monetary policy and the stock market theory and empirical evidence this paper gives a comprehensive review of the literature on the interaction between real stock returns inflation and money growth with a special emphasis on the role of monetary policy this is an area of research that has interested monetary and financial economists for a long time monetary economists have been interested in the question whether money has any effect on real stock prices while financial economists have investigated whether equity is a good hedge against inflation empirical studies show that money can be helpful in predicting future stock returns empirical evidence also suggest that equity is not a good hedge against inflation in the short run but may be so in the long run the short run negative relation between stock returns and inflation can easily be explained by theoretical models if the central bank conducts a countercyclical monetary policy this will result in a negative relation between inflation and stock returns while if it conducts a procyclical policy we could observe a positive relation according to both theoretical and empirical studies investors receive an inflation risk premium for holding equity

the output composition puzzle a difference in the monetary transmission mechanism in the euro area and u s we revisit recent evidence on how monetary policy affects output and prices in the u s and in the euro area the response patterns to a shift in monetary policy are similar in most respects but differ noticeably as to the composition of output changes in the euro area investment is the predominant driver of output changes while in the u s consumption shifts are significantly more important we dub this difference the output composition puzzle and explore its implications and several potential explanations for it while the evidence seems to point at differences in consumption responses rather than investment as the proximate cause for this fact the source of the consumption difference remains a puzzle

a cost benefit analysis of a condom social marketing programme in tanzania this article uses the revealed preference willingness to pay approach to estimate the benefits in a cost benefit analysis of a condom social marketing csm programme in tanzania the demand curve used to derive the consumer surplus had unit elasticity and it was estimated from a cross sectional sample of 1272 persons people were willing to pay different prices for the condoms because perceived quality varied net benefits were close to zero for the minimum estimate that ignored external benefits with external benefits included the csm programme was judged socially worthwhile with our best estimate producing a benefit cost ratio ranging from 1 31 to 1 72

do financial markets learn from ecb monetary policy abstract this article examines the magnitude of stock market reactions to european central bank ecb monetary policy announcements since the introduction of the ecb declining absolute abnormal returns have been compatible with the theory that stock markets learn from ecb monetary policy in particular eurozone financial markets extract information from the ecb announcements and consider this information before making investment decisions furthermore the predictability of ecb monetary policy has been increasing over time

alleviating transitory food crises in sub saharan africa international altruism and trade the donor community has responded to unexpected or transitory drops in domestic food production in many countries in sub sabaran africa an empirical framework estimates and analyzes the correlation between this food aid and domestic production both emergency food aid and commercial imports are used to offset the effects of negative output shocks in sub saharan african countries the major recipients of global emergency food aid on average every one ton drop in cereal production is offset by the delivery of 0 8 tons of cereal and dairy products from abroad over four years most food aid arrives within a year of a shock and correlation of shocks over time along with the differences between crop years and calendar years may explain the link between aid and production the economic and political considerations also determine the global response to the emergency food needs of countries in africa the international response is not contingent on the form of government or the level of political and human rights violations poorer countries and those with well established nonemergency food aid programs receive larger amounts of emergency aid when needed food aid has long helped low income countries to sustain domestic food supplies and cope with transitory food insecurity and it has also been used to accelerate agricultural development and increase food production but food aid has been heavily criticized in the past decade on several grounds first it has been charged that the international response to food crises is slow meager and inefficient a related accusation suggests that countries granting emergency food aid disciriminate on the basis of the political and economic orientation of the recipient country second food aid has been thought to discourage domestic food production thus leading to long term dependence on donors finally it has

comparing the welfare effects of public and private health care subsidies in the united kingdom we use a calibrated analytical model to compare the welfare costs gross of externalities of increasing subsidies for public and private health care in the uk the model incorporates wait costs for rationed public care burdens that subsidies impose on the tax system and distributional weights for different households welfare costs are significantly higher for expanding public health care over a range of parameter scenarios both policies reduce average wait times but for public health care this is offset by new waiting costs incurred on extra treatments and the burden on the tax system is much larger for expanding public health care

if we knew ability how would we tax individuals abstract the suggestion to tax people on earnings capacity instead of earnings has been around for a long time and is attractive in terms of economic efficiency in this paper we reflect on the feasibility of such a system and give an exploratory empirical implementation we apply the leyden welfare function of income a survey based measure of an individual s welfare associated with income to derive implications for ability taxation under the assumption that iq and schooling reflect earnings capacity we derive the tax functions using different criteria to distribute the utility loss due to taxation

progressive taxation and the social marginal cost of public funds abstract this paper describes the calculation of the social marginal cost of public funds smcf for a progressive tax system which distorts individuals labour supply decisions a formula for the smcf indicates that the income and substitution effects of the labour supply response are weighted by the changes in individuals average and marginal tax rates respectively other well known formulas for the smcf are shown to be special cases of this formula the difference between this formula and the mayshar 1991 formula is shown to be due to different but equally valid ways of computing the change in the average tax rate the condition under which a marginal tax rate increase may lead to a reduction in revenues is derived

the trade off between equality and efficiency this paper uses a 1976 microdata base to estimate the marginal cost of reducing income inequality with a policy that has distributional effects similar to the present tax transfer system the analysis uses a simulation methodology in which only the labor supply effects are evaluated other behavioral effects are ignored the most striking finding is that marginal cost is quite high even for modest labor supply elasticities for example in the benchmark case with a weighted average economy wide uncompensated wage elasticity of 0 2 and compensated elasticity of 0 31 the disposable money income of upper income quintiles of households is depressed by 9 51 for each dollar increase in the disposable money income of lower income quintiles when income equivalent values that take account of the value of leisure are compared the marginal cost for this case is estimated to be 3 49

the microstructure of the euro money market abstract this paper provides an empirical examination of the microstructure of the euro money market especially the overnight market the interbank market for short term funds in the transnational currency created in january 1999 the institutional framework shaping the microstructure of the money market can be delimited as the union of 1 central banks interest setting bodies and their long term policy strategy 2 instruments for monetary policy operations and liquidity management 3 the private market financial instruments and trading mechanisms for funds and 4 the payment and settlement infrastructure for the transfer of those funds all four elements can significantly influence the intraday behaviour of money market rates to study their effects on the euro money market 5 months of intraday data for overnight deposits have been recorded from brokers in four euro area countries and the uk posting their quotes on reuters and from the italian electronic market mid the results show two hump shaped or u shaped intraday patterns of quoting frequency and volatility but flatter intraday patterns sometimes weakly single hump shaped for bid ask spreads even intraday overnight rate levels hardly differ across brokers located in different euro area countries reflecting the high integration of this market already shortly after the introduction of the euro despite some remaining heterogeneities in market structures and trading channels quoting activity rate volatility and spreads increase on ecb governing council days particularly after the 1 45 pm release time of interest rate decisions however since the amplitude of this volatility is economically small and since turnovers are not indicative of adverse selection the average degree of policy uncertainty seems to have been rather limited during our sample period ecb announcements of new m3 data related to the first pillar of its monetary policy strategy around 10am seem to be associated with very moderate increases in short term volatility tuesdays eurosystem main refinancing auctions with the open market exhibit active pre and post auction liquidity re allocation but only a very short and moderate increase in volatility after the announcement of the allotments and no signs of market power or adverse selection open market operation settlement days exhibit the highest turnovers during the business week at least for the mid without however being affected by any special risks finally it is shown that spreads and volatility tend to be very high at the end of the minimum reserve maintenance period and that the same happened during the year 2000 changeover days reflecting the high risks involved in both

the marginal welfare cost of public funds theory and estimates abstract we derive a general analytic formula for the marginal welfare cost mwc of public funds without imposing restrictive assumptions on preferences or technologies the framework encompasses the various special cases previously considered and reconciles the disparities among the reported estimates of mwc unresolved differences in existing estimates are fully explained by appropriate interpretations of intended thought experiments and alternative assumptions about the elasticity of labor supply with respect to public spending further progress in measuring mwc requires empirical estimation of labor supply functions that include government spending as an explanatory variable

fiscal interactions and the case for carbon taxes over grandfathered carbon permits this paper provides simple formulas for adjusting the costs of carbon taxes and tradable carbon permits to account for interactions with pre existing tax distortions in the labour market both policies reduce labour supply as they increase product prices and reduce real household wages the resulting efficiency losses in the labour market can be substantial relative to partial equilibrium abatement costs however much of this added cost can be offset and perhaps more than offset when additional distortions from the tax system are considered if revenues from carbon taxes or auctioned permits are used to reduce distortionary taxes consequently there can be a strong case on efficiency grounds for using carbon taxes or auctioned permits over grandfathered carbon permits copyright 2003 oxford university press

labor supply responses and welfare effects of tax reforms during the late 1 980s and early 1 990s taxation of wage income has undergone a change towards a proportional tax regime in many countries our analysis shows that gradual tax reforms in norway may have removed some of the distortions on worker behavior moreover we find that proportional taxes may reduce the inequality in the distribution of disposable household income yet when the distributional consequences are related to changes in individual welfare we find that rich households may benefit far more than households at the other tail of the income distribution because they earn more without any significant increase in effort

supplementing an emissions tax by a feed in tariff for renewable electricity to address learning spillovers abstract in the presence of learning spillovers related to renewable energy technologies an optimal strategy to mitigate climate change should complement an emissions tax by a subsidy for renewables this article addresses the question how such subsidy should be designed it is shown that the widely used approach of a revenue neutral fixed feed in tariff can yield an optimal outcome under restrictive conditions only it has to be adapted continuously as the electricity price changes moreover funding the tariff by a surcharge on the electricity price has important implications for the design of the emission tax the optimal tax rate has to be below the pigovian level differentiated across fossil fuels and adapted over time as the patterns of technological development change these requirements may pose a formidable challenge for practical decision making however it is important to point out that the eventual choices made with respect to the design and funding of a feed in tariff have to be based on a careful and more comprehensive policy assessment including inter alia economic effects beyond the electricity sector and existing institutional constraints

tax effects versus budget effects on labor supply this paper analyzes the effects on labor supply of parallel changes in taxes and public spending of various types a number of important recent developments in the labor supply behavior of households are highlighted by such a study of various types of budget effects rather than isolated tax effects this comes out in particular when considering cross substitution effects on labor supply of changes in public spending on goods and services or of the subsidization of goods and services provided by private markets moreover the income effects of tax changes are often mitigated or possibly even removed by the income effects of the accompanying expenditure changes

the theory of taxation for developing countries tax policy has far reaching implications for economic development and public administration this book which presents a modern theory of public finance brings together many of the most distinguished economists who have written on the subject they provide coherent principles for tax design and a systematic framework for the analysis of practical questions of tax reform and pricing policy in developing countries the book is especially timely as countries experience increasing shortages of government revenue and the distortions brought about by poorly designed tax systems it pays particular attention to the special problems of developing countries such as the taxation of agriculture the aim throughout is to develop techniques that can be quantitatively applied given the data available and empirical case studies illustrate the methods in action the authors analyze the links between tax theory social cost benefit analysis and the pricing of publicly supplied goods and services they also explore the empirical and econometric problems of identifying the tradeoffs between equity and efficiency other topics treated include the analysis of labor markets the taxation of foreign private investment and of fuel and the pricing of education although the models used concentrate on developing countries most of the methods and discussion apply as well to the problems of more affluent countries

marginal welfare costs of taxation with human and physical capital i introduction marginal welfare cost of taxation is the amount by which the social cost of an additional tax dollar differs from 1 because of distortionary taxation browning and johnson 1984 stuart 1984 browning 1987 ballard 1988 and allgood and snow 1998 use static models of the u s economy in which labor supplies adjust but the stocks of human and physical capital are fixed to calculate estimates of this welfare cost relevant to cost benefit analysis the studies by lucas 1990 and perroni 1995 incorporate human and physical capital into calculations of excess burden for the purpose of comparing alternative tax systems but do not address the welfare costs of marginal tax and spending reforms ballard et al 1985 and judd 1987 provide estimates of welfare cost using models that allow the stock of physical capital to change in response to marginal reforms but the stock of human capital is exogenous in these studies however judd 2001 argues that there is ample evidence indicating that human capital investment decisions have a significant effect on the cost of altering the tax system which suggests that these decisions could also have an important influence on marginal welfare cost in this article we present estimates of welfare costs for marginal reforms to government tax and spending policies when labor supply saving and education decisions are all endogenous we focus our analysis on marginal reforms because as skinner and slemrod 1985 observe most policy reforms enacted do not involve replacing one tax or spending system with another but instead typically entail marginal adjustments in tax laws and government appropriations using a perfect foresight overlapping generations model with a three period life cycle we derive analytical expressions for the changes in labor supply saving and education and use them to calculate marginal welfare cost as shown by auerbach et al 1983 in overlapping generations models steady state welfare comparisons of alternative tax policies are biased unless households are compensated for intergenerational redistribution along the transition path to arrive at our steady state estimates of welfare costs we adapt the compensation method introduced by gravelle 1991 for analyzing fundamental tax reforms to the context of incremental tax and spending reforms in a static one consumer model triest 1990 has shown that marginal welfare cost mwc is positive solely because of tax leakage the decline in tax revenue caused by reductions in the tax base we extend this insight to an intertemporal context that incorporates tax leakage arising from changes in both human and physical capital investment we evaluate three sets of reforms first a revenue neutral reduction in the tax on capital income funded by a higher tax on labor income second spending on a public good financed by either a higher tax on labor or interest income third a per capita lump sum transfer or demogrant also funded by either a higher tax on labor or interest income we find that marginal welfare costs are uniformly lower in the dynamic model where investment decisions are endogenous than in the static model where investment decisions are fixed and that the majority of the difference between the dynamic and static estimates is attributable to human capital decisions the principal reason is that a reallocation of time between labor hours and human capital investment has opposing and potentially offsetting effects on effective labor supply as a result labor supply responds less elastically in the dynamic model and changes in labor supply are the main source of tax leakage because wage taxation is the main source of tax revenue we also find that shifting marginal financing from capital to labor results in a lower welfare cost the reason being that such a change encourages saving which increases wage rates and stimulates labor supply leading to a reduction in marginal welfare costs

links between economic liberalization and rural resource degradation in the developing regions this paper examines evidence of the effects of economic liberalization and globalization on rural resource degradation in developing countries the principal resource effects of concern are processes of land use change leading to forestland conversion degradation and deforestation the main trends in globalization of interest are trade liberalization and economy wide reforms in developing countries that have opened up the agroindustrial sectors thus increasing their export orientation such reforms have clearly spurred agroindustrialization rural development and economic growth but there is also concern that there may be direct and indirect impacts on rural resource degradation the direct impacts may occur as increased agricultural activity leads to conversion of forests and increased land degradation from unsustainable production methods however there may also be indirect effects if agroindustrial development displaces landless near landless and rural poor generally who then migrate to marginal agricultural lands and forest frontier regions this paper explores these direct and indirect effects of globalization and agroindustrialization on rural resource degradation both generally plus through examining case study evidence the paper focuses in particular on the examples of structural adjustment trade liberalization and agricultural development in ghana and maize sector liberalization in mexico under north american free trade agreement nafta

technology adoption and agricultural price policy market interventions such as price supports or fertilizer subsidies can lead to gains from speeding up adoption of new technologies but the policies distort resource allocation a framework is developed for optimizing policies in light of the adoption allocation trade off based on adoption coefficients and production parameters from third world agriculture levels and duration of policies are estimated sensitivity analyses are performed gains are small at best and may be zero or negative in view of farmer costs of adjustment and deadweight losses from taxes profit technology adoption if new technologies are desirable why not use price supports or input subsidies to encourage faster technology adoption while frequently raised in policy deliberations this question has received little serious analysis particularly neglected has been the conflict or trade off between a gains in output as producers switch from old to new technologies and b the losses from resource use distortions brought about by price policies when output prices are raised or prices of inputs such as fertilizer are lowered the

market structure and the nature of price rigidity evidence from the market for consumer deposits panel data on consumer bank deposit interest rates reveal asymmetric impacts of market concentration on the dynamic adjustment of prices to shocks banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates but are faster to reduce them in response to declining market interest rates thus banks with market power skim off surplus on movements in both directions since deposit interest rates are inversely related to the price charged by banks for deposits the results suggest that downward price rigidity and upward price flexibility are a consequence of market concentration

the reaction of stock prices to unanticipated changes in money a note much of the past work on the money stock market relationship centered on the question of whether money is a leading indicator of stock prices studies by sprinkel 22 homa and jaffee 10 and hamburger and kochin 8 supported the view that past increases in money lead to increases in equity prices the implication of this work was that investors could earn above normal proflts by using a trading strategy based on the observed behavior of the money stock this contradicts the efficient markets hypothesis which asserts that current asset prices reflect all available information so that no such trading strategy can exist subsequent research by cooper 3 pesando 17 rozeff 21 and rogalski and vinso 19 has shown that past money changes do not contain predictive information on stock prices upholding the efficient markets view this paper investigates whether the response of common stock prices to weekly money announcements is consistent with the efflcient markets hypothesis unlike the above research therefore the focus is on the very short run response of stock prices to both anticipated and unanticipated announced changes in money recent work by berkman 1 grossman 7 urich and wachtel 25 and roley 20 indicates that short term interest rates respond only to the unexpected component of the announcement with short term rates rising when the announced change in money exceeds the expected change berkman also examined the reaction of stock prices finding that an unanticipated increase in the money supply depressed share prices lynge 13 found that positive money announcements lowered stock prices but since he did not distinguish expected from unexpected money growth his results do not bear directly on the efficient markets issue in investigating the response of stock prices to weekly money announcements survey data on market participants forecasts of the announced weekly change

the effect of taxation on human capital this study finds a significant negative effect of proportional income taxation on human capital of the few earlier studies to address this issue most suggested a negligible effect of taxation on investment in human capital this earlier conclusion is shown to be incorrect by using a model that is more general in several respects than the models used previously

the relationship between the marginal cost of public funds and marginal excess burden a large literature has recently developed which attempts to measure the marginal cost shadow price of public funds the motivation for much of this literature is the recognition that many of the tax instruments used by governments generate substantial amounts of excess burden deadweight loss jerry a hausman 1981 for example estimates that for an average prime aged american male with a wage of ten dollars in 1975 the excess burden generated by the federal income tax was over fifty percent of the revenue raised from taxing that individual one might suspect that such large excess burden estimates would require a change in the way government project costs are calculated in benefit cost analysis if the revenue required to finance a project is raised through distortionary taxation then intuition would suggest that the excess burden generated by the increase in tax rates needed to finance the project should be incorporated into the cost of the project however this analysis is not entirely consistent with the theoretical literature on the optimal provision of public goods which are financed by distortionary taxation when distortionary taxes are used to finance public goods and the level of public good provision does not affect consumption of the taxed goods the standard samuelsonian rule which equates the sum over consumers of the marginal rates of substitution between a private good and a public good with the marginal rate of transformation between the two goods must be modified to account for the marginal effect of increases in tax rates on the revenue raised from the existing taxes 2 the intuition behind this result is that we need to correct for indirect leakages from existing government revenue sources when considering an incremental expenditure if the increase in tax rates needed to finance the project causes a reduction in the revenue raised by the current tax structure then we need to account for this loss in calculating the cost of the project it is important to note that this result concerns the values of uncompensated demand elasticities an example first provided by atkinson and stern 1974 illustrates this point consider a world where the only tax is on labor earnings and incremental expenditure on the public good does not affect the demand for leisure in this case the marginal rate of transformation will overstate the cost of the public good as long as the uncompensated wage elasticity of labor supply is negative this is because an increase in the tax rate causes an increase in labor supply leading to an indirect increase in government revenue from the excess burden perspective described earlier this example is very puzzling it is well known that even if the uncompensated own price elasticity of a good is zero a tax on that good can still result in a large deadweight loss we instead need the compensated elasticity to be zero to ensure that there will be no excess burden however the department of economics university of california davis ca 95616 this paper is based on chapter two of my dissertation at the university of wisconsin madison i wish to thank the members of my dissertation committee martin david robert haveman chair and arthur goldberger for very helpful advice and comments i have also benefited from comments by don fullerton and bruce hamilton an anonymous referee provided unusually helpful comments and corrected an error in the figure 1don fullerton 1989 provides a recent survey and analysis of this literature 2this is shown by anthony atkinson and nicholas h stern 1974 and david e wildasin 1979 the effect of provision of the public good on consumption of the taxed goods must also generally be taken into account

nafta and mexico s maize producers abstract the fall in the producer price of maize that will accompany implementation of trade liberalization and nafta has led to dire predictions of falling incomes and labor displacement in mexican agriculture we use a household survey of the ejido sector to show that a majority of maize producers are in fact not producing for the market and will consequently not be directly affected as producers by a drop in the price of maize while a significant share will benefit as consumers for the net sellers we explore the determinants of two solutions to a falling maize price diversification toward high value crops and modernization of maize production for both of these results show the fundamental importance of reconstructing supportive institutions for marketing credit and technical assistance in replacement of the services formerly offered by government and subsequently discontinued under state contraction

financial differences and business cycle co movements in a currency area i propose a unitary framework to interpret the links between differences in financial structures and the monetary policy regimes on the one hand and the correlation of business cycles on the other using a two country micro founded model with financial frictions i predict that a greater financial diversity should reduce cyclical correlation under a given monetary regime and that moving from independent monetary policies to a hard peg or a common currency should increase it for any given degree of financial diversity i use the recent experience of emu to test these ideas and show that my model explains reasonably well the broad patterns of business cycle correlation observed recently among the main euro area countries

a marginal cost of funds approach to multi period public project evaluation implications for the social discount rate abstract although the use of marginal cost of funds mcf has been widely appreciated in public finance literature discussions of mcf have been confined to a static setting this paper develops a multi period project evaluation rule that is based on mcf unlike previous approaches the parameters required for implementing the mcf rule are independent of projects under consideration a lesson from this paper is that the government discount rate policies that are largely based on the concepts of social discount rate and shadow price of capital should be rewritten with the use of parameters representing mcf

on the marginal welfare cost of taxation this paper develops a rigorous partial equilibrium analysis of the determinants of margin al welfare cost mwc of taxes on labor earnings it shows that four key parameters interact to determine the magnitude of mwc using aggregate data and plausible ranges of values for the parameters mwc can vary from under 10 percent to more than 300 percent of marginal tax revenue intermediate parameter values sugge st mwc is in the 25 50 percent range however the more extreme estimates cannot be ruled out on the basis of available evidence suggesting that mwc cannot yet be copyright 1987 by american economic association

precautionary savers with ricardian propensities in his seminal 1974 paper barro noted that ricardian equivalence may fail if agents face undiversifiable idiosyncratic risk and governments finance tax rebates with higher future tax rates 5 higher tax rates reduce the dispersion of future after tax income decrease the precautionary demand for savings and hence tend to stimulate present consumption barro concluded however that the stimulus to consumption would be minor and would likely be offset by induced reductions in future labor income the recent revival of interest in the precautionary savings motive has refocused attention on this tax insurance effect tie 2 8 24 27 in particular two highly influential papers one by barsky mankiw and zeldes 6 and the other by kimball and mankiw 19 argue that the tax insurance effect generates consumption responses roughly equivalent to those obtained from keynesian models where agents ignore future tax liabilities entirely although the existence of a precautionary demand for savings and by implication a taxinsurance effect has received strong empirical support 9 15 21 the magnitude of the effect remains largely unknown the two most difficult empirical issues involve quantifying the degree of uninsured idiosyncratic risk faced by typical agents and determining the appropriate form and shape of agents utility functions on these issues the profession is far from a consensus studies from the labor economics literature 1 17 suggest idiosyncratic risk may be large and persistent whereas a recent paper by heaton and lucas 16 finds idiosyncratic risk to be small and largely transitory similarly the vast literature surrounding the equity premium puzzle highlights the profession s lack of consensus over the degree of risk aversion exhibited by typical agents in this paper i circumvent some of these controversial issues by extending barsky mankiw and zeldes model to include an explicit labor supply decision the introduction of a labor supply decision allows me to bring evidence from the literature on optimal income taxation 22 25 and the literature on the welfare cost of taxation 3 4 7 to bear on these issues the idea is simple under the conditions that make the tax insurance effect large i e very risky income distributions and a high degree of risk aversion agents will place great value on tax induced

targeting in medicaid the costs and enrollment effects of medicaid s citizenship documentation requirement abstract the deficit reduction act of 2005 imposed a federal requirement that all individuals provide citizenship documentation when applying for or renewing medicaid coverage this represented a change in policy for 46 states using differences in differences to analyze data from the current population survey 2004 2008 this paper shows that the policy reduced medicaid enrollment among non citizens as intended and did not significantly affect citizens one in four adult non citizens in medicaid 390 000 total and one in eight child non citizens 81 000 were screened out by the policy annually child non citizens were more likely to become uninsured afterwards while adult non citizens appeared to shift from medicaid to other coverage overall the citizenship documentation requirement reduced medicaid participation among non citizens in an appropriately targeted way nonetheless a cost benefit analysis indicates that the policy was a net loss to society of 600 million through increased state administrative spending and compliance costs imposed on u s citizens applying for medicaid

the substantial bias from ignoring general equilibrium effects in estimating excess burden and a practical solution we show that under typical conditions the simple excess burden triangle formula substantially underestimates the excess burden of commodity taxes in some cases by a factor of 10 or more this formula performs poorly because it ignores general equilibrium interactions most important interactions between the taxed commodity and the labor market many prior studies have shown that general equilibrium interactions affect excess burden but have not appreciated the bias associated with ignoring these interactions or the quantitative importance of this bias we derive an implementable alternative to the simple formula this alternative formula captures interactions that the simple formula omits as a result it is both unbiased and usually more accurate

multimarket analysis of agricultural price policies in an operational context the case of cyprus this article presents a method of analysis of agricultural price policies its basic features are i the incorporation of important supply and demand substitution possibilities ii a flexible structure which can account for institutional features of the agricultural sector and its relationships with the rest of the economy and iii a focused policy oriented approach an application to cyprus is presented which highlights the differences between this approach and analyses of single markets the method incorporates supporting software on personal computers with the longer term objective of developing this type of approach as a standard tool in pricing policy analysis

monetary policy through the credit cost channel italy and germany pre and post emu we present an empirical analysis of the credit cost channel ccc of monetary policy transmission this channel combines bank credit supply and interest rates on loans as a cost to firms the thrust of the ccc is that it makes both aggregate demand and aggregate supply dependent on monetary policy as a consequence 1 credit market conditions e g risk spreads are important sources and indicators of macroeconomic shocks 2 the real effects of monetary policy are larger and persistent we have applied the cointegrated vector autoregression cvar econometric methodology to italy and germany in the hard ems period and in the european monetary union emu period the short run and long run effects of the ccc are detectable for both countries in both periods simulation of the estimated model also confirms that inflation targeting by way of inter bank rate control stabilizes inflation through structural shifts of the stochastic equilibrium paths of both inflation and the output

the welfare effects of environmental taxation recent literature has investigated whether the welfare gains from environmental taxation are larger or smaller in a second best setting than in a first best setting this question has mainly been addressed indirectly by asking whether the second best optimal environmental tax is higher or lower than the first best pigouvian rate even this indirect question has itself been approached indirectly comparing the second best optimal environmental tax to a proxy for its first best value marginal social damage msd on closer examination however msd becomes ambiguously defined and variable in a second best setting making it an unreliable proxy for the pigouvian rate given these observations the current analysis reevaluates these welfare questions and finds that when compared directly to its first best value the second best optimal environmental tax generally rises with increased revenue requirements even in cases where the second best environmental tax is lower than its first best value the welfare gains may be greater than in a first best setting these results suggest that the marginal fiscal benefit revenue recycling effect exceeds the marginal fiscal cost tax base effect over a range of environmental tax rates that for benchmark models extends above the first best pigouvian rate these findings reinforce the intuition that environmental policy complements rather than competes with the provision of other public goods

tax competition and tax coordination in a median voter model this paper analyzes the welfare effects of capital tax coordination in a simple model of fiscal competition where fiscal policy is subject to majority voting and households differ with respect to their labor and capital income it turns out that a coordinated capital tax increase may raise or reduce welfare depending on the relative magnitude of i economic distortions induced by a labor tax and ii political distortions resulting from the influence of the median voter on fiscal policy decisions a negative welfare effect is more likely the smaller the marginal excess burden of the labor tax and the smaller the ratio of the median voter s labor income to average labor income we also use empirical estimates of the marginal excess burden of taxation to determine the welfare effects of tax coordination it turns out that a negative welfare effect of coordinated tax increases may emerge in our model for empirically reasonable parameters

what can we learn from past price stabilization policies and market reform in mexico abstract this paper reviews experience with policy reforms in the maize sector in mexico beginning in the 1980s with particular reference to impacts on price variability it analyses mexico s transition from past price stabilization policies under a state trading enterprise to market reforms implemented during the 1990s the nature extent and costs to producers and consumers of maize policies is discussed for both the pre reform and the reform periods although wide ranging reforms have been introduced impacts on efficiency and fiscal outlays have been less than expected

interest rate pass through in the emu new evidence from nonlinear cointegration techniques for fully harmonized data this study puts the monetary transmission process in the eurozone between 2003 and 2011 under closer scrutiny for this purpose we investigate the interest rate pass through from money market to various loan rates for up to twelve countries of the european monetary union applying different cointegration techniques we first test for a long run relationship between loan rates and the euro overnight index average eonia based on these findings we allow for different nonlinear patterns for short run dynamics of loan rates our investigation contributes to the literature in mainly two ways on the one hand we use fully harmonized data stemming from the ecb s mfi interest rate statistics in addition we consider smooth transition models as an extension of conventional threshold models our results point to considerable differences in the size of the pass through with respect to either different loan rates or countries in the majority of cases the pass through is incomplete and the dynamics of loans adjustment are different for reductions and hikes of money market rates

maize and the free trade agreement between mexico and the united states setting the price of maize in rural mexico above the world price is inefficient and likely to have negative distributional effects because many subsistence producers and all landless workers are net buyers in fact it screens out the relatively poor rather than the relatively rich the policy objective therefore should be to move toward free trade this would yield large gains in efficiency the free trade agreement provides an ideal opportunity to pursue this objective it will provide freer entrance into the united states for other agricultural products as well as a broad range of manufactured products ensuring secure and sustained access for labor intensive agricultural and manufactured products can help ease the impact on the labor market of a transition away from subsistence maize cultivation

labor supply taxes and government spending a microeconometric analysis the effect of government spending on labor supply behavior is critical to predicting the balanced budget effect of income taxes and to estimating the marginal social cost of public funds yet its very existence not to mention direction and magnitude has not been empirically investigated this research estimates a labor supply function that incorporates income taxation and government spending using microeconomic data for men and women the empirical results suggest that public sector spending may have a significant effect on labor supply thereby leading to estimates of the marginal social cost of public funds that differ from those typically calculated

the cost disease and government growth qualifications to baumol changes in real world wage movements across sectors account for about a third of the rise in the cost of u s government services between 1959 and 1989 while relatively slower productivity in the public sector accounts for the remaining two thirds even though it is slower however the productivity record still is positive even in the labor intensive government sector consequently baumol argues that the public s likely future objection to necessary increases in the share of expenditures over the next 50 years will betray a fiscal illusion unless policymakers take pains to dissolve it but slower productivity may be equally due to the structural organization removing public monopolies reducing bureaucracies and undertaking privatization in education for example are other policy options that could radically change the productivity record meanwhile in his recent calculations of dramatic government expenditure increases expected in the next half century baumol omits reference to the marginal welfare cost of public funds which on our estimates will increase at least ten times to reach 1 71 by the year 2040

lifetime and annual marginal costs of redistribution in england sweden and the united states both the annual and lifetime marginal costs of redistribution in england sweden and the united states are calculated the annual marginal cost of redistribution is 2 90 in the united states 3 53 in england and 6 77 in sweden the lifetime marginal cost of redistribution is 4 46 in the united states and 7 96 in england the lifetime marginal cost of redistribution in sweden indicates that additional redistribution reduces the incomes of both the poor and nonpoor this study also shows that when there is greater income equality the marginal tax rate at which the incomes of the poor and nonpoor begin to be reduced will be at lower and lower levels copyright 1993 by mit press

optimal dynamic carbon taxes in a climate economy model with distortionary fiscal policy how should carbon be taxed as a part of fiscal policy the literature on optimal carbon pricing often abstracts from other taxes however when governments raise revenues with distortionary taxes carbon levies have fiscal impacts while they raise revenues directly they may shrink the bases of other taxes e g by decreasing employment this article theoretically characterizes and then quantifies optimal carbon taxes in a dynamic general equilibrium climate economy model with distortionary fiscal policy first this article establishes a novel theoretical relationship between the optimal taxation of carbon and of capital income this link arises because carbon emissions destroy natural capital they accumulate in the atmosphere and decrease future output consequently this article shows how the standard logic against capital income taxes extends to distortions on environmental capital investments second this article characterizes optimal climate policy in sub optimal fiscal settings where income taxes are constrained to remain at their observed levels third this article presents a detailed calibration that builds on the seminal dice approach but adds features essential for a setting with distortionary taxes such as a differentiation between climate change production impacts e g on agriculture and direct utility impacts e g on biodiversity existence value the central quantitative finding is that optimal carbon tax schedules are 8 24 lower when there are distortionary taxes compared to the setting with lump sum taxes considered in the literature

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

effects of economic integration in industrial countries on asean and the asian nies abstract this paper assesses the effect of the proposed north american free trade area the second enlargement of the european community ec and ec 1992 on association of southeast asian nations asean and south korea by matching the commodities exported by asean or south korea to an integrating market such as the united states with those exported to the same market from internal sources such as canada it identifies the industries that would bear the brunt of the discrimination total trade diversion is estimated as a terms of trade effect at 4 of asean exports and 5 of south korean exports to north america and 8 and 5 of their respective exports to the ec ec 1992 is expected to have further discriminatory influences the effect of integration on direct foreign investment in asean and south korea is also evaluated

interest rate pass through since the euro area crisis abstract the financial crisis has been characterised by fragmentation in the transmission of monetary policy as reflected in the high dispersion in interest rates on bank loans to euro area firms heterogeneity in interest rate pricing also emerged within countries suggesting that macroeconomic differences were not the only driver of dispersion using individual bank data for twelve euro area countries covering almost a decade since the start of the crisis we identify the balance sheet characteristics that contributed to this fragmentation and document the share of the deviation in interest rates from policy rates that is accounted for by each characteristic interest rate pass through heterogeneity is estimated using an error correction framework that accounts for macroeconomic variation and market structure and includes standard bank characteristics such as size capital and liquidity as well as variables that capture banks funding access risk and asset quality results show incomplete pass through of changes in money market rates targeted by the central bank to firms lending rates sovereign bond yields are shown to affect the cost of finance for firms particularly in stressed countries and market concentration is associated with smaller reductions in lending rates with regard to bank characteristics asset impairment leads to a significant decrease in pass though bank size as a proxy for market power and reliance on central bank funding affect pass through for smaller loans while capital is more significant for larger loans

a generalized approach to multigeneration project evaluation 1 introductionit is well known that the choice of discount rate plays a significant role in the ranking of projects with varying time paths of costs and benefits for public projects the choice of the appropriate social discount rate sdr is not clear cut even in the context of short lived projects in which costs and benefits occur within a single generation in particular when capital taxes produce a wedge between gross and net rates of return should one discount at the economy s rate of return the before tax rate or the individual s rate of return the after tax rate in the single generation context the literature falls in two camps 1 one camp argues that the appropriate sdr is a weighted average of the gross and net rates of return with weights typically determined by the fractions of resources drawn from consumption and private investment respectively 2 a second camp argues that future benefits should be discounted at the net rate of return but that the initial investment should be multiplied by a scale factor so that the direct costs of the project can be expressed in terms of consumption units 3both approaches suffer from severe implementation problems for the first approach there is no general formula for the weights needed to calculate the sdr as a weighted average of two market rates of return dreze 1974 indeed the appropriate sdr to use is project specific stiglitz 1982 without a systematic methodology to derive project specific sdrs the weighted average approach is hard to implement for the second approach which equalizes the sdr to the net rate of return the scale factor the opportunity cost of public investment must be quantified the opportunity cost of public investment depends on whether resources come from private investment or consumption and on the calculation of the present value of the future consumption yielded by a unit of capital discounted at the net rate of return that is the shadow price of capital as lind 1997 points out however there is no general agreement on a specific procedure for calculating the shadow price of capital indeed the concept of the opportunity cost of public investment suffers the same project dependence problem as the first view of the sdr diamond 1968 multigeneration projects such as nuclear waste disposal natural resource conservation or even social security reform further complicate discount rate choice specifically intergenerational equity in addition to intertemporal efficiency plays a role in determining the appropriate social discount rate for multigeneration public project evaluation 4 as in the single generation context there are two competing views on the appropriate discount rate when evaluating multigeneration projects the descriptive and the prescriptive approaches 5the descriptive approach to discounting is a market based approach it does not rely on an explicit social welfare function swf or the pure time preference rate embedded in the swf however the descriptive approach works under the assumption that intergenerational compensation through changes in the tax debt policy is available 6 it is argued that under appropriate intergenerational compensation the market rates of return are still relevant for calculating the sdr for multigeneration project evaluation and in general the sdr should be a weighted average of the gross and net rates of return this descriptive view of setting the sdr equal to the market return appears to underlie the office of management and budget s omb adoption of 7 as the appropriate discount rate for federal programs 7the intent of the prescriptive approach is to use the social discount rate as an expression of ethical judgment on how consumption of future generations should be compared to consumption of current generations

policy dependency and reform economic gains versus political pains economic analysis condemns market intervention in favour of farmers as inefficient and ineffective and therefore worthy of radical reform practical experience however indicates that such lessons are hard to learn and implement economic analysis tends to ignore the path dependencies generated by the policy evolution process without reform strategies that take full account of these dependencies policy reform will continue to be reluctant slow and frequently counterproductive this paper reconsiders the evolution of farm policies and the economic assessment of their costs and benefits in so doing it re phrases conventional economic arguments in terms which seem to accord better with sensible intuition which may prove more accessible and credible to policymakers and advisors the difficulties of reconciling economic efficiency with political acceptability are identified the paper concludes with a substantial challenge to the agricultural economics profession

agricultural price policy employment and migration in a diversified rural economy a village town cge analysis from mexico using the village town computable general equilibrium cge model this paper explores the implications of resource mobility across farm and non farm activities and alternative model closure rules in shaping agricultural policy impacts two sets of agricultural policy experiments on three alternative model closure scenarios were conducted using data from a 1993 survey of 196 households in michoacan mexico including 53 in a town or county seat and 143 in the surrounding villages experiment 1 simulates the village town economy wide impact of a 10 decrease in the support price for staples experiment 2 combines this support price decrease with a compensating lump sum income transfer to staple producers similar to what actually occurred under mexicos procampo program results show that the prediction made by the aggregate cge model that mexicos agricultural price liberalization reduces rural employment and incomes and stimulates migration was not materialized the decline in staple production has been relatively small and it has concentrated on large commercial farms rather than in small farm sector in which most producers are found and from which most migrants originate however with the use of village town model and microsurvey data the authors demonstrated that under plausible market closure conditions mexicos staple price liberalization has a minimal effect on rural wagers and migration this is contrary to the predictions of the aggregated cge model

forecasting ecb monetary policy accuracy is a matter of geography abstract monetary policy in the euro area is conducted within a multi country multi cultural and multi lingual context how does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the european central bank ecb using a database of surveys of professional ecb policy forecasters in 24 countries we find remarkable differences in forecast accuracy and show that these have important repercussions on market behaviour explaining the differences in forecast accuracy we provide evidence that they are partly related to geography and clustering around informational hubs as well as to country specific economic conditions in large part this heterogeneity can be traced to differences in forecasting models

tax revenue and the marginal cost of public funds in sweden abstract we assess the welfare cost of raising a marginal unit of tax revenue in a balanced budget general equilibrium framework the calculated social cost of an increment of public funds is sensitive to both the specific type of tax increase and the type of public spending used on the margin best guess assumptions on labor supply elasticities yield marginal costs of public funds for different fiscal mixes of between 0 67 and 4 51 at prevailing tax rates in sweden alternative labor supply assumptions well within the range of current estimates substantially affect the results and can imply infinite marginal welfare costs marginal welfare costs are also sensitive to assumptions about both the income and substitution effects of labor supply

funding transportation spending in metropolitan washington dc the costs of alternative revenue sources abstract this paper develops and implements an analytical framework for estimating the efficiency costs of raising additional revenue from taxes on labor property gasoline peak road use and higher transit fares for the washington dc area the model incorporates driving externalities and interactions between the different policies an economic case can be made for using congestion taxes and possibly gasoline and property taxes to raise extra revenue though it should be qualified for example the inelastic demand for driving limits the congestion benefits per dollar of revenue raised and these taxes have adverse employment effects in the same way that a tax on labor income does

tax avoidance and the deadweight loss of the income tax traditional analyses of the income tax greatly underestimate deadweight losses by ignoring its effect on forms of compensation and patterns of consumption the full deadweight loss is easily calculated using the compensated elasticity of taxable income to changes in tax rates because leisure excludable income and deductible consumption are a hicksian composite good microeconomic estimates imply a deadweight loss of as much as 30 of revenue or more than ten times harberger s classic 1964 estimate the relative deadweight loss caused by increasing existing tax rates is substantially greater and may exceed 2 per 1 of revenue

comparing shocks and frictions in us and euro area business cycles a bayesian dsge approach this paper estimates a dsge model with many types of shocks and frictions for both the us and the euro area economy over a common sample period 1974 2002 the structural estimation methodology allows us to investigate whether differences in business cycle behaviour are due to differences in the type of shocks that affect the two economies differences in the propagation mechanism of those shocks or differences in the way the central bank responds to those economic developments our main conclusion is that each of these characteristics is remarkably similar across both currency areas copyright 2005 john wiley sons ltd

the effect of income taxation on consumption and labor supply we estimate the incentive effects of income taxation in a life cycle model of consumption and labor supply without intratemporal strong separability we find that consumption and hours worked are direct complements in utility both increase with a compensated increase in the net wage the compensated net wage elasticity is about 0 3 nearly double estimates for u s men from a linear labor supply specification estimated intertemporal elasticities indicate significant intertemporal smoothing of utility the estimated marginal welfare cost of government revenue is 6 20 which is about half the estimated welfare cost when additivity between consumption and leisure is incorrectly imposed

smallholder livelihood adaptation in the context of neoliberal policy reforms a case of maize farmers in southern veracruz mexico governments around the world have embraced trade liberalisation as a means of enhancing efficiency to realise economic growth and alleviate poverty likewise the mexican government implemented neoliberal policy reforms the nafta in particular to stimulate sustainable development using the mexican maize sector as illustration this article describes the adaptation process of smallholders to market changes shaped by these reforms going beyond the aggregated level we have investigated smallholders livelihood strategies contrary to what economic models estimated our data suggests that farmers intensified the cultivation of maize rather than switch to sectors in which mexico has a comparative advantage

agricultural policies in the presence of distorting taxes this article analyzes how distortionary factor taxes affect the welfare impacts of production subsidies production quotas acreage controls subsidies for acreage reductions and cash transfers to farmers pre existing taxes substantially raise the costs of all these policies these additional costs reflect the welfare losses from financing certain policies by distortionary taxes they also reflect interactions with factor markets caused by changes in the costs of producing agricultural output previous studies ignore the latter types of effect consequently they significantly overstate the costs of production subsidies and understate the costs of production quotas acreage controls and subsidies for acreage reductions

reconciling alternative views about the appropriate social discount rate abstract this paper shows that in an economy with an exogenous rate of return and a given capital income tax distortion and with lump sum taxes as the marginal tax instrument the soc and mcf criteria both correctly identify all worthwhile projects if the criteria are properly applied the equivalence between the soc and mcf criteria continues to hold i if distortionary taxes are used to balance the budget and ii if the rate of return to capital is endogenous apparent differences between the soc and mcf criteria arise from different definitions of a project s indirect revenue effect neither criterion has an implementation advantage because the information requirements for each are identical

price setting and inflation persistence did emu matter surprisingly it did not or at least not directly using micro data on consumer prices and sectoral inflation rates from 6 euro area countries spanning several years before and after the introduction of the euro we look at whether emu has altered the behaviour of retail price setting and or inflation dynamics we find no evidence that anything has changed around 1999 if anything persistence may have slightly increased at the end of 2001 and in the beginning of 2002 period surrounding the euro cash changeover retail price adjustment frequencies both up and down increased substantially while the magnitude of the price adjustment also both up and down was smaller than otherwise however both settled quickly back to the earlier patterns on the contrary we do find evidence of a decline in the persistence of the inflation process in the mid 1990s this could be due to a structural change in private inflationary expectations due at least in part to policies linked to the preparation of emu however this interpretation is weakened by the fact that a similar decline occurred also in the us

reexamination of the relative efficiency of the draft and the all volunteer army economists are in almost universal agreement that the all volunteer approach to recruiting military personnel is more efficient than the draft several related considerations form the basis for this agreement first the draft imposes a discriminatory tax on recruits equal to the difference between their market wages and the below market military wage plus a compensating differential for serving in the military second below market pricing of personnel under the draft leads to a military with too many recruits third the all volunteer approach attracts those recruits with the lowest opportunity costs and hence secures a given number of recruits at less cost these standard economic arguments for the all volunteer approach over the draft have been heavily influenced by hansen and weisbrod 7 and oi 10 the purpose of this paper is to argue that under certain conditions the above considerations fail to make a compelling case for the all volunteer approach over the draft the conventional economic case for the all volunteer approach fails to recognize that the relative difference between the cost of the all volunteer approach and the draft depends on the percentage of the eligible population recruited into the military and the dead weight loss associated with conventional taxation as the number of recruits increases relative to the eligible population the advantage of being able to discriminate between high and low opportunity cost recruits diminishes also the larger

the stability of short term interest rates pass through in the euro area during the financial market and sovereign debt crises we analyse the dynamics of the pass through of banks marginal cost to bank lending rates over the 2008 crisis and the euro area sovereign debt crisis in france germany greece italy portugal and spain we measure banks marginal cost by their rate on new deposits contrary to the literature that focuses on money market rates this allows us to account for banks risks we focus on the interest rate on new short term loans granted to non financial corporations in these countries our analysis is based on an error correction approach that we extend to handle the time varying long run relationship between banks lending rates and banks marginal cost as well as stochastic volatility our application is based on a harmonised monthly database from january 2003 to october 2014 we estimate the model within a bayesian framework using markov chain monte carlo methods mcmc we reject the view that the transmission mechanism is permanent over time the long run relationship moved with the sovereign debt crises to a new one with a slower pass through and higher bank lending rates its developments are heterogeneous from one country to the other impediments to the transmission of monetary rates depend on the heterogeneity in banks marginal costs and therefore its risks we also find that rates to small firms increase compared to large firms in a few countries using a var model we show that overall the effect of a shock on the rate of new deposits on the unexpected variances of new loans has been less important since 2010 these results confirm the slowdown in the transmission mechanism

a positive model of tax reform this paper is devoted to the explanation of tax policy from a behavioural theoretic point of view it for the first time brings together within a unified framework behavioural determinants of government expenditure taxation and tax reform administrative and compliance costs associated with taxation factors generally neglected in models of taxation as well as tax avoidance evasion deadweight losses and the costs that are involved in the tax reform process itself play a crucial role in the model the paper investigates how these factors influence the development of taxation and expenditure and the occurrence of tax reform

on the construction of marginal federal personal and social security tax rates in the u s abstract in this article i correct and extend my earlier series on marginal federal personal income tax rates i also construct a measure of the marginal social security tax rate and add this to the income tax rate to obtain a measure of the effective marginal tax rate on income due to federal taxes finally i compare my series on marginal income tax rates and its method of construction with those of barro and sahasakul

allocation of goods and services in vat this paper examines the allocation of goods and services in three hypothetical rates of the planned greek value added tax vat this allocation is based on six criteria i e the revenue criterion the luxuriousness criterion the regressivity of indirect taxes the relation of goods and services the criterion of import component of domestic demand and on the social criterion when drawn together the six criteria suggest a final classification of goods and services in the greek vat based on this final classification the microeconomic bases of the vat are estimated for the average greek household and also for households of different socioeconomic characteristics

distortionary taxation and optimal public spending on productive activities mutsumi matsumoto using a general equilibrium model with endogenous factor supplies this article investigates the provision of factor augmenting public inputs such inputs are intermediate goods that affect production functions in a collective manner and give rise to increasing returns unlike with collective consumption goods deviation from the first best condition for a public input is inappropriate if taxes are set optimally when taxes are not optimal a second best rule must include a feedback effect on revenue as well as the deadweight cost of taxes implications for benefit cost analysis and for interpretation of estimates of the social returns to public capital are explored jel h21 h54 o4 i introduction government spending on public infrastructure and on human capital formation are often cited as important contributing forces to economic growth with reference to less developed economies isham and kaufmann 1999 show that the returns from public infrastructure investments are very high where the overall policy regime is basically sound turning to human capital psacharopolous and woodhall 1985 point out the sizable excess of social over private returns from education temple 1999 indicates that the importance of these public investments and others like them for example research and development is not limited to less developed countries appropriate levels are important across all economies the key characteristic of these sorts of commodities is that they exhibit positive externalities across productive entities in short they may be categorized as public intermediate goods or public inputs although such commodities are beneficial they are also costly spending on them takes a large portion of p ublic budgets moreover government financing of these costs typically involves the use of distortionary taxes those taxes create excess burden the magnitudes of which may be substantial for instance in an influential contribution browning 1987 21 suggests the marginal excess burden of taxes on labor income ranges from 31 8 to 46 9 the crux of this article is the relevance of distortionary taxes to decisions about public input expenditure bruce 1998 457 and musgrave et al 1987 288 89 suggest the incorporation of the deadweight cost of taxation as a cost when evaluating public projects boardman et al 1996 62 64 in their authoritative benefit cost text recommend the inclusion of deadweight loss in the assessment of net benefits of tax funded public projects these recommendations are intuitively appealing they are also consistent with the second best expenditure condition for spending on public consumption goods atkinson and stern 1974 show that marginal cost of a public consumption good must include the excess burden of the tax system indeed some of the most important recent empirical work on the returns from public capital have assessed those returns after netting out the deadweight loss of the tax system see morrison and schwartz 1996 and nadiri and mamuneas 1994 this article investigates the theoretical basis for deviating from the first best rule for public input provision when taxes are distortionary 1 one finding is that despite the deadweight losses a second best rule for public inputs should not be followed when taxes are set optimally the first best condition remains appropriate in effect the production efficiency theorem of diamond and mirrlees 1971 extends to a public input economy however and importantly for actual policy when taxes are not optimal then not only the excess burden but the impact of the public input on the government s budgetary position must be taken into account these qualifications need to be incorporated into empirical studies and benefit cost analysis ii the model the analysis makes use of a general equilibrium model of a competitive economy in which factor supplies are variable and there is a public input

monetary transmission in the euro area early evidence monetary transmission evidence we examine the euro area monetary policy transmission process using post 1999 data with two main questions in mind has it changed after and because of economic and monetary union emu and if so is it becoming homogeneous across countries given the data limitations we concentrate on three components of the transmission mechanism the banking the interest rate and the asset market channels we find evidence that the transmission through banks has become more potent and homogeneous across countries on the financial market channels our evidence is somewhat weaker but suggestive the interest rate channel appears to have changed even before emu and now affects national economies in a broadly similar way the asset market channel proxied by the stock market effects of monetary policy also seems to work rather homogeneously across national markets no comparison with pre emu is available here a positive answer to both questions raised above represents in our view the best working hypothesis under current knowledge ignazio angeloni and michael ehrmann

revisiting the cost of protectionism abstract most studies of the welfare impacts of trade policy have ignored interactions between these policies and pre existing distortions from the income tax this paper demonstrates that when these interactions are taken into account the potential gains or losses from tariffs import quotas or voluntary export restrictions are significantly magnified however as long as the trade barrier doesn t generate rents for domestic households the optimal level of the trade barrier is unchanged from the first best case trade policies which do increase domestic rents either in the form of quota rents or rents to fixed factors in production suffer an additional efficiency cost and the optimal policy in this case is less strict than in the first best case