financial markets and development my views on this subject have been greatly affected both by the experience of developing countries during the past quarter century and by the major shift evolutionary if not revolutionary in the economists paradigm over that period we have seen that capital accumulation is not enough even the extremely high rates of savings of many of the socialist economies have not managed to compensate for their lack of ability in allocating capital and these countries have for the most part not fared well but extreme free market solutions have fared little better perhaps best illustrated by the experience of chile true believers in the doctrines of the left and the right have this in common they both claim that if the patient had only followed the doctor s orders more precisely the medicine would have worked

the informational content of initial public offerings the ability of capital markets to distinguish firms of different value by the size of their initial equity offerings is attenuated when insiders can sell equity more than once a model is developed in which there is price risk from holding equity between periods when the uncertainty is small there must be pooling in the first period when uncertainty is large the pooling equilibria dominate the separating equilibrium the size of an entrepreneur s initial public offering of equity can be informative this point was made in leland and pyle 1977 and stiglitz 1982 an entrepreneur with a good project can signal the value of the project by his or her willingness to retain equity an implicit assumption of this analysis is that the entrepreneur has only one opportunity to sell equity the assumption of a single sale is important since once the entrepreneur has signalled his or her project value by retaining equity investors should be willing to purchase the remaining equity however if entrepreneurs with bad projects foresee this they too may wish to retain equity initially and render themselves indistinguishable from entrepreneurs with good projects the current paper develops a model with two trading periods to capture the impact of having repeat sales of equity there is a public offering in the first period then the entrepreneur can make an open market sale in the second period however there is exogenous price risk which makes it costly for the entrepreneur to wait to sell in this context the value of the entrepreneur s project may not be revealed in the first period retaining equity is not very costly when uncertainty is small and there will only be pooling equilibria in this case in such a situation no information is revealed in the first period when the level of uncertainty is great there does exist a separating equilibrium however the pooling equilibria pareto dominate the separating equilibrium throughout the analysis the focus will be on paretooptimal equilibria the idea that an informed agent can profitably trade over time has been examined in related contexts kyle 1985 looked at the optimal trading strategy for an insider whose sequence of purchases is hidden in the aggregate order flow in equilibrium the insider s information is not completely incorporated into the market price until the close of trading

marginal income tax rates in the united states a non parametric approach abstract the objective of this paper is to estimate both the u s federal marginal income tax rate and the state and local marginal income tax rates we use the non parametric regression method and data on income and tax extracted from u s individual tax model files for the period 1985 1995 the flexibility of the non parametric approach and the information at the individual level enable us to construct a more reliable time series of the average federal marginal income tax rates and that of the average state and local marginal income tax rates our results suggest that the average federal marginal income tax rate varies from 18 2 to 21 8 and the average state and local marginal income tax rate varies from 4 7 to 5 6 we also find that the state and local income tax accounts for roughly 18 of the total income taxes paid during 1985 1995 moreover our analysis shows that stephenson journal of monetary economics 41 1998 pp 389 409 provides the most consistent tax rate series for use in applications that require estimates of tax rates for years prior to 1985

sistema financeiro e desenvolvimento regional um estudo sobre o financiamento bancario da atividade industrial no brasil this paper aims in analyzing the interaction between the productive and financial economic spheres it discusses the characteristics of the brazilian financial system and examines the evolution of bank financing of the industrial activity by brazilian region stressing the importance of banking to development a principal component analysis confirms the existence of spatial correlation between financial and industrial variables and a panel data test for the brazilian states demonstrated the existence of different regional impacts of financial variables over the level of industrial employment by different sectors

average marginal tax rates revisited abstract i revise and update through 1994 the estimated average marginal income and social security tax rates of seater 1982 marginal federal personal and corporate income tax rates in the us 1909 1975 journal of monetary economics 10 361 381 seater 1985 on the construction of marginal federal personal and social security tax rates in the us journal of monetary economics 15 121 135 and barro and sahasakul 1983 measuring the average marginal tax rate from the individual income tax journal of business 56 419 452 and barro and sahasakul 1986 average marginal tax rates on social security and the individual income tax journal of business 59 555 566 and i introduce a return weighted social security tax rate since 1981 the average marginal effective income tax rate has declined from about 16 to 12 however the combined federal tax burden remains high by historic standards because the average marginal social security tax rate has increased from about 5 to about 6 5

learning from social security reforms two different cases chile and argentina abstract this paper compares two of the most important structural reforms of social security in latin america the chilean private fully funded system and the public private argentinean integrated pay as you go fully funded program chile was the first country in the world to completely privatize the old public pension system this landmark reform has had a strong influence on other pension reforms not only in latin america but also in other developing and developed countries the argentinian model has important differences in comparison with the chilean model 1 a more inter and intragenerational solidarity 2 b relatively lower transition costs to be covered by the state 3 c higher coverage of self employed workers 4 d a more comprehensive regulatory framework and 5 e less gender inequality given these elements the argentinian pension model offers new insights to countries currently reforming their pension systems the paper concludes addressing important questions regarding the weaknesses of the new argentinian model

marginal federal personal and corporate income tax rates in the u s 1909 1975 abstract in this article i first report and describe the construction of two new statistical series on the marginal federal income tax rates for corporations and private individuals in the united states since the inception of those taxes and then analyze the behavior of these series over time several results on the determination of tax rates are derived these generally are not consistent with barro s theory of deficit finance

financial restriction and the developmental state in east asia toward a more complex political economy recent financial crises in asia have renewed debates over the appropriate degree and scope of government intervention in financial markets governments in two countries affected by financial crises

oil development operating cost estimates 1955 1985 abstract few if any published oil production cost estimates can be verified as to method and basic data using us drilling costs and some assumptions explained in the text this paper estimates development operating costs in 41 oil producing nations from 1955 to 1985 from publicly available data on drilling estimation methods are described in detail so that anyone with access to better information on any item can substitute it to arrive at a better estimate

the missing piece in policy analysis social security reform this lecture discusses the economic losses that result from an unfunded social security retirement system and the potential gain from shifting to a funded system the social security payroll tax distorts labor supply and the form in which compensation is paid although each individual s benefits are linked to that individual s previous payroll tax payments the low equilibrium rate of return inherent in an unfunded system implies a net payroll tax that causes distortions the resulting deadweight loss is 1 of each year s gdp in perpetuity an amount equal to 20 of payroll tax revenue and a 50 increase in deadweight loss of the personal income tax also there is the loss of investment income resulting from forcing employees to accept the low implicit return of an unfunded program rather than the much higher return paid on private saving or in a funded social security program the present value of the annual losses from using an unfunded system exceeds the benefit to those who received windfall transfers when the program began and when it expanded shifting to a funded program cannot reverse the crowding out of capital that has already occurred recognizing the existing unfunded obligation only makes that piece of the national debt explicit but shifting to a funded program limits crowding out of capital formation to the amount that already occurred future increases in annual saving that result from economic growth are able to earn the higher rate of return on real capital the present value of these gains is equivalent to a perpetuity of more than 2 of gdp a year the combi nation of improved labor market incentives and higher real return on saving has a net present value gain of more than 15 trillion an amount equivalent to three percent of each future year s gdp forever this abstract was borrowed from another version of this item

informal financial markets under liberalization in four african countries abstract this paper presents survey evidence from four countries on how informal financial agents serve market niches that banks cannot readily reach their methodologies are effective in keeping down transaction costs and default risk relative to banks although informal agents exercise monopoly power in dualistic markets liberalization of repressive financial policies has had little effect on formal financial deepening while informal finance has continued to grow the paper concludes that informal financial institutions are an important vehicle for mobilizing household savings and financing small businesses and it recommends that informal finance be better integrated into financial development strategies

theory measurement and calibration of macroeconomic models abstract calibration has become a standard tool of macroeconomics this paper extends and refines the calibration methodology along several important dimensions first accounting for home production is important both in measuring calibration targets and in organizing the data in a model consistent fashion for this reason thinking about home production is important even if the model under consideration does not include home production second investment specific technological change is included because of its strong balanced growth parameter restrictions third the measurement strategy is laid out as transparently as possible so that others can easily replicate the underlying calculations the data and calculations used in this paper are available at http clevelandfed org research models rbc index cfm

monetary and exchange rate policies for international financial stability a proposal w v ithout a common monetary standard the remarkable integration of western european north american and the industrialized asian economies in both commodity trade and financial flows is less efficient and becoming untenable dissatisfaction with wildly fluctuating relative currency values euphemistically called floating or flexible exchange rates is a prime cause of the resurgence in protectionism in 1986 87 the overvalued yen forced japanese industrialists to close factories retire workers and write off once valuable investments in plant and equipment this parallels what their american counterparts were forced to do between 1981 and 1985 when the dollar suddenly became overvalued similarly the paring down of the british manufacturing base was precipitated when the pound unexpectedly became a strong petrocurrency in 1979 81 in agriculture japan and european countries are determined to insulate their domestic prices of farm products from unsettling international influences including volatile fluctuations in the yen dollar or mark dollar exchange rates thus unless exchange stability is first achieved the american government s attempt to broaden the general agreement on tariffs and trade to encompass agriculture and services is likely to fail but what keeps the three major industrial blocs from developing a common monetary standard to prevent exchange rate fluctuations although many people

unions role in argentine and chilean pension reform abstract the 1981 privatization of chilean pensions created immediate winners and observable benefits it also created a model for latin american pension reform this study compares the chilean and argentine experiences by using political economy models of social welfare development as a framework for discussion we suggest privatizing pensions could divide workers or create opportunities for unions to garner control over financial capital investments the argentine pension reform may diverge substantially if unions increase their participation in the pension fund management and worker education

costs of taxation and the size of government existing theory on the form of government suggests that a parliamentary system promotes a larger size of government than does a presidential system this paper extends the existing theory by allowing for distortionary taxation a main result is that if taxation is sufficiently distortionary the parliamentary system may promote a smaller size of government than the presidential system the proposed mechanism appears consistent with several empirical patterns in the data that cannot be explained by other theories

fertility and the personal exemption comment one of the most commonly cited studies on the effect of child subsidies on fertility whittington alm and peters 1990 claimed a large positive effect of child tax benefits on fertility using time series methods we revisit this question in light of recent increases in child tax benefits by replicating this earlier study and extending the analysis we do not find strong evidence to justify the model specification from the original paper moreover even if the original specification is appropriate we show that the results are not robust to more general measures of child tax benefits jel h24 j13

average marginal tax rates from social security and the individual income tax we extend previous estimates of the average marginal tax rate from the federal individual income tax to include social security our computations consider the tax rates on employers employees and the self employed the income that accrues to persons with earnings below the ceiling and the effective deductibility of employers social security contributions from workers taxable income the next effect of social security on the average marginal tax rate is below 02 until 1966 but then rises to 03 in 1968 04 in 1973 05 in 1974 06 in 1979 and 07 in 1982 this abstract was borrowed from another version of this item

average marginal tax rates in the uk economy using a known methodology this paper calculates the average tax rate atr and three different average marginal tax rate amtr measures for the uk the three different amtr measures are greater than the atr in the same year because of the progressive tax system in the uk barro s amtr measure weighted by total income is greater than barro s amtr measure weighted by number of returns because of the unequal distribution of income and barro s amtr measure weighted by total income exceeds seater s amtr measure because total income before tax in seater s amtr measure is greater than total income after tax in barro s amtr measure

nonlinear growth effects of taxation a semi parametric approach using average marginal tax rates summary one of the major challenges of empirical tax research is the identification and calculation of appropriate tax data while there is consensus that average marginal tax rates are most suitable for studying the effects of tax policy on economic growth because of data limitations the calculation of marginal tax rates has been limited to the usa and the uk this paper provides calculations of average marginal tax rates for the four scandinavian countries using the methodologies of seater 1982 1985 and barro and sahasakul 1983 1986 then by pooling the newly calculated tax rates for the scandinavian countries with the data for the usa and the uk we investigate the effects of tax policy shocks on the per capita gdp growth rate our results suggest that an increase in average marginal tax rates has a negative impact on economic growth employing additive mixed panel models with penalized splines as estimation approach we show that changes in tax rates have nonlinear effects increasing average marginal tax rates turn out to be the most distorting at relatively moderate tax rates copyright 2013 john wiley sons ltd

international investment agreements and services markets locking in market failure summary bilateral investment treaties bits and investment chapters in preferential trade agreements have become popular measures to guarantee investor friendly policies while they reassure multinational firms they also constrain host country authorities in regulating markets to stimulate competition these problems are widespread in service industries characterized by significant economies of scale this paper presents case studies of the difficulties the chilean regulatory authorities faced in regulating the financial services telecom and energy industries it concludes that able regulators are necessary but that international agreements need to also leave enough policy space

is past prologue prospects for state and local sales tax bases general sales taxes provide substantial fractions of state and local revenues in the us however state and local sales tax bases have been eroding steadily during the past 50 years base erosion contributes to fiscal stress in the states therefore prospects for continued sales tax base erosion are important to state tax administrators policymakers and public finance economists this article offers a quantitative assessment of base erosion we construct time series of a representative state sales tax base and its price index and estimate a structural demand system for taxed and untaxed commodities we use the estimates to forecast the sales tax base over coming years time series forecasts and a weighted average forecast are constructed to reduce the likelihood of forecast error the results suggest slow but relentless base erosion and possible recurring fiscal stress in states where sales tax revenues make up sizable fractions of total tax revenues

externalities in economies with imperfect information and incomplete markets this paper presents a simple general framework for analyzing externalities in economies with incomplete markets and imperfect infonnation by identifying the pecuniary effects of these externalities that net out the paper simplifies the problem of determining when tax interventions are pareto improving the approach indicates that such tax interventions almost always exist and that equilibria in situations of imperfect information are rarely constrained pareto optima it can also lead to simple tests based on readily observable indicators of the efficacy of particular tax policies in situations involving adverse selection signaling moral hazard incomplete contingent claims markets and queue rationing equilibria traditional discussions of externalities have emphasized the distinction between technological externalities in which the action of one individual or firm directly affects the utility or profit ofanother and pecuniary externalities in which one individual s or firm s actions affect another only through effects on prices while the presence of technological externalities imply in general that a competitive equilibrium may not be pareto efficient pecuniary externalities hy themselves are not a source of inefficiency the fact that prices change has of course important consequences there are both distributional and allocational effects but the distribution effects net out gains for example hy firms whose prices increase are precisely offset by losses e g to individuals who must pay higher prices and there are no welfare losses from the allocation effects as long as the price changes involved are small if firms are maximizing profits and individuals are maximizing utility both facing prices that correctly refiect opportunity costs then standard envelope theorem arguments imply that changes in profits or utility induced by changes in allocations resulting from any small change in prices are negligible

hungary in transition to a market economy hungary began its transition to a market economy as long ago as 1968 with the adoption of the new economic mechanism when detailed central planning was abandoned and the economy was regulated by means of financial and economic levers hare radice and swain 1981 however after a period of re centralization in the 1970s and further marketoriented reforms during the 1980s it became evident that the country was still far from achieving a successful transition nevertheless hungary s attempts at economic reform over the last 20 years are remarkably instructive both for the present government s program of transition and for other eastern european nations for some general discussion of reform attempts and approaches see hare 1987 moreover many of the measures now being implemented in hungary were prepared and in many cases began to be implemented prior to the country s political transformation hence there is much stronger continuity in the hungarian reforms than one can find elsewhere in the region

continuous workout mortgages efficient pricing and systemic implications abstract this paper studies the continuous workout mortgage cwm a two in one product a fixed rate home loan coupled with negative equity insurance to advocate its viability in mitigating financial fragility in order to tackle the many issues that cwms embrace we perform a range of tasks we optimally price cwms and take a systemic market based approach stipulating that mortgage values and payments should be linked to housing prices and adjusted downward to prevent negative equity we illustrate that amortizing cwms can be the efficient home financing choice for many households we price cwms as american option style defaulting debt in conjunction with prepayment within a continuous time analytic framework we introduce random prepayments via the intensity approach of jarrow and turnbull 1995 we also model the optimal embedded option to default whose exercise is motivated by decreasing random house prices we adapt the barone adesi and whaley 1987 baw approach to work within amortizing mortgage context we derive new closed form and new analytical approximation methodologies which apply both for pricing cwms as well as for pricing the standard us 30 year fixed rate mortgage frm

the assessment microeconomics of transition in eastern europe the dramatic political events of 1989 and 1990 when almost all the communist governments of eastern europe collapsed and new democratic governments were elected into office gave rise to a brief spell of euphoria the dead or dying hand of communism was lifted from the region and a future of capitalist abundance was supposedly as sured this naive but perfectly understandable euphoria was quickly dispelled by the grim economic reality facing the new governments al though nearly everywhere there was a commit ment more or less strong to bring about a transition to a market type economy a transition typically requiring stabilization extensive liberalization and privatization there was far less agreement on the speed sequencing and precise modalities of the process at the same time in certain countries much needed reform programmes could neither be agreed nor implemented effectively because of political disputes over the very nature and existence of the states concerned table 1 summarizes the economic and political situation in the whole re gion as of summer 1991

can neoclassical economics underpin the reform of centrally planned economies te here s a curious symmetry between the arguments propounded over the last century in advocacy of socialism and the present popular discussion of the reform of centrally planned economies in those old discussions the vision of socialism was utopian which was contrasted with the dickensian realities of capitalism now the disasters of central planning are contrasted with the benefits flowing from perfectly functioning markets in the conventional wisdom of reform the vision of markets is utopian and that of central planning concentrates on the awful reality what is largely missing in the conventional wisdom is a satisfactory attempt to come to grips with the central question that should be answered in formulating reform plans how does one explain the differences in performance of market capitalist and centrally planned economies of course capitalism has outperformed central planning the developed west is therefore an obvious source of ideas for reforms but the institutions of capitalism come in many varieties and cannot be put in place instantaneously there are many alternative reform paths depending upon the importance attributed to each of these institutions thus there remains the problem of tracing the source of the superiority of capitalist economies to specific characteristics this point was made clear to me on hearing a vietnamese official justify single party rule by noting the economic success of taiwan and singapore reformers need a filter that interprets the experience of capitalist and socialist systems this is exactly where economic theory plays a vital role

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

limits to oil pricing scenario planning as a device to understand oil price developments abstract the bad record of oil price forecasting indicates that conventional oil market models should be critically reassesed scenario planning may be one alternative approach this approach does not contradict other theories of the market but it claims that no single discipline is able to tell the whole truth about the market the sp approach stresses and clarifies the role of uncertainty it argues that without a cross disciplinary approach with an adequate choice of parameters at the right level of in depth discussion the analysis may either lose essential imput or drown in detail as an example of the methodology an analysis of the oil market in the 1990s is presented this shows low upper and lower limits for the price can be constructed and which actual price development can be expected in a combination of economic and political reasoning

measuring the average marginal tax rate from the individual income tax the economic effects of taxation depend on the configuration of marginal tax rates we consider here the appropriate measure of a marginal tax rate for the federal individual income tax which has a graduated rate structure and allows for numerous legal and illegal deductions from total income our conclusion is that the explicit marginal rate from the tax schedule is the right concept for many purposes hence we construct approximately weighted averages of these marginal tax rates for 1916 80 when weighted by adjusted gross income the arithmetic average of marginal tax rates is 5 in 1920 2 in 1930 6 in 1940 20 in 1950 23 in 1960 24 in 1970 and 30 in 1980 we also discuss the dispersion of marginal tax rates as well as the behavior of average tax rates and deductions from taxable income one noteworthy result concerns the fraction of adjusted gross income that accrues to families that face a marginal tax rate of at least 35 this fraction quadruples from 1964 to 1980 this abstract was borrowed from another version of this item

pareto inefficiency of market economies search and efficiency wage models this paper shows that market economies with search and in which wages are affected by efficiency wage considerations are not constrained pareto efficient wages are not set at pareto efficient levels nor is the level of employment unemployment pareto efficient we identify the nature of the biases and the welfare improving government interventions this abstract was borrowed from another version of this item

enterprise ownership constraints and the role of equity markets in financial development the long standing controversy of the contribution of equity markets to economic development has been reactivated by the emerging markets phenomenon positive reassessments have emphasised diversification and liquidity gains for investors funding risky long lived projects the present analysis adopts instead the viewpoint of the issuer the owner controlled enterprise typical of ldcs owners wealth is a fundamental constraint on expansion when gearing is limited by bankruptcy risk and minority equity issue eases this constraint it is suggested that equity and debt are thus complementary and that stock markets may improve overall allocative efficiency if equities correctly value firm prospects