding only partial empirical evidence to support it in section ii i argue that most of previous studies in this area appear flawed by a methodological error rendering their tests unreliable for discriminating between a number of equally plausible hypotheses section iii describes the data and methodology used in the paper section iv presents the empirical results section v summarizes and concludes the paper

on the limitations of government borrowing a framework for empiricaltesting this paper seeks to distinguish empirically between two views on the limitations of government borrowing according to one view nothing precludes the government from running a permanent budget deficit paying interest due on the growing debt load simply by issuing new debt an alternative perspective holds that creditors would be unwilling to purchase government debt unless the government made a credible commitment to balance its budget in present value terms we show that distinguishing between these possibilities is mathematically equivalent to testing whether a continuing currency inflation might be fueled by speculation alone or is instead driven solely by economic fundamentals empirical tests which have been developed for this economic question lead us to conclude that postwar u s deficits are largely consistent with the proposition that the government budget must be balanced in present value terms this abstract was borrowed from another version of this item

intergenerational transfers and capital market imperfections evidence from a cross section of italian households abstract we investigate whether a system of family finance exists and to what extent it is able to offset capital market imperfections a simple model of intergenerational transfers implies that the probability of a liquidity constrained consumer receiving a transfer is negatively correlated with his current endowment and positively correlated with his future resources we test this proposition using a recent survey of italian households in which both transfer recipients and liquidity constrained households are readily observable the results indicate that private transfers help to ease borrowing constraints however a substantial number of liquidity constrained households remain after transfers have been made

a fractionally integrated autoregressive moving average approach to forecasting tourism demand the primary aim of this paper is to incorporate fractionally integrated arma p d q arfima models into tourism forecasting and to compare the accuracy of forecasts with those obtained by previous studies the models are estimated using the volume of monthly international tourist arrivals in singapore empirical findings demonstrate the evidence that the approach we propose generates relatively lower sample mean absolute percentage errors mapes this study also deals with the volatile data faced by a forecaster we use the asian financial crisis and the september 11 event as examples of economic and political shocks with respect to the objective of shaving the coefficient mape forecasts based on the selected arfima models dominate convincingly

productivity growth and the political economy of social security the present paper provides an analysis of unfunded social securityas the outcome of a public decision making process in an endogenousgrowth economy it employs a model in which there is a non monotonic relationship beween productivity growth and the scale ofpublic intergenerational redistribution the paper shows thatalthough unfunded social security need not harm growth in general it is likely to harm growth in a democracy this effect isreinforced by population aging

a management orientated approach to combination forecasting of tourism demand abstract volatility exponential smoothing regression and naive 2 models are considered singly and in combination in terms of forecasting demand for international tourism these models generate accurate predictions of tourism flows but their prime utility is when combined with other models usually models are combined by means of purely statistical criteria we show that goal programming gp offers an alternative flexible approach to model combination gp offers planners a practical solution to tourism forecasting problems since the method is more adaptable than conventional minimisation of prediction error by permitting practitioners to prioritise a series of management related goals forecasters can focus on longer and short term goals minimising forecast under and over estimation and or concentrate on prediction errors in tourism flows at various times of the year

credit and the natural rate of interest we analyze the properties of the natural rate of interest in an economy with asymmetric information between borrowers and lenders and nominal debt contracts in our model monetary policy has real effects in the flexible price equilibrium because it affects the cost of external finance as a consequence under the standard definition the natural rate of interest is not a useful policy indicator because it is itself affected by monetary policy we propose a generalized definition and demonstrate that the resulting natural rate i is not policy dependent and ii delivers price stability if used as the intercept of a monetary policy rule from a qualitative perspective the dynamics of the natural rate in response to shocks can be very different in economies with or without financial frictions quantitatively the policy implications of these differences tend to be minor for real shocks but sizable for financial shocks of the magnitude observed during the financial crisis of 2007 09

un conventional policy and the effective lower bound abstract we study the optimal combination of interest rate policy and unconventional monetary policy in a model where agency costs generate a spread between deposit and lending rates we show that credit policy can be a powerful substitute for interest rate policy in the face of shocks that negatively affect bank monitoring efficiency unconventional measures insulate the real economy from further deterioration in financial conditions and it may be optimal for the central bank not to cut rates to zero thus credit policy lowers the likelihood of hitting the zero bound constraint reductions in the policy rates without non standard measures are sub optimal as they force savers to inefficiently change their intertemporal consumption patterns

public debt voluntary intergenerational transfers and overlapping generations abstract this paper deals with the characterization of overlapping generations models with voluntary intergenerational transfers when altruism is one sided it is argued that the qualitative conclusions derived about debt neutrality do not depend on the way the intergenerational concern is modelled with operative bequests gifts the steady state interest rate is greater less than the population growth rate regardless of whether individuals have a concern about a representative descendant s ancestor s utility or the total welfare enjoyed by all their children parents when the criterion of total utility of the ancestors is adopted their utility must not be discounted but compounded since otherwise the model has no significant solution although there must be effective discounting of a representative ancestor s utility

a political theory of government debt and deficits in a neo ricardian framework in the presence of different abilities and therefore different bequests some individuals are bequest constrained even in a neo ricardian world such individuals vote for taxes on future generations through the issuance of bonds thereby increasing their current consumption this produces some crowding out of capital reduces wage rates and increases the interest rate as a consequence even unconstrained individuals are no longer indifferent to the size of government debt the paper derives conditions that are conducive to larger debt and deficits when each of the living generations determines current taxes social security benefits and the national debt by majority rule copyright 1989 by american economic association

uncertainty and optimal social security systems this paper examines the annuity aspect of social security within the framework of an overlapping generations model the duration of life is assumed to be uncertain under a fully funded system demand for social security is determined by each generation so as to maximize expected lifetime utility taking into account the welfare of future generations under a pay as you go system with intergenerational transfers demand for retirement benefits by the working population takes into account taxes paid by descendants it is shown that the two modes of finance are equivalent in terms of all real aggregates effects of changes in expected lifetime and in the birth rate are analyzed starting at the optimal level a compulsory balanced increase in social security taxes and benefits is shown to increase short run savings

government debt human capital and endogenous growth the effect of government debt on capital accumulation has been debated for more than a century the debate has focused on the validity of the ricardian equivalence hypothesis which asserts that the mix of government debt and nondistorting taxes to finance government expenditures has no real effect on an economy in models with infinitely lived agents government bonds increase private assets by the full amount that offsets the rise in future tax liabilities for interest payments and the retirement of public debt even in a model with finitely lived agents barro 1 showed that government debt is neutral when private intergenerational transfers are positive and when the rate of growth is lower than the interest rate with operative intergenerational transfers carmichael 4 extended the debt neutrality into a regime where the rate of growth is greater than the interest rate while suggesting some sources of nonneutrality of public debt such as heterogeneous tastes and uncertainty moreover drazen 6 argued that when intergenerational transfers take the form of investments in human capital which have higher marginal returns than investments in physical capital government bonds affect the equilibrium solution and increase welfare in contrast assuming that private intergenerational transfers are zero van der ploeg and alogoskoufis 10 argued that an increase in government debt depresses real growth through reducing savings in an endogenous growth overlapping generations model with constant population the models mentioned above ignore possible responses of fertility to changes in government debt in an overlapping generations model with operative bequests becker and barro 3 showed that the neutrality of social security needs modification if fertility is endogenous lapan and enders 9 extended the insight of becker and barro 3 to examine the effects of government debt and found that a rise in government debt reduces fertility and raises capital intensity through increasing bequests which are part of the cost of having children wildasin 11 also obtained similar results while endogenizing fertility none of these models has endogenous growth of per capita income

time consistent taxation in a dynastic family model with human and physical capital and a balanced government budget this paper analyzes optimal time consistent taxation in a dynastic family model with human and physical capital and with a balanced government budget when tax revenue is used for publicly provided consumption or lump sum transfers leisure would be higher than its social optimum pareto optimal taxation requires taxing capital income more heavily than labour income and subsidizing investment at the same rate of the tax also it requires either subsidizing labour at the same rate as a consumption tax or subsidizing consumption at the same rate as a labour income tax and hence it is not a practical guide to policy further a consumption tax or equivalently a uniform income tax with investment subsidies at the same rate can be improved on by taxing capital income more heavily than labour income ce memoire analyse la fiscalite optimale et consistante dans le temps dans un modele de famille dynastique avec capital humain et physique et un budget gouvernemental equilibre quand le revenu fiscal est utilise pour financer la consommation publique ou pour des transferts forfaitaires le niveau de loisir sera plus eleve que l optimum social la fiscalite optimale paretienne exige qu on taxe le revenu du capital plus fortement que celui du travail et qu on subventionne l investissement au meme taux que la taxe elle exige aussi soit qu on subventionne le travail au meme taux que la taxe a la comsommation soit qu on subventionne la consommation au meme taux que l impot sur le revenu du travail et donc ce n est pas un guide pratique pour la politique de plus un regime de taxe sur la consommation ou de maniere equivalente d impot uniforme sur le revenu avec subvention a l investissement au meme taux peut etre ameliore en taxant le revenu du capital plus fortement que celui du travail

public debt and demographic growth in an overlapping generations model abstract the comparative dynamics of changes in the rate of population growth are discussed in an overlapping generations economy where there is public debt the focus is on the effects of such variations on capital accumulation factor returns and welfare of individuals living in steady states

the impact of political instability on a fragile tourism product abstract the eastern mediterranean and aegean sea are not the first areas to find themselves engulfed in a political situation which threatens economies so reliant upon tourism and foreign currency receipts recent examples along the coast of north africa and former yugoslavia for instance show how foreign tourism can be all but obliterated by political instability and civil upheaval the on going dispute between the two partitioned communities on the island of cyprus threatens not only a tourism destination already suffering from increased competition and quality problems but also the neighbouring countries greece and turkey who rely upon tourism to contribute to their economies downturns in these economies can only exacerbate the problems in a vicious circle the reader is introduced to the more recent causes and the threats occurring in the area

is non monetarist arithmetic just as unpleasant what should the central bank do if the fiscal authority persists in running a deficit if the monetarist policy prescription of bond financing deficits is adopted mccallum 8 and others have shown that the real growth rate must exceed the after tax real interest rate if macroeconomic instability is to be avoided analysts such as miller and sargent 10 and burbidge 1 doubt whether this condition is met and thus argue in favor of greater flexibility in the rate of monetary growth but will that lead to instability as well is the requirement for a unique solution and macroeconomic convergence just as stringent under the non monetarist option of money financed deficits if so monetarists can deflect criticism of their financing option from those who argue money financing is preferred on feasibility grounds this paper addresses this question and concludes that money financing involves much more pleasant arithmetic than does bond financing analysis is given for both closed and small open economies considering what is available in the existing literature the open economy extension may be the most important contribution of the paper in addition to addressing the feasibility of alternative financing options we use the model to comment on the welfare cost of inflation in an open economy environment the feasibility of money financed deficits has recently drawn renewed attention among macroeconomists erbas 2 using a model which imposes the ricardian equivalence hypothesis and assumes no growth concludes that money financing is preferred as an automatic stabilizer as it offers greater short run stability of the level of income scarth 14 comes to the same conclusion using a model which does not impose the ricardian equivalence hypothesis but which allows economic growth liviatan 6 and mitchell 11 investigate the feasibility of bond and money financing using long run models of a closed economy in which government bonds constitute a part of net wealth in this paper we consider both open and closed economy long run models and we adopt the ricardian equivalence hypothesis we emphasize ricardian equivalence since most monetarists are comfortable with this assumption thus unlike the previous long run studies we examine the feasibility of monetarist versus non monetarist financing options using a model acceptable to most monetarists this is important when the results do not support monetarism the remainder of the paper is organized as follows the closed economy analysis is given in section ii the open economy case is discussed in section iii and concluding remarks are contained in section iv

a seasonal analysis of asian tourist arrivals to australia rapid economic growth in south east and east asia has seen a surge in tourist arrivals from this region to australia in the 1990s prior to the currency crisis in late 1997 the purpose of the paper is to use autoregressive integrated moving average arima models to explain the nonstationary seasonally unadjusted quarterly tourist arrivals from hong kong and singapore to australia from 1975 1 to 1996 4 as the tourist arrivals series display strong seasonal patterns deterministic and stochastic seasonality are examined as possible explanations for variations in the international tourist arrivals series the hylleberg et al journal of econometrics 99 pp 215 38 1990 test for seasonal unit roots is used to examine stochastic seasonality in the various series

endogenous fertility ricardian equivalence and debt management policy abstract the paper develops a model in which dynastic families optimally determine fertility government debt represents a tax on future generations and on childbearing the ricardian equivalence hypothesis does not hold debt is welfare reducing in that it distorts the fertility decision an increase in government debt induces a decline in fertility and an increase in the steady state capital labor ratio if a government inherits an existing stock of debt the first best policy is to eliminate the debt immediately in other situations the optimal debt management policy will not in general entail a total elimination of the debt

optimal monetary policy with the cost channel in the standard new keynesian framework an optimizing policy maker does not face a trade off between stabilizing the inflation rate and stabilizing the gap between actual output and output under flexible prices an ad hoc exogenous cost push shock is typically added to the inflation equation to generate a meaningful policy problem in this paper we show that a cost push shock arises endogenously when a cost channel for monetary policy is introduced into the new keynesian model a cost channel is present when firms marginal cost depends directly on the nominal rate of interest besides providing empirical evidence for a cost channel we explore its implications for optimal monetary policy we show that its presence alters the optimal policy problem in important ways for example both the output gap and inflation are allowed to fluctuate in response to productivity and demand shocks under optimal monetary policy

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

intergenerational altruism with future bias abstract we show that standard preferences of altruistic overlapping generations exhibit future bias which involves preference reversals associated with increasing impatience this underlies a conflict of interest between successive generations we explore the implications of this conflict for intergenerational redistribution when there is a sequence of utilitarian governments representing living generations and choosing policies independently over time we argue that future bias creates incentives to legislate and sustain a pay as you go pension system which every government views as a self enforcing commitment mechanism to increase future old age transfers

international tourism and export instability export diversification has been suggested as a strategy for decreasing the level of export earnings instability which is experienced by many developing countries in recent years the international tourism sector has made an increasingly important contribution to the economies of many low income countries this article examines whether diversification into the non traditional tourism sector has succeeded in decreasing the instability of export earnings it was found that although tourism has the advantage of high growth rates and is a major source of foreign currency receipts earnings from international tourism did not bring about a significant decrease in the instability of export earnings of most of the developing and industrialised countries considered furthermore a net increase in the instability of earnings from tourism and merchandise exports occurred in a number of countries and may be a particular problem in small open developing economies

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

on debt neutrality in life cycle models abstract a parallelism is established between pure life cycle models and those in which altruism is one sided in the discussion of the public debt neutrality it is argued that when indiduals behave as pure life cyclers the coercive transfers necessary to offset the effects of the debt have the same nature and take place under the same conditions as the voluntary intrafamily bequests and gifts which constitute the usual basis for the ricardian equivalence theorem

a comparison of three different approaches to tourist arrival forecasting abstract forecasting plays a major role in tourism planning the promotion of tourism projects involving substantial sums of money requires an estimate of future demand and market penetration the commitment to developing tourism would be much easier if it were possible to analyse current and past tourist traffic and predict the nature of changes in tourism demand these extrapolative approaches to forecasting require historical data this paper investigates the application of three time series forecasting techniques namely exponential smoothing univariate arima and elman s model of artificial neural networks ann to predict travel demand i e the number of arrivals from different countries to hong kong exponential smoothing and arima are two commonly used statistical time series forecasting techniques the third approach neural networks is an artificial intelligence technique derived from computer science according to the analysis presented in this paper neural networks seems to be the best method for forecasting visitor arrivals especially those series without obvious pattern

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

pay as you go public pensions with endogenous fertility abstract veall s 1986 model of public pensions is generalized to allow for endogenous fertility we show that gifts to the old which can be viewed as social security contributions are always positive in the steady state an optimal stationary allocation is sustainable if savings are zero and fertility is exogenous however the optimal allocation is in general not sustainable in particular if a government enforces a social security plan setting the pension level at the optimal gifts and individuals optimize under the pension constraint the resulting sustainable outcome is in general different from either the optimal or nash outcome

social security taxation and intergenerational risk sharing the life cycle hypothesis has become the dominant mode used to analyze the effects of a social security system on private saving the labor leisure choice and social welfare as both barro and samuelson indicate a fully funded social security program in a world of certainty would drive out an equivalent amount of private saving if the interest rate is r the effects of a payment of a dollar into the social security pool while young would just offset the effects of receiving 1 r dollars as a transfer when retired papers by diamond hi and samuelson among others have examined the effects of non fully funded social security schemes in a growing economy a non fully funded program can be used to alter the private sector s saving rate and hence the capital labor ratio social security then can be used as a policy tool for achieving the or some variant of the golden rule growth path this abstract was borrowed from another version of this item

modelling the uncertainty in monthly international tourist arrivals to the maldives abstract the indian ocean tsunami of 26 december 2004 made clear the devastating short term impact in lost lives as well as the longer term impact in lost livelihoods and an uncertain future tourism was one of the more obvious non human casualties of this tragic natural phenomenon tourism is the principal industry in the maldives accounting for more than 30 of gdp and more than 60 of foreign exchange earnings as over 55 of government tax revenue arises from tourism related taxes and monthly government budget financing depends largely on international tourist arrivals the monitoring of daily weekly and monthly international tourist arrivals is essential for fiscal policy evaluation over 600 000 tourists visited the maldives in 2004 this paper examines the time series properties of monthly international tourist arrivals to the maldives from eight major tourist source countries namely italy germany uk japan france switzerland austria and the netherlands from 1 january 1994 to 31 december 2003 monthly international tourist arrivals and the associated uncertainty are estimated for the eight principal tourist source countries univariate and multivariate time series models of conditional volatility or uncertainty are estimated and tested the conditional correlations are estimated and examined to ascertain whether there is specialization diversification or segmentation in the international tourism demand shocks from the major tourism source countries to the maldives the estimated static conditional correlations for monthly international tourist arrivals as well as for the respective transformed series were found to be significantly different from zero but also relatively low this indicates that the government of the maldives and the major tour operators that organise tourist vacations have to emphasise their marketing efforts independently of each tourist source country

tourism forecasting to combine or not to combine abstract existing non tourism related literature shows that forecast combination can improve forecasting accuracy this study tests this proposition in the tourism context by examining the efficiency of combining forecasts based on three different combination methods the data used for this study relate to tourist arrivals in hong kong from the top ten tourism generating countries regions the forecasts are derived from four different forecasting models autoregressive integrated moving average arima model autoregressive distributed lag model adlm error correction model ecm and vector autoregressive var model all forecasts are ex post and the empirical results show that the relative performance of combination versus single model forecasts varies according to the origin destination tourist flow under consideration which parallels previous findings regarding the relative performance of individual forecasting methods the results also vary with the combination techniques used furthermore although the combined forecasts do not always outperform the best single model forecasts almost all the combined forecasts are not outperformed by the worst single model forecasts this suggests that forecast combination can considerably reduce the risk of forecasting failure this conclusion also implies that combined forecasts are likely to be preferred to single model forecasts in many practical situations

social security and savings plans in overlapping generations models abstract this paper examines the impact of social security and saving plans on a simple overlapping generations model with no uncertainty the model is related to and provides a reconciliation of the diamond and samuelson gale models of public debt and public capital savings plans and pay as you go social security are seen to have quite different effects depending on the assumptions governing the growth rates of public debt and capital and it is also shown that the social security program proposed by feldstein is infeasible in the steady state he adopts as a starting point

social security as trade among living generations we model u s social security that is legislated endogeneously by living generations specifically we consider the effects of social security on resource allocation and pareto optimality examining which generations gain from social security and whether some generations lose because saving and transfer decisions are made sequentially in the real world we use an infinite horizon overlapping generations framework in which life cycle saving and transfers to the old are determined by living agents we focus on the case in which agents are altruistic but place sufficiently greater weight on own comsumption than on the consumption of agents in other generations so that starting from a steady state without social security living agents would gain utility if consumption were shifted marginally to them from later generations excerpt

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 financial system and the natural real interest rate towards a new benchmark theory model the 2008 financial crisis revealed serious flaws in the models that macroeconomists use to research inform policy and teach graduate students in this paper we seek to find simple additions to the existing benchmark model that might let us answer three questions what caused the boom and crisis why has the recovery been slow and how should policy respond to that slow recovery we argue that it is necessary to add financial frictions to the benchmark model this allows us to study the effects of leveraged financial institutions and of a yield curve based on preferred habitats such features will cause endogenous changes in the natural real interest rate and the spread between that interest rate and the rate which influences expenditure decisions they are likely to radically change the way in which the model responds to shocks we point to some promising models that incorporate these features

combining volatility and smoothing forecasts of uk demand for international tourism abstract univariate volatility models are applied to uk tourism demand to the country s most popular international destinations volatility is a concept borrowed from finance the fact that significant volatility models are found for ten of the twelve destinations examined shows that the volatility concept has relevance to tourism demand volatility models are able to quantify the impacts of positive and negative shocks on tourism demand the impacts of negative shocks vary in magnitude and duration according to the destination involved and the nature of the shock the forecasting capability of these models has never been assessed in the tourism field they are shown to generate highly accurate forecasts but become optimal when combined with forecasts obtained from exponential smoothing models two methods of combining individual forecasts are considered bias in individual volatility and smoothing models and in combinations of them is examined

love thy children abstract this paper proves that barro s 1974 debt neutrality proposition whose relevance hinges in an economy with bequest motives on bequests being operative in the economy without public debt is not applicable to a wide class of overlapping generation economies those with a weak bequest motive in particular it is shown that the bequest motive is always too weak and public debt therefore non neutral when non physical assets have a well defined function reducing oversavings in the corresponding economy without bequest motive i e when the non altruistic economy is dynamically inefficient

forecasting tourist arrivals using origin country macroeconomics this study utilizes both disaggregated data and macroeconomic indicators in order to examine the importance of the macroeconomic environment of origin countries for analysing destinations tourist arrivals in particular it is the first study to present strong empirical evidence that both of these features in tandem provide statistically significant information of tourist arrivals in greece the forecasting exercises presented in our analysis show that macroeconomic indicators conducive to better forecasts are mainly origin country specific thus highlighting the importance of considering the apparent sharp national contrasts among origin countries when investigating domestic tourist arrivals given the extent of the dependency of the greek economy on tourism income but also given the perishable nature of the tourist product itself results have important implications for policy makers in greece

sustainable forestry timber bequests future generations and optimal tax policy this paper analyzes harvesting and timber bequest behavior in a two period overlapping generations model where the government uses site productivity yield and inheritance taxation the ceteris paribus effects of forest and inheritance taxes are derived first then the paper discusses the optimal design of forest and inheritance taxes by assuming that intergenerational externalities are either absent or operative in the absence of intergenerational externalities it is optimal to use only the site productivity tax and not to introduce yield and inheritance taxes at all in the presence of intergenerational externalities the situation changes the paper demonstrates that the externality can be internalized by introducing either a yield tax or an inheritance subsidy or both if the government is able to use both at the same time it is desirable to use the yield tax to punish excessive harvesting and an inheritance subsidy to bribe to give bequests