time consistent public policy in this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure we characterize and solve for markov perfect equilibria of the dynamic game between successive governments the characterization consists of an inter temporal first order condition a generalized euler equation for the government and we use it both to gain insight into the nature of the equilibrium and as a basis for computations for a calibrated economy we find that when the only tax base available to the government is capital income an inelastic source of funds at any point in time the government still refrains from taxing at confiscatory rates we also find that when the only tax base is labour income the markov equilibrium features less public expenditure and lower tax rates than the ramsey equilibrium

the origins and development of the northeast asian political economy industrial sectors product cycles and political consequences theories of the product cycle hegemony and the world system are used to analyze the creation and development of the northeast asian political economy in this century japan south korea and taiwan have each developed in a particular relationship with the others the three taken together form a hierarchical constantly interacting political economic unit during the period of colonial rule japan was unique in building an imperial economic unit marked by a strong role for the state whether in tokyo or taipei by a tight integral unking of all three nations into a communications and transport network running toward the metropole and by a strategy of both using the colonies for agricultural surpluses and then locating industries there after 1945 a diffuse american hegemony replaced japan s unilateral system but elements of the prewar model have survived strong states direct economic development in south korea and taiwan here termed bureaucratic authoritarian industrializing regimes both countries are receptacles for japan s declining industries and both countries develop in tandem if in competition with each other the most recent export led competition has seen taiwan succeed where south korea has temporarily failed leaving seoul in an export led trap burdened with rapidly increasing external debt taiwan furthermore has industrialized relatively free of social disruption whereas korean society resisted its transformation at japanese hands and remains more rebellious today there can be one japan and one taiwan but not two or many of either in the world economy

economic growth and productivity a case study of south korea the economic performance that south korea has achieved over the past quarter century is often likened to a miracle recently much interest has been expressed in the driving forces behind the korean economic transformation using the valueadded measure of output christiansen and cummings have shown that technology measured by tfp accounts for about 43 of korean economic growth between 1960 and 1973 this figure is considerably high compared with recent major studies on japanese and singaporean economic growth we found that the value added framework is not appropriate for the description of the structure of the korean economy and re examined the sources of korean economic growth using the gross output framework surprisingly it has been discovered that only 7 of real output growth in the manufacturing sector during the 1962 1981 period is attributable to technological progress these findings parallel those for the japanese and singapore economies

the role of investment specific technological change in the business cycle this is a quantitative investigation of the importance of technological change speci c to new investment goods for postwar us aggregate uctuations a growth model that incorporates this form of technological change is calibrated to us data and simulated using the relative price of new equipment to identify the process driving investmentspeci c technology shocks the analysis suggests that this form of technological change is the source of about 30 of output uctuations 2000 elsevier science b v all rights reserved

time consistent consumption taxation abstract we characterise optimal tax policies when the government has access to consumption taxation and cannot credibly commit to future policies we consider a neoclassical economy where factor income taxation is distortionary within the period due to endogenous labour and capital utilisation and non tax deductibility of depreciation contrary to the case where only labour and capital income are taxed the optimal time consistent policies with consumption taxation are remarkably similar to their ramsey counterparts the welfare gains from commitment are negligible while they are substantial without consumption taxation further the welfare gains from taxing consumption are much higher without commitment

distortionary taxes and public investment when government promises are not enforceable abstract we characterize the optimal financing of productive public capital and compute the welfare loss from being unable to commit to the ramsey policy because this calculation ultimately relies on numerical approximations we contrast alternative approaches while perturbation and linear quadratic methods deliver accurate steady states the latter can yield misleading policy implications during transitions we find that moving from a regime with commitment to one with discretion implies only a small welfare loss although markov perfect consumption falls noticeably short of its ramsey counterpart in steady state consumption under discretion is higher in the short run which largely offsets this long run loss

taxation and household labor supply we evaluate reforms to the u s tax system in a life cycle setup with heterogeneous married and single households and with an operative extensive margin in labor supply we restrict our model with observations on gender and skill premia labor force participation of married females across skill groups children and the structure of marital sorting we concentrate on two revenue neutral tax reforms a proportional income tax and a reform in which married individuals flle taxes separately separate flling our flndings indicate that tax reforms are accompanied by large increases in labor supply that difier across demographic groups with the bulk of the increase coming from married females under a proportional income tax reform married females account for more than 50 of the changes in hours across steady states while under separate flling reform married females account for all the change in hours

use of minority and 50 50 joint ventures by united states multinationals during the 1970s the interaction of host country policies corporate strategies this article examines geographical sectoral and corporate trends in the use of minority and 50 50 joint ventures by u s multinational manufacturing and mining firms in less developed countries ldcs during the 1970s it is based primarily on data found in the harvard multinational enterprise data base as updated through the mid 1970s and supplemented with corporate performance data for the 1975 1980 period from a new international competitive analysis ica database developed with support from the general electric foundation

optimal fiscal policy in a business cycle model this paper develops the quantitative implications of optimal fiscal policy in a business cycle model in a stationary equilibrium the ex ante tax rate on capital income is approximately zero there is an equivalence class of ex post capital income tax rates and bond policies that support a given allocation within this class the optimal ex post capital tax rates can range from close to independently and identically distributed to close to a random walk the tax rate on labor income fluctuates very little and inherits the persistence properties of the exogenous shocks thus there is no presumption that optimal labor tax rates follow a random walk most of the welfare gains realized by switching from a tax system like that of the united states to the ramsey system come from an initial period of high taxation on capital income

the macro impacts of korea s heavy industry drive re evaluated the korean heavy industry hci drive has been criticised for the misallocation of capital and for negative spillover effects on growth inflation the current account and debt however such criticism places too much blame on hci for the late 1970s economic deterioration and gives hci insufficient credit for the subsequent economic rebound korean hci was a catch up exercise which attracted cheap foreign capital to accelerate structural change nevertheless the mid 1970s decision to pursue hci as a big push was flawed since it did result in project bunching that strained implementation capacity despite the safeguards which korea built into its hci strategy

time consistent optimal fiscal policy this article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period s capital income tax rate we find that the results contrast markedly with those under full commitment first capital income tax rates are very high 65 on average versus close to zero on average under full commitment second labor income taxes are rather low on average about 12 versus a value of around 31 under full commitment finally labor income taxes are quite volatile whereas under full commitment their standard deviation is essentially zero

welfare and optimum dynamic taxation of consumption and income abstract this paper estimates that the us could attain large welfare gains by implementing an optimal ramsey tax policy that taxes consumption and income it is also found that the welfare implications associated with taxing consumption are quantitatively more important than those associated with dynamically taxing income indeed replacing income taxes with a constant consumption tax leads to a welfare gain that is only slightly lower than that attained by a dynamic policy that taxes consumption and income in computing these welfare gains careful attention is given to the dynamic path of tax rates and the transitional dynamics associated with how the economy responds to a new tax policy

intellectual property rights licensing and innovation in an endogenous product cycle model abstract we develop a dynamic general equilibrium model of the product cycle to study the effects of stronger intellectual property rights iprs in the south on the incentives of firms in the north to innovate and to license advanced technologies innovation and licensing are random processes requiring resources stronger iprs increase the licensor s share of rents and reduce the costs of licensing contracts thus the returns to both licensing and innovation would rise while additional resources would be available for r d in consequence innovation and technology transfer would rise however the effect of stronger iprs on relative wages between regions is ambiguous

critical survey endogenous growth theory a critical assessment a critical assessment is made of endogenous growth theory from the perspective of recent developments within economics as a discipline these include its increasing mathematical formalisation its focus upon microfoundations the casual use of econometrics to test models and the incorporation of factors that have traditionally been outside mainstream economics it is found that the theory focuses upon market imperfections and technological progress in a variety of ways and reconstructs their impact upon the macroeconomy as a growth rather than as a level effect whilst the growth rate is endogenised this leads to the problem of multiple equilibria and extremely complex dynamics the generalisation from exogenous growth theory is however associated with even more extreme assumptions and analytical distance from the socioeconomic processes of growth itself copyright 2000 by oxford university press

state steel and strength structural competitiveness and development in south korea this article introduces the concept of structural competitiveness to explain the rapid development of south korean steel industry three elements of structural competitiveness are state autonomy sound economic policy and indigenous technological capability these elements have a significant bearing on the bargaining capacity of the state autonomous investment decisions labour control the acquisition and absorption of modern technology and ultimately international competitiveness global competitiveness of south korea does not refute the technological dependence of developing countries rather it suggests the kind of socio institutional and economic policy contexts that are often necessary to foster competitive industries

optimal fiscal policy with consumption taxation we characterise optimal fiscal policies in a general equilibrium model with monopolistic competition and endogenous public spending the government can tax consumption as alternative to labour income taxes consumption taxation acts as indirect taxation of prots intratemporal gains of taxing consumption and enables the policy maker to manage the burden of public debt more efficiently intertemporal gains of taxing consumption we show analytically that these two gains imply that the optimal share of government spending is higher under consumption taxation than with labour income taxation then we quantify numerically each of these gains by calibrating the model on the us economy

total factor productivity vs realism revisited the case of the south korean steel industry this paper presents key features of the development of the south korean steel industry through the critical examination of an article by truett and truett despite their claim to exhibit realism by use of a translog cost function their methodology has strong affinities with the methods of measuring total factor productivity growth which have long been known as invalid but continue to be applied not least to the experience of east asian countries it will be argued that the theoretical and empirical flaws involved with these methods invalidate their results and corresponding policy implications above all by showing that the assumptions for their calculation do not hold in terms of the economic conditions of the industry the paper points to a different understanding of realism than that conceived by and for their study copyright 2005 oxford university press

rise of latecomers and catch up cycles in the world steel industry abstract this study analyzes the sources of changes in industrial leadership and catch up by latecomers in the world steel industry since world war ii the shift of leadership from the united states to japan in 1980 and the subsequent rise of korea with posco s output surpassing that of nippon steel in 1998 is explained on the basis of a single theoretical framework we rely on the neo schumpeterian concepts of sectoral innovation systems and windows of opportunity for latecomers in catching up with leading countries these windows include changing generations of technologies business cycles and demand shifts and government regulations and other interventions japan realized a path creating catch up by taking advantage of the opportunity window associated with the emergence of new technologies entering as a state owned enterprise posco engaged in stage skipping catch up by utilizing the downturn as a window of opportunity to pay low prices for expanding its facilities and updating its technologies

the own wage elasticity of labor demand a meta regression analysis firms labor demand responses to wage changes are of key interest in empirical research and policy analysis however despite extensive research estimates of labor demand elasticities remain subject to considerable heterogeneity in this paper we conduct a comprehensive meta regression analysis to re assess the empirical literature on labor demand elasticities building on 942 elasticity estimates from 105 different studies we identify sources of variation in the absolute value of this elasticity heterogeneity due to the theoretical and empirical specification of the labor demand model different datasets used or sectors and countries considered explains more than 80 of the variation in the estimates we further find substantial evidence for the presence of publication selection bias as estimates of the own wage elasticity of labor demand are upwardly inflated

positive long run capital taxation chamley judd revisited according to the chamley judd result capital should not be taxed in the long run in this paper we overturn this conclusion showing that it does not follow from the very models used to derive it for the main model in judd 1985 we prove that the long run tax on capital is positive and significant whenever the intertemporal elasticity of substitution is below one for higher elasticities the tax converges to zero but may do so at a slow rate after centuries of high tax rates the main model in chamley 1986 imposes an upper bound on capital taxes we provide conditions under which these constraints bind forever implying positive long run taxes when this is not the case the long run tax may be zero however if preferences are recursive and discounting is locally nonconstant e g not additively separable over time a zero long run capital tax limit must be accompanied by zero private wealth zero tax base or by zero labor taxes first best finally we explain why the equivalence of a positive capital tax with ever increasing consumption taxes does not provide a firm rationale against capital taxation

on the estimation of factor substitution in the translog model the conventional approach to computation of the allen partial elasticities of substitution aes in the framewo rk of the translog production function requires to estimate a set of multivariate input demand functions this paper proposes an alternati ve way to compute the aess requiring only to estimate elasticities v ia a truncated single cost share equation value added separability and pairwise factor substitutabilities have both been validated under the nonlinear restriction the achievements of the alternative appro ach are by and large consistent with those of the conventional approa ch and with those in some of the existing studies copyright 1987 by mit press

marxist economics and contemporary developing economies in recent years a thesis has been put for ward by some influential economists that the experience of growth rec orded in the post world war ii period by a number of developing count ries has struck a death blow to marxist economics experience of nics and asean countries has been strongly emphasized as part of the evidence in this context empirical analysis presented in this paper which explores some of the contradictory features of the development processes operating in these countries strongly suggests that the exp lanatory power of marxist economics has been underestimated and that of neoclassical economics considerably overestimated it also indicat es certain directions in which marxist economics may need to be exten ded which will enhance its explanatory power copyright 1987 by oxford university press

markov perfect capital and labor taxes abstract this paper analyzes the markov perfect equilibrium of an economy were a benevolent government that lacks the ability to commit to future policy choices uses taxes on capital and labor income to finance the provision of a public good the main finding is that the government taxes capital and subsidizes labor so that only the dynamic inefficiency of future capital taxes remains if agents preference for the public good is sufficiently high then capital is confiscated setting bounds on taxes alleviates the dynamic inefficiency inherent in capital taxation but some implementations carry a high welfare cost allowing for endogenous capital utilization makes the current capital tax distortionary and implies capital and labor tax rates that are relatively close to those measured for the u s economy

international technology transfer major issues and policy responses international technology transfer emerged as a separate field of inquiry in the 1970s and has since inspired a large literature this paper identifies and reviews the major aspects of the field policy responses of technology supplying firms and nations and of recipient countries are examined directions for further research are indicated

unconventional fiscal policy at the zero bound when the zero lower bound on nominal interest rates binds monetary policy cannot provide appropriate stimulus we show that in the standard new keynesian model tax policy can deliver such stimulus at no cost and in a time consistent manner there is no need to use inecient policies such as

measuring productivity growth under factor non substitution an application to us steam electric power generation utilities a theoretical framework is developed for decomposing partial factor productivity and measuring technical inefficiency when the underlying technology is characterized by factor non substitution with farrell s 1957 radial index of technical inefficiency being inappropriate in this case russell non radial indices are adapted to measure technical inefficiency in a leontief type model a system of factor demand equations with a regime specific technical inefficiency term is proposed and estimated allowing for dependence across inputs using a copula approach then the paper presents a complete decomposition of partial factor productivity changes using a dataset of us steam power electric generation utilities

a nonhomothetic generalized leontief cost function based on pooled data factor demand studies of komiya ozaki lau and tamura based upon detailed cross section data on individual production units have found that the nonhomothetic factor limitational nht fl demand system a nonhomothetic version of the leontief fixed coefficient model well explains the data these results however have mostly been ignored in the current literature on flexible functional forms and in fact none of the well known nonhomothetic flexible cost function forms includes the nht fl model i introduce a new nonhomothetic form of the generalized leontief gl cost function which includes the nht fl model as a special case empirical application to a pooled data set of the japanese iron steel industry indicates that his form is superior to the translog diewert wales gl and berndt khaled gl forms copyright 1990 by mit press

optimal time consistent government debt maturity this paper develops a model of optimal debt maturity in which the government cannot issue statecontingent debt as the literature has established if the government can perfectly commit to fiscal policy it fully insulates the economy against government spending shocks by purchasing short term assets and issuing long term debt these positions are quantitatively very large relative to gdp and do not need to be actively managed by the government our main result is that these conclusions are not robust when lack of commitment is introduced under lack of commitment large and tilted debt positions are very expensive to finance ex ante since they ex post exacerbate the government s problem stemming from a lack of commitment in contrast a flat maturity structure minimizes the cost entailed by a lack of commitment though this structure also limits the ability to insure against shocks and increases the volatility of fiscal policy distortions we show that the optimal time consistent maturity structure is nearly flat because reducing average borrowing costs is quantitatively more important for welfare than reducing fiscal policy volatility thus under lack of commitment the government actively manages its debt positions and can approximate optimal policy by confining its debt instruments to consols

the laffer curve revisited abstract laffer curves for the us the eu 14 and individual european countries are compared using a neoclassical growth model featuring constant frisch elasticity cfe preferences new tax rate data is provided the us can maximally increase tax revenues by 30 with labor taxes and 6 with capital taxes we obtain 8 and 1 for the eu 14 there 54 of a labor tax cut and 79 of a capital tax cut are self financing the consumption tax laffer curve does not peak endogenous growth and human capital accumulation affect the results quantitatively household heterogeneity may not be important while transition matters greatly

beneath the miracle labor subordination in the new asian industrialism this important study examines the dynamics of the remarkable economic transformation of south korea singapore taiwan and hong kong which has been based in large measure on the production of manufactured goods for export the competitive edge of these countries has in turn been rooted in the mobilization of a low cost disciplined and productive workforce this study seeks therefore to explain how east asian governments and employers have attempted to manage this workforce it also explores the extent to which workers are able to challenge management decisions and insert working class agendas into public policy beneath the miracle moves beyond current explanations for the weakness of east asian labor movements which emphasize confucianist culture material welfare gains and political repression it shows that the organizational capacity of workers has been more fundamentally undercut first by the nature of emergent east asian employment systems and second by the sequencing of developmental change with political controls preceding rapid industrialization and preempting political and union organization of the growing industrial workforce deyo undertakes an incisive cross national comparison of employment systems and explores anomalous situations such as that in hong kong where labor is politically weak even under minimal state controls and that in south korea where labor is in a stronger position despite far stricter regulation beneath the miracle offers a fresh and compelling comparative analysis of asian labor movements which could lead to a reassessment of many other developmental issues in east asia in his probing examination deyo provides an important and exciting contribution to the literature in this field

productivity growth and factor prices in east asia the industrial revolution in several east asian countries over the last three decades is one of the most important economic events in the postwar era several recent growthaccounting exercises have found that their extraordinary rate of output growth was due primarily to an equally impressive rate of factor accumulation with little due to technological progress see alwyn young 1992 1995 jong il kim and lawrence lau 1994 susan collins and barry bosworth 1996 since these studies suggest that factor accumulation has been the lead actor in east asia s growth many economists have reached the conclusion that the industrial revolution in east asia can largely be explained in terms of transition dynamics in a neoclassical growth framework see e g paul krugman 1994 n gregory mankiw 1995 if this view is correct the lesson from east asia s experience is that there are no easy solutions for a poor country that seeks to join the league of wealthy nations low levels of investment and education may be the result of bad policies but once proper policies are enacted a poor country faces the grim prospect of a further decline in its already low standards of living as it devotes more resources to investment and education the central point of this paper is that if east asia s growth was largely driven by capital accumulation with little technological progress the return to capital should have fallen dramatically as capital accumulation encounters diminishing returns for example the capital output ratio for korea computed from the national accounts has increased at an average rate of 3 4 percent per year from 1966 to 1990 while that of singapore has increased at an average rate of 3 7 percent per year from 1968 to 1990 by dividing the share of payments to capital in total income by the capital output

optimal public investments in education and endogenous growth optimal public investments in human capital through subsidizing private education or providing public education are considered in an endogenous growth model with externalities subsidizing private education stimulates growth improves welfare and has no distributional effect while reducing income inequality as in the literature public education hinders the growth of the average income unless externalities are strong enough and reduces the welfare of the median agent unless initial income inequality is sufficiently high societies with high income inequality may provide public education and will replace it with subsidized private education in some future periods as income converges copyright 1996 by the editors of the scandinavian journal of economics

fiscal policy under loose commitment due to time inconsistency or political turnover policymakers promises are not always fulfilled we analyze an optimal fiscal policy problem where the plans made by the benevolent government are periodically revised in this loose commitment setting the properties of labor and capital income taxes are significantly different than under the full commitment and no commitment assumptions because of the occasional reoptimizations the average capital income tax is positive even in the long run also the autocorrelation of taxes is lower their volatility with respect to output increases and the correlation between capital income taxes and output changes sign our method can be used to analyze the plausibility and the importance of commitment in a wide class of dynamic problems

consumption taxes and redistribution this study considers replacing the current us tax system with only aflat tax con sumption tax showing in contrast to the literature that such a reform leads to a decline in inequality and increase in welfare for the welfare poor the results are obtained from a simple model that identifies the main channels through which the reform affects the economy it is shown also that these novel results depend on the distribution of wealth and earnings and that they hold for the relevant

the response of small and medium size business customers to time of use tou electricity rates in israel this paper reports on the methodology data and results of the israeli time of use tou electricity pricing experiment in the industrial commercial sector we concentrate on the estimation of the demand functions for electricity under tou and the net welfare gains which result from applying tou rates to small and medium size business customers in israel this experiment which was preceded by a 15 month load research study to allow an optimal sample design was concluded in june 1992 the analysis yielded four major conclusions 1 the estimated gains of small and medium size customers in israel from tou rates are sufficient to justify investment in tou metering technology 2 there have been small but noticeable shifts of electricity from the peak to the mid peak if relevant and to the off peak periods during all seasons of the year and particularly during the winter 3 the structure and number of labour shifts during the day and weather are important factors in determining the response of business customers to the tou rates 4 price elasticities vary substantially over the seasons and across sic groups they do not vary with customer size

lack of commitment and the level of debt the tendency of countries to accumulate public debt has been rationalized in models of political disagreement and lack of commitment we analyze in a benchmark model how the evolution of public debt is affected by lack of commitment per se while commitment introduces indeterminacy in the level of debt lack of commitment creates incentives for debt to converge to specific levels one of the levels that debt often converges to implies no debt accumulation at all in a simple example we prove analytically that debt converges to zero and we analyze numerically more complex models we also show in an imperfect credibility setting that a small deviation from full commitment is enough to obtain these results

endogenous capital utilization investor s effort and optimal fiscal policy abstract the present paper studies the implications of endogenous capital utilization and investor s effort on the structure and time consistency of optimal fiscal policy the main results are that levies of old capital are distortionary and should therefore not be used at confiscatory rates that in a steady state capital and labor income should be taxed at the same rate and investment should be subsidized at the same rate as the tax rate and that the optimal tax policy can be made time consistent through debt restructuring

fiscal policy with limited time commitment we propose a theory of optimal fiscal policy consistent with the observation that governments typically inherit their predecessors plans and formulate their policies over a finite future horizon we use this framework which we call limited time commitment ltc to make two contributions first in a general stochastic model we show that under an intuitive sufficient condition a chain of successive governments with ltc sustains the full commitment fc ramsey equilibrium this equivalence result clarifies in which cases existing recursive methods to solve for fc plans have a positive interpretation based on partial commitment we apply this result in two benchmark models of optimal fiscal policy with and without capital in which the fc policy is time inconsistent second we investigate the implications of ltc in a model of capital taxation in which the fc outcome cannot be achieved with finite commitment we show that the internalisation of near future tax distortions represents a key distinction with respect to the literature on no commitment nc in a calibrated version of the model we find that a single year of fiscal commitment leads to large welfare gains approximately a third of the difference between fc and nc finally we use ltc to analyse commitment to different fiscal instruments and to study the importance of state contingency in fiscal plans

optimal redistributive capital taxation in a neoclassical growth model abstract this paper provides a counterexample to the simplest version of the redistribution models considered by judd 1985 in which the government chooses an optimal distortionary tax on capitalists to finance a lump sum payment to workers i show that the steady state optimal tax on capital income is generally non zero when the capitalists utility is logarithmic and the government faces a balanced budget constraint with log utility agents optimal decisions depend solely on the current rate of return not any future rates of return or tax rates this feature of the economy effectively deprives the government of a useful policy instrument because promises about future tax rates can no longer influence current allocations when combined with a lack of other suitable policy instruments such as government bonds the result is an inability to decentralize the allocations that are consistent with a zero limiting capital tax i show that the standard approach to solving the dynamic optimal tax problem yields the wrong answer in this knife edge case because it fails to properly enforce the constraints associated with the competitive equilibrium specifically the standard approach lets in an additional policy instrument through the back door

on the time consistency of optimal capital taxes abstract this paper studies the time inconsistency problem of optimal capital taxes in the absence of full commitment it is well known that debt restructuring cannot solve the time inconsistency problem for economies with a private stock of capital we re examine this result by exploring the role of institutional delays in government policies we show that when the implementation of government policy requires time debt restructuring can enforce commitment to the optimal capital taxes we conclude that since institutional delays characterize democratic decision making the time inconsistency problem of capital taxes is not so severe