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

spurious volatility in historical unemployment data this paper shows that the stabilization of the unemployment rate between the pre 1930 and post 1948 eras is an artifact of improvements in data collection procedures prewar methods are used to construct postwar unemployment data that are consistent with the historical data the constructed postwar series is nearly as volatile as the pre 1930 unemployment data the constructed postwar data are systematically more volatile than the actual postwar data because the cyclical behavior of the labor force and productivity are misspecified in the construction procedures the relationship between the actual and constructed postwar unemployment series is used to construct new historical data

transfer problem dynamics macroeconomics of the franco prussian war indemnity we study the classic transfer problem of predicting the effects of an international transfer on the terms of trade and the current account a two country model with debt and capital allows for realistic features of historical transfers they follow wartime increases in government spending and are financed partly by borrowing the model is applied to the largest historical transfer the franco prussian war indemnity of 1871 1873 in these three years france transferred to germany an amount equal to 22 percent of a year s gdp when the transfer is combined with measured shocks to fiscal policy and productivity over the period the model provides a very close fit to the historical sample paths of french gdp terms of trade net exports and aggregate consumption this makes a strong case for the dynamic general equilibrium approach to studying the transfer problem more generally our results provide striking evidence of the importance of international capital markets in the nineteenth century

the u s evidence on optimal taxation over time abstract this paper considers a tax rule in which a uniform tax rate over time becomes optimal its implications are that 1 changes in the tax rate should arise only when there are changes in permanent government expenditures and 2 no variable other than permanent government expenditures should be of any value in predicting the tax rate these implications are tested using u s data for 1937 82 empirical results of the tests reveal that in addition to responding to permanent government expenditures the tax rate also responds to temporary defense purchases the general price level and a time trend

why do parents socialize their children to behave pro socially an information based theory we present a model of intergenerational transmission of pro social values in which parents have information about relevant characteristics of society that is not directly available to their children dierently from existing models of cultural transmission of values such as bisin and verdier 2001 and tabellini 2008 we assume that parents are exclusively concerned with their children s material welfare if parents coordinate their educational choices a child would look at her system of values to predict the values of her contemporaries with whom she may interact a parent may thus choose to instil prosocial values into his child in order to signal to her that others can generally be trusted this implies that parents may optimally decide to endow their children with values that stand in contrast with maximization of material welfare even if their children s material welfare is all they care about jel codes d64 d82 h41 z13

constructing bounds on per capita income differentials across countries the results of purchasing power parity ppp based comparisons of income across countries can be quite sensitive to the choice of index number formula tighter bounds on per capita income differentials can be constructed either by assuming homothetic preferences or by estimating a demand system both approaches are used to construct bounds on per capita income differentials across the oecd countries the paper concludes by discussing the strengths and weaknesses of each approach

international income inequality measuring ppp bias by estimating engel curves for food there are large differences between rich and poor people in the world this is of major concern to economists as well as to policy makers the magnitude of the dif ferences however depends on the measure used for comparisons to illustrate per capita income in china is more than five times larger if one uses penn world table pwt 1 incomes rather than exchange rate based ex incomes in this paper we study pwt incomes which aim at correcting for price level dif ferences across countries and identify the bias in them by estimating engel curves for food furthermore we study the relationship between the bias and the income of a country the pwt produces purchasing power parity ppp adjusted incomes and thus the associated bias is referred to as the ppp bias having estimated the bias in pwt incomes we provide new estimates of real income and refer to these as the engel curve ec incomes by comparing the estimated ec incomes and the pwt incomes the issue of how the bias influences estimated inequality is discussed finally we discuss whether ex incomes which simply transform each country s nominal income into one common currency provide better estimates of income than do pwt incomes this paper reports three main findings first there is substantial and systematic ppp bias in the pwt incomes the poorer the country the more its income tends to be overestimated 2 second the ppp bias causes a substantial and robust underesti mation of international inequality the gini index increases substantially when one adjusts for the bias third whereas pwt incomes provide better estimates than the ex incomes for the richer countries the ex incomes which implicitly assume that ppp holds provide better estimates for the poorer countries as we know that price levels differ across countries there is consensus that the seminal work on establishing the pwt was a well founded initiative and the data have been extensively used 3 still although many studies rely on pwt data few focus on the ppp bias in this dataset some contributors focus on one component of the bias however the so called substitution bias and use macro data to measure this

does neoclassical theory account for the effects of big fiscal shocks evidence from world war ii much debate surrounds the usefulness of the neoclassical growth model for assessing the macroeconomic impact of fiscal shocks we test the theory using data from world war ii which is by far the largest fiscal shock in the history of the united states we take observed changes in fiscal policy during the war as inputs into a parameterized dynamic general equilibrium model and compare the values of all variables in the model to the actual values of these variables in the data our main finding is that the theory quantitatively accounts for macroeconomic activity during this big fiscal shock

an exploration of the changes in the international comparison program s global economic landscape abstract the purchasing power parity ppp rates from the 2011 round of the international comparison program icp imply some dramatic revisions to price levels and real incomes across the world as compared to the prior 2005 round this has important implications for many cross country comparisons including measures of poverty and inequality without presuming that either round is better methodologically the paper tries to help the community of icp users better understand the economic factors underlying the estimated changes in price levels across countries differences in domestic inflation rates have played a role as expected two other factors are identified the excess sensitivity to changes in market exchange rates suggests that the ppps may put higher weight on internationally traded goods than do domestic deflators additionally faster growing countries have seen a steeper rise in their ppp relative to market exchange rates this can be explained by a tendency for wage increases in growing economies to lead to a higher price level together these factors account for over 70 of the variance in ppp changes even ignoring methodological changes however an independent downward drift in price levels is also evident concentrated in the icp s asia region a possible explanation lies in the asia region s greater success relative to other regions in removing urban bias in the price surveys

a cognitive miser theory of cooperators advantage the aa propose a new model of cooperators advantage depending neither on supplementary incentives nor on cooperators capacity to recognize and play selectively with other cooperators it depends rather on players making the play no play decision by the heuristic of projecting their own cooperate defect choices onto potential partners cooperators offer to play more often and fellow cooperators will more often accept their offer when certain boundary conditions are met this results in a higher expected payoff for cooperators than for defectors empirical support for this heuristic is suggested by expectations data from related social dilemma experiments moreover its use can be justified in bayesean terms our model brings behavioral decision theory s cognitive miser paradigm to bear on interdisciplinary concern with the evolution of cooperative behavior and shows how if other mechanisms provide a suitable initial kick cooperation can evolve in the absence of iteration and in large mobile societies

fiscal policy in unionized labor markets abstract this paper investigates the effects of fiscal policy on economic activity public finances welfare and income distribution in a dynamic general equilibrium model with a unionized labor market the paper shows that debt financed increases of public employment wages of public sector employees unemployment benefits and labor taxes put pressure on unions wage claims leading to higher private sector wages lower employment capital and output in addition increases of public employment public wages and unemployment benefits increase workers utility relative to the pre policy change equilibrium during the transition but not in the long run instead workers utility decreases at any time horizon when labor taxes increase capitalists always benefit from increases in taxes on labor but their welfare decreases when public spending goes up finally the paper investigates the extent to which the way the government balances its budget affects these results

a long run perspective on saving historical estimates of long run gross savings rates are provided for 11 countries which represent about 48 per cent of world product in real terms and close to half of world savings even though savings rates declined over the past decade in nine of the 11 countries present rates are usually well above their prewar levels factors which influence savings rates are also examined

what if alexander hamilton had been argentinean a comparison of the early monetary experiences of argentina and the united states abstract the contrast between the early nineteenth century argentinean experience of high inflation and the american experience of low inflation is interpreted in terms of an optimal taxation model it is argued that the two countries experiences diverged because of the different constraints they faced in financing wartime government expenditures in the presence of frequent wars ever tightening access to foreign capital and an inadequate tax base argentina s use of the inflation tax may be viewed as an optimal solution to its wartime problems by contrast with the exception of the revolutionary war the absence of such constraints in the united states required full tax smoothing with only a temporary use of the inflation tax during wartime such policies were embodied in alexander hamilton s fiscal package of 1790 which allowed the united states to bond finance most subsequent wartime expenditures

discontinuity of output convergence within the united states why has the course changed has the progress of output convergence changed within the united states this article examines the output convergence among u s states for the last five decades by making several improvements over the extant literature by applying a battery of convergence tests designed to capture nonlinear transitional dynamics to real output per worker data i e nominal values deflated by state level price we find that output convergence has not been a feature of the continental united states since the 1970s instead output convergence has proceeded among four subgroups within which constituent states have certain characteristics in common our regression analysis suggests that state level characteristics related to technology and human capital play a crucial role in accounting for the formation and composition of convergence clubs in agreement with the recent theoretical models of growth and development e g aghion et al 2009 gennaioli et al 2013b the level of technology proxied by patents turns out to be a consistently significant determinant even after controlling for endogeneity suggesting that frictions in the diffusion of technology and human capital may have led to clustering of states with different levels of productivity our results therefore cast doubt on the common view that diffusion of knowledge and technology across state borders is frictionless jel o47 o51

the fiscal role of conscription in the u s world war ii effort an often overlooked role of conscription is as a method of lump sum taxation in times of war conscription of military personnel allows the fiscal authority to minimize wartime government expenditure and hence minimize tax distortions associated with war finance this paper presents a simple dynamic general equilibrium model to articulate this view and calibrates the model to the u s world war ii experience analysis of the calibrated model indicates that the welfare value of conscription as a fiscal policy tool is quantitatively large despite the fact that the american involvement lasted only four years conscription is worth approximately 2 of annual aggregate consumption in perpetuity

preferences dependent learning in the centipede game the persistence of mistrust abstract a candidate explanation for the persistence of heterogeneous behavior in a sequential social dilemma played many times is the existence of heterogeneous preferences preferences dependent conjectures about opponents behavior are an additional source of heterogeneity by behaving differently different preference types acquire different information thus when observing only outcomes of own past interactions heterogeneous and possibly wrong conjectures about opponents strategies may endogenously arise and persist in a centipede game experiment played for forty rounds we manipulate the type of ex post information and the method of play we find that when the game is played in its reduced normal form and subjects have only access to personal statistics heterogeneity of behavior across preference types persists in the long run in this case behavior resembles a self confirming equilibrium selfish subjects take at earlier nodes due to an unjustified lack of trust when subjects have also access to public statistics heterogeneity disappears selfish subjects tend to pass more often and play moves towards bayes nash equilibrium

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

episodes of war and peace in an estimated open economy model we analyze the effects of world wars on the macroeconomic dynamics of the u s france germany and the uk by means of an estimated open economy model the model allows wars to affect the economy through capital depreciation sovereign default a military draft household preferences and spillovers on other exogenous processes productivity investment trade policy variables if the bulk of fluctuations during war episodes can be explained by the rise in government spending in the u s other factors are crucial in other countries we also discuss the size and state dependence of public spending multipliers and a counterfactual welfare exercise

why are services cheaper in the poor countries in their important work on international comparisons of national incomes and of comparative price structure kravis heston and summers i982 p 8 have noted that services are much cheaper in the relative price structure of a typical poor country than in that of a rich country this phenonomen has been documented now fairly systematically by the data gathered under their guiding hand of the united nations international comparison icp which covers 34 countries table i reproduced from their work i982 and fig i based on rows 3 and ii 13 indeed show this tendencyfor the relationship between relative service prices and real per capita gdp in this kravis heston summers 34 country 6 group sample the tendency is strongly evident except for the intermediate groups iii and iv

the effects of discretionary fiscal policy on macroeconomic aggregates a reappraisal fiscal stimuli to recover a cascade of academic and layman articles debate the effectiveness of fiscal policy in stimulating the economy backed up by different economic models and empirical support this essay surveys the theoretical predictions and recent empirical vector autoregression var evidence on the short run effects of discretionary fiscal policy on macroeconomic aggregates

improving human development a long run view abstract the pessimistic flavour of the human development reports appears to be in contradiction with their own numbers as developing countries fare comparatively better in human development than in per capita gdp terms this paper attempts to bridge this gap by providing a new improved human development index ihdi informed by welfare economics the ihdi is presented here alongside the united nations development programme s undp hdi for the world and its main regions since the late 19th century social dimensions in the ihdi are derived following kakwani journal of development economics 41 1993 pp 307 336 with a convex achievement function whereas a geometric average is employed to combine its dimensions longevity knowledge and income thus the ihdi does not conceal the gap between rich and poor countries and casts a much less optimistic view than the conventional undp index while it fits with the undp concern for international differences the paper s findings highlight main weaknesses in human development dimensions of present day developing countries

true measures of gdp and convergence widely used purchasing power parity comparisons of per capita gdp are not true quantity indexes and are subject to systematic substitution bins this bias may distort measurement of convergence and divergence extending varian s nonparametric construction of a true index gives the set of true indexes including the new ideal afriat index these indexes are utility consistent and independent of arbitrary reference price vectors we establish bounds on the dispersion of true multilateral indexes hence bounds on convergence international price indexes understate both true gdp dispersion and where prices are converging over time the rate of true quantity convergence

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

the effects of imf and world bank lending on long run economic growth an empirical analysis summary the international monetary fund and the world bank frequently and often repeatedly extend loans to developing nations these loans have been blamed for generating adverse economic outcomes the growth impact of fund and bank loan programs is assessed using an empirical growth model that controls for other determinants of growth a unique feature of this study is the use of the value of loans rather than the number of programs the estimates indicate that bank lending stimulates growth in some cases primarily by increasing public investment fund lending is either neutral or detrimental to growth the channel for this effect is a negative impact of fund lending on public as well as private investment

have absolute price levels converged for developed economies the evidence since 1870 abstract we compare price level and income convergence since 1870 for eleven developed economies using implicit price deflators derived from the gdp data of maddison 1995 2001 2003 we find that sigma and beta convergence for prices occurs later and to a lesser extent than income price levels converge after 1950 while income convergence begins in the 1880s we find no evidence for stochastic price convergence or for club price convergence

price differentials in monetary unions the role of fiscal shocks we study the effect of regional expenditure and revenue shocks on price differentials for 47 us states and 9 eu countries we identify shocks using sign restrictions on the dynamics of expenditures revenues deficits and output and construct two estimates for structural price differentials dynamics one for the average and one for each unit which optimally weight information contained in the data for all units on average expansionary fiscal disturbances produce positive while distortionary balance budget shocks produce negative price differential responses the negative price differentials responses in some units is partially explained by spillovers and labour supply effects

the growing gap between rich and poor countries a proposed explanation abstract making use of data in the penn world table mark 5 this study seeks to explain the widely reported pattern of increasing divergence of per capita income levels between high and low income countries and among low income countries tests based on one on one comparisons of real growth in 1960 1988 with starting levels of income per capita imply that increasing divergence of per capita income levels was largely due to differences between population growth and labor force growth that varied with income level further evidence is provided in the form of crosscountry growth regressions in which with population growth divided into labor force growth and the amount by which population growth exceeds labor force growth only the part of population growth that represents changes in the dependency ratio is closely linked to long term growth

trust trustworthiness and the consensus effect an evolutionary approach abstract people often form expectations about others using the lens of their own attitudes the so called consensus effect we study the implications of this for trust and trustworthiness in an evolutionary model where social preferences are endogenous trustworthy individuals are more optimistic than opportunists and are accordingly less afraid to engage in market based exchanges where they may be vulnerable to cheating depending on the distribution of social preferences in the population the material benefits from greater participation may compensate for the costs of being trustworthy by providing an explicit account of how individuals form and revise their beliefs we are able to show the existence of a polymorphic equilibrium where both trustworthiness and opportunism coexist in the population we also analyze the effect of enforcement distinguishing between its role as deterrence of future misbehavior and as retribution for past misbehavior we show that enforcement aimed at deterring opportunistic behavior has ambiguous effects on social preferences it may favor the spreading of trustworthiness crowding in but the opposite crowding out may also occur by contrast crowding out never occur when punishment is merely intended as retribution

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

how does war shock the economy abstract wartime periods have frequently been treated as natural macroeconomic experiments but the international pooled time series evidence presented here shows that the literature has over emphasized the experience of the united states and the united kingdom wars fought exclusively on foreign soil do have marginally higher real output growth than peacetime periods but real growth during all other wars is sharply below peacetime levels evidence for foreign and domestic wars is consistent with monetarist fiscalist and mixed theories of wartime booms

distortionary taxation and labor supply this paper examines empirically the effects of distortionary taxation on labor supply using a general equilibrium framework the long term relations predicted by the model are derived and tested using data from canada united states germany and japan in all these countries labor tax changes are found to be persistent and to have played an important role in the observed downward trend in hours worked

monetary and fiscal policy switching a growing body of evidence finds that policy reaction functions vary substantially over different periods in the united states this paper explores how moving to an environment in which monetary and fiscal regimes evolve according to a markov process can change the impacts of policy shocks in one regime monetary policy follows the taylor principle and taxes rise strongly with debt in another regime the taylor principle fails to hold and taxes are exogenous an example shows that a unique bounded non ricardian equilibrium exists in this environment a computational model illustrates that because agents decision rules embed the probability that policies will change in the future monetary and tax shocks always produce wealth effects when it is possible that fiscal policy will be unresponsive to debt at times active monetary policy like a taylor rule in one regime is not sufficient to insulate the economy against tax shocks in that regime and it can have the unintended consequence of amplifying and propagating the aggregate demand effects of tax shocks the paper also considers the implications of policy switching for two empirical issues

the right amount of trust we investigate the relationship between individual trust and individual economic performance we find that individual income is hump shaped in a measure of intensity of trust beliefs heterogeneity of trust beliefs in the population coupled with the tendency of individuals to extrapolate beliefs about others from their own levels of trustworthiness could generate this non monotonic relationship highly trustworthy individuals tend to form overly optimistic beliefs to assume too much social risk and to be cheated more often ultimately performing less well than those with a belief close to the mean trustworthiness of the population on the other hand less trustworthy individuals form overly pessimistic beliefs and avoid being cheated but give up profitable opportunities therefore underperforming the cost of either too much or too little trust is comparable to the income lost by foregoing college our findings in large scale survey data are supported and extended with experimental findings we show that in the trust game own trustworthiness and beliefs about others trustworthiness are strongly correlated and persistent and that patterns in earnings lost due to incorrect beliefs are comparable to those in the survey data

barriers to price convergence this paper investigates the existence of convergence clubs in the cross country price mechanism for 96 individual goods retail price levels across 40 countries available semi annually for 1990 2010 using a nonlinear factor model and threshold regression tools to our knowledge this is the first paper to find strong evidence for club convergence of retail prices these clubs emerge due to the interaction of traded and non traded factors for example countries that are physically closer to potential trade partners converge faster than countries in the high distance regime as long as they have low initial labor productivity or low initial income moreover being behind the technology frontier appears to be more conducive to price convergence for countries with relatively small physical distance from potential trade partners we interpret our findings as evidence of a local law of one price due to barriers to price convergence that influence the duration of the effect of price shocks

evolution of preferences we endogenize preferences using the indirect evolutionary approach individuals are randomly matched to play a two person game individual subjective preferences determine their behaviour and may differ from the actual objective pay offs that determine fitness matched individuals may observe the opponents preferences perfectly not at all or with some in between probability when preferences are observable a stable outcome must be efficient when they are not observable a stable outcome must be a nash equilibrium and all strict equilibria are stable we show that for pure strategy outcomes these conclusions are robust to allowing almost perfect and almost no observability with the notable exception that inefficient strict equilibria may fail to be stable with any arbitrarily small degree of observability despite being stable with no observability

quantifying the evolution of world trade 1870 1949 abstract the typical narrative regarding the evolution of world trade prior to world war ii refers to a secular rise starting around 1870 and a subsequent collapse beginning in 1914 this narrative however is based on measures of trade openness that do not fully take into account purchasing power differences across countries due to lack of alternative data the measures employed in the existing literature are typically based on non ppp adjusted trade data denominated by ppp adjusted gdp data the present paper seeks to resolve this inconsistency by constructing new trade share estimates for 62 countries representing 90 of world gdp for the period from 1870 to 1949 our estimates combine historical import and export figures with non ppp adjusted gdp values that we estimate via the short cut method our estimates confirm qualitatively the narrative of a dramatic rise and fall of world trade over this period yet they indicate that this rise and fall was quantitatively much more pronounced we find that trade shares were on average 38 higher than previously documented and the world s level of trade openness in 1913 was comparable to that in 1974

fiscal policy composition public debt and economic activity this paper uses a dynamic general equilibrium model i toinvestigate how changes to different spending and revenue items of the budgetaffect economic activity and public finance and ii to evaluate thewelfare costs of alternative fiscal policy maneuvers the paper shows that unlike an increase in government purchases of final goods an increasein public employment and transfers can have a contractionary effect onthe economy in the same way as a rise in tax rates it also suggests thatfiscal adjustments implemented by cutting spending items increasehouseholds welfare and are more effective in reducing the primary deficitand public debt than are increases in tax rates

differences in relative prices and international differences in growth rates the new growth literature following paul m romer 1986 and robert e lucas jr 1988 has formulated models in which growth rates can differ systematically across countries a large empirical literature has used cross sectional techniques to examine the cause of international differences in growth rates this paper examines whether this work has used data which have been constructed in such a way as to introduce inadvertently a spurious correlation between growth and income levels this effect occurs because relative prices evolve because of different rates of technological progress in different industries many of the new growth models assume single goods or goods produced by the same technology so this phenomenon has so far escaped analysis if technological progress is more rapid in some sectors than others relative prices will change during the process of development the change of relative prices has two effects on measured growth rates first the choice of base prices affects the growth rate this phenomenon is sometimes called the gerschenkron effect second using any base prices or weights introduces a spurious correlation between income and growth less developed countries would tend to have lower growth rates not because they grew more slowly but because of data construction techniques for the sake of simplicity these phenomena will be called the gerschenkron or the level effect and the spurious correlation effect 3 this paper examines the international comparison program icp and the penn world tables pwt which are based on the icp the penn world tables are the data most widely used in empirical studies of international differences in economic growth both the icp and pwt use international prices to adjust for differences in the purchasing power of currencies these prices most closely resemble hungarian prices using such prices tends to produce time series with lower growth rates than those in the national accounts for countries less developed than hungary conversely the growth rates would be higher for countries more developed than hungary however the growth rates of poorer countries are not systematically lower in the penn world tables the paper examines why the growth rates are not distorted and makes some specific recommendations for data construction and use virginia polytechnic institute and state university blacksburg va 24061 0316 part of this work was supported by a grant from the institute of international studies at brown university and by a summer internship at the division of international finance at the federal reserve board i am grateful to peter garber david weil oded galor and anonymous referees for helpful comments alan heston and robert summers have also helped me understand icp and pwt methodology of course i alone am responsible for any mistakes in this paper iexamples include steve dowrick and duc tho nguyen 1989 robert j barro 1991 j bradford de long and lawrence h summers 1991 and n gregory mankiw et al 1992 2a series of papers by christina d romer 1986a b 1989 has already emphasized the importance of data construction techniques in another context 3there is a third effect a real acceleration effect caused by shifting consumption patterns and the reallocation of resources between sectors growth accountants such as angus maddison 1987 adjust estimates of total factor productivity for this sort of shift william j baumol et al 1989 have also referred to this phenomenon for an analysis in terms of a simple multisector solow model see nuxoll 1992a

learning and evolution of altruistic preferences in the centipede game abstract several studies show that evolution favors non selfish preferences only if preference types are observable we present a new evolutionary scenario applied to the centipede game where we adopt self confirming equilibrium to capture behavior we show that altruism may be evolutionarily successful even if preferences are unobservable

the baby boom and world war ii a macroeconomic analysis we argue that one major cause of the u s postwar baby boom was the rise in female labor supply during world war ii we develop a quantitative dynamic general equilibrium model with endogenous fertility and female labor force participation decisions we use the model to assess the impact of the war on female labor supply and fertility in the decades following the war for the war generation of women the high demand for female labor brought about by mobilization leads to an increase in labor supply that persists after the war as a result younger women who reach adulthood in the 1950s face increased labor market competition which impels them to exit the labor market and start having children earlier the effect is amplified by the rise in taxes necessary to pay down wartime government debt in our calibrated model the war generates a substantial baby boom followed by a baby bust

has fiscal policy helped stabilize the postwar u s economy abstract in this paper i consider whether postwar fiscal policy has helped stabilize the u s economy i do this by adding to the stochastic growth model fiscal policy feedback rules estimated from postwar data these rules allow fiscal policies to respond to current and lagged output and labor hours i use the estimated policy rules to see if postwar fiscal policy reduces output volatility and or lengthens expansions and shortens recessions i find that fiscal policy in general provides little stability on either count i also find that the endogenous feedback links by themselves can provide some stabilization

if homo economicus could choose his own utility function would he want one with a conscience reply in my model of the evolution of honesty 1 i assumed the existence of a signal a blush perhaps extreme values of which served to identify some individuals as being honest with certainty joseph harrington notes that without this assumption honest individuals have difficulty invading a population initially dominated by defectors for readers who do not wish to work through the algebra in his comment the argument is easily summarized in nontechnical terms suppose two honest mutants a and b arrive in an uncountably large population consisting entirely of dishonest persons and suppose that the probability that an honest person exhibits an intense blush is say 0 999 while the corresponding probability for everyone else is only 0 001 when a sees an intense blush on the face of b what will then be his estimate of the probability that b is honest assuming that a knows the laws of elementary probability and corrects for the base rate of honest persons in the population it will be zero when virtually everyone in the population is dishonest even a person with an intense blush will be pegged as dishonest provided that even the smallest fraction of dishonest persons also shows an intense blush with

altruists egoists and hooligans in a local interaction model the authors study a population of agents each of whom can be an altruist or an egoist altruism is a strictly dominated strategy agents choose their actions by imitating others who earn high payoffs interactions between agents are local so that each agent affects and is affected by only his neighbors altruists can survive in such a world if they are grouped together so that the benefits of altruism are enjoyed primarily by other altruists who then earn relatively high payoffs and are imitated altruists continue to survive in the presence of mutations that continually introduce egoists into the population copyright 1998 by american economic association

economic growth and liquidation of natural capital the case of forest clearance the importance of natural capital to economic systems is increasingly recognized previous empirical models of economic growth rates however have emphasized accumulation of physical and human capital this paper shows that the economic growth of over 70 countries has been positively affected by liquidation of one aspect of natural capital forests while controlling for factors typically associated with national growth rates the positive association was robust to additions of various covariates such as forest exports level of economic development agricultural area and geographical position these results suggest that conversion of forests has partially fuelled the economic expansion of countries

the mckenna rule and uk world war i finance abstract this paper argues that uk wwi scal policy followed the english method identi ed by sprague 1917 and his discussants and revived by the us to nance the korean war see ohanian 1997 during wwi uk scal policyadopted the mckenna rule named for reginald mckenna chancellor ofthe exchequer 1915 16 mckenna presented his scal rule to parliamentin june 1915 the mckenna rule guided uk scal policy for the rest ofwwi and the interwar period we draw on narrative evidence to show thatmotivation for the mckenna rule came from a desire to treat labour and cap ital fairly and equitably not pass wwi costs onto future generations andcommit to a debt retirement path and higher taxes however a permanentincome model suggests the mckenna rule adversely a ected the uk becausea higher debt retirement rate produces a lower consumption output ratio data from 1916 37 supports this prediction the views in this paper represent those of the authors and are not necessarily those ofthe federal reserve bank of atlanta the federal reserve system the reserve bankof new zealand norges bank or their respective sta s we thank ellis tallman formany useful comments and kateryna rakowsky for research assistance a version ofthis paper is forthcoming in the papers and proceedings of the american economicreview

trade openness and economic growth a cross country empirical investigation abstract this paper demonstrates that trade liberalization does not have a simple and straightforward relationship with growth using a large number of openness measures for a cross section of countries over the last three decades we use two groups of trade openness measures the regression results for numerous trade intensity ratios are mostly consistent with the existing literature however contrary to the conventional view on the growth effects of trade barriers our estimation results show that trade barriers are positively and in most specifications significantly associated with growth especially for developing countries and they are consistent with the findings of theoretical growth and development literature

the welfare cost of capital income taxation in a growing economy the welfare cost of capital income taxation is analyzed in a general equilibrium framework where the private sector is represented by a competitive household endowed with perfect foresight and an infinite life the value of the welfare cost depends essentially on the elasticity of substitution between capital and labor in the production function numerical estimates are presented for different values of the parameters of the model the welfare gain obtained by the abolition of the capital income tax is smaller when the private sector is not endowed with perfect foresight it is reduced by about 40 percent when expectations are myopic the allocation efficiency cost of the corporate tax dwarfs the intertemporal welfare cost

the international monetary fund in a time of crisis a review of stanley fischer s imf essays from a time of crisis the international financial system stabilization and development stanley fischer was deputy managing director of the imf from 1994 to 2001 and perhaps more than any other individual he personifies the international rapid response to financial crises in the 1990s this book is a collection of essays written during his tenure at the imf taken together the essays represent the strongest and most logical defense of imf initiatives in the 1990s in print my review essay comprises six parts in parts 2 through 4 i provide an overview of fischer s arguments in three central areas of contention stabilization policy the impact of imf programs on poverty and the imf s anticipation of and response to international financial crisis i then compare fischer s arguments to those raised by the imf s critics during that period the controversial issues of these parts can be resolved only through empirical investigation but on the issues of greatest importance from the financial crises of the 1990s both fischer and the imf s critics make logically consistent arguments with little empirical support in part 5 i review the recent empirical literature to illuminate what evidence has been found in support of or counter to the assertions of fischer and the imf s critics part 6 provides conclusions and suggestions for follow on empirical research

the purchasing power parity debate originally propounded by the 16th century scholars of the university of salamanca the concept of purchasing power parity ppp was revived in the interwar period in the context of the debate concerning the appropriate level at which to re establish international exchange rate parities broadly accepted as a long run equilibrium condition in the post war period it first was advocated as a short run equilibrium by many international economists in the first few years following the breakdown of the bretton woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s accordingly over the last three decades a large literature has built up that examines how much the data deviated from theory and the fruits of this research have provided a deeper understanding of how well ppp applies in both the short run and the long run since the mid 1990s larger datasets and nonlinear econometric methods in particular have improved estimation as deviations narrowed between real exchange rates and ppp so did the gap narrow between theory and data and some degree of confidence in long run ppp began to emerge again in this respect the idea of long run ppp now enjoys perhaps its strongest support in more than 30 years a distinct reversion in economic thought

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

local and aggregate fiscal policy multipliers abstract using a newly constructed panel of state level defense contracts this paper studies the effect of defense spending on the u s macroeconomy summing observations across states we estimate aggregate income and employment multipliers comparing these to local multipliers estimated with the panel provides evidence that local multiplier estimates may be reliable indicators of fiscal policy s aggregate effects furthermore evidence of small positive spillovers is found across several specifications we estimate income and employment multipliers between zero and 0 5 this result is reconciled with the greater than one multipliers found in nakamura and steinsson 2014 by analyzing the korean war years impact on the estimation

how occupied france financed its own exploitation in world war ii can a vanquished country deliver significant resources to its occupier based on the failure of germany to pay its post world war i reparations conventional wisdom generally doubts the possibility yet german reparations represent the exception rather than the rule perhaps the most successful case was the transfer of resources that germany obtained from france during world war ii although they imposed huge payments the victors left the french to decide how to raise the funds after comparing the magnitude of france s payment to other episodes we employ a neoclassical growth model to assess both wartime and postwar policies the burden imposed on the french economy caused it to shrink at a rapid pace curtailing consumption and yielding large debt and money overhangs although vichy france intended to manage the postwar debt burden with higher tax rates the governments following liberation allowed inflation to slash the debt redistributing the adjustment cost higher taxes did not fund the debt but instead paid for expenditures associated with the rise of the welfare state

the macroeconomic effects of war finance in the united states world war ii and the korean war during world war ii government expenditures were financed primarily by issuing debt during the korean war expenditures were financed almost exclusively by higher taxes reflecting president truman s preference for balanced budgets this paper evaluates quantitatively the economic effects of the different policies used to finance these two wars counterfactual experiments are used to explore the implications of financing world war ii like the korean war and financing the korean war like world war ii the author finds that using a korean war policy during world war ii would have resulted in much lower output and welfare relative to the actual policy copyright 1997 by american economic association

real business cycle models past present and future in this paper i review the contribution of real business cycles models to our understanding of economic fluctuations and discuss open issues in business cycle research this abstract was borrowed from another version of this item