inflation tax rules and the accumulation of residential and nonresidential capital the present paper analyses the effect of the interaction between tax rules and inflation on the size and allocation of the capital stock with particular emphasis on the role of owner occupied housing the analysis is developed in the framework of an economy that is in equilibrium and in which a constant fraction of disposable income is saved in this model i show that with current u s tax laws an increase in the rate of inflation reduces the equilibrium amount of business capital employed in the economy and raises the amount of housing capital the analysis also shows that a higher rate of inflation lowers the real net of tax rate of return to the provider of business capital in a richer model than the current one i e in a model in which the rate of personal saving was an increasing function of the net rate of return a higher inflation rate would therefore lower the rate of saving the present analysis also shows that permitting firms to depreciate investments more rapidly for tax purposes increases the accumulations of business capital but that unless firms are permitted to expense all in vestment immediately an increase in in lat ion continues to depress the accumulation of business capital this abstract was borrowed from another version of this item

taxes housing and capital accumulation in a two sector growing economy abstract it is sometimes argued that the favorable tax treatment afforded to housing may lead to an oversupply of housing at the expense of capital this issue is examined in the context of a growing two sector economy in the basic model where the rate of time preference is constant and labor is instantaneously sectorally mobile the long run response of the capital stock to a tax on housing depends upon the relative capital intensities of the two sectors while the long run relative asset price of housing remains unchanged the robustness of these propositions to changes in the model are considered taxes on capital are also analyzed

the duality of a dynamic model of equilibrium and an optimal growth model the heterogeneous capital goods case the equivalence between optimal growth solutions and solutions of decentralized models of intertemporal allocation is explored in a one consumer heterogeneous capital goods framework the decentralized economy follows a perfect foresight path the main result is that the decentralized economy will impose on itself a transversality condition this yields the interpretation of equilibrium prices as prices consistent with a certainty version of the efficient markets hypothesis the results rest on the recent contribution by benveniste and scheinkman providing sufficient conditions for infinite horizon concave programs to exhibit capital value transversality as a necessary condition for optimality

currency unions and trade the effect is large the impact of a common currency on trade can be grossly mismeasured if countries that belong to currency unions are systematically different from those that do not and if the relationship between trade and its observable determinants is complex i argue that such complications are plausible and likely to distort the empirical results of a recent economic policy paper by andrew rose issue 30 2000 pp 7 45 using techniques designed to be robust in this situation i find that the effects of common currency on international trade are considerably less dramatic and much less precisely estimated copyright cepr ces msh 2001

tax subsidies to owner occupied housing an asset market approach inflation reduces the effective cost of homeownership and raises the tax subsidy to owner occupation this paper presents an asset market model of the housing market and estimates how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the housing capital stock simulation results suggest that the accelerating inflation of the 1970s which substantially reduced homeowners user costs could have accounted for as much as a 30 percent increase in real house prices persistent high inflation rates could lead ultimately to a sizable increase in the stock of owner occupied housing

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

housing investment in the united states a supply determined model of housing investment is estimated from quarterly data over the 1963 83 period the model is built on dynamic marginal cost pricing considerations and allows short and long run supply elasticities to differ these are estimated as 1 0 and 3 0 respectively but most of the long run response occurs within 1 year rapid adjustment speed and the sizable long run elasticity of supply are important factors in understanding the volatility of housing investment the data also suggest some anomalies in the expected present value theory of asset pricing for housing capital

the allocation of capital between residential and nonresidential uses taxes inflation and capital market constraints we have constructed a simple two sector model of the demand for housing and corporate capital economic growth and an increase in the inflation rate were then simulated with a number of model variants the model and simulation experiments illustrate both the tax bias in favor of housing and the manner in which the increase in inflation between 1965 and 1978 magnified it the existence of capital market constraints offsets the bias against corporate capital but it introduces a sharp inefficient reallocation of housing from less wealthy constrained households to wealthy households who do not have gains on mortgages and are not financially constrained

alternative forms of government expenditure financing a comparative welfare analysis this paper derives criteria for evaluating the impact of an increase in government expenditure on both the time path of instantaneous utility and overall welfare under alternative forms of tax financing these consist of three factors the first is the direct crowding out effect which reflects the utility differential between the government expenditure being undertaken and the private consumption it is displacing the second describes the intertemporal trade off between the effect on the short run rate of capital accumulation and the resulting change in the the long run capital stock the final term is due to the distortion arising from the pre existence of a tax on wage income copyright 1992 by the london school of economics and political science

exchange rate economics is always and everywhere controversial abstractthis article reviews the major developments in the recent literature on exchange rate economics it is argued that the link between the exchange rate and economic fundamentals is breaking new ground evidence indicates that alternative analytical frameworks such as the new open economy macroeconomics and exchange rate arrangements such as the euro have their theoretical and analytical elegance but are proving empirically very difficult to implement the role of methodological advances and alternative fundamental instruments such as world commodity prices is also highlighted

the incidence of taxes a dynamic macroeconomic analysis abstract this paper analyzes the incidence of various tax changes using the intertemporal optimizing framework developed by brock and turnovsky the model contains a reasonably complete specification of the corporate sector in which firms have the choice of financial structure it also allows for a range of government financial policies although only one is considered in detail both the short run and the long run effects of changes in the personal income capital gains and corporate profit tax rates are analyzed it is shown that the effects of tax changes a vary between the short and long run b the effects of tax changes depend critically upon the financial structure adopted by forms and c may also depend upon government financial policy

incidence and efficiency aspects of differential taxation of residential and industrial capital in a growing economy abstract this paper demonstrates that a compensated tax on income from residential capital would increase the steady state capital intensity in the industrial sector of the economy consequently the wage would rise and the gross of tax rate of return to capital in the industrial sector would fall the price of housing services may change in either direction secondly it is shown that maximization of steady state welfare requires different tax rates on income from residential and non residential capital it is demonstrated that if the gross of tax rate of return to capital in the industrial sector exceeds the population growth rate a compensated tax on residential capital or a compensated subsidy on non residential capital would enhance the steady state level of welfare conversely if the rate of population growth is greater than the gross of tax rate of return to capital in the industrial sector non residential capital should be taxed and residential capital should be subsidized

the nonlinear impact of currency unions on bilateral trade abstract most gravity model specifications assume that a currency union varies the level of bilateral trade between members by a constant proportion we demonstrate that a common currency also alters the slope of the relationship between bilateral trade and member country gdps

capital income taxation and perfect foresight abstract this paper develops a perfect foresight model of capital income taxation in a representative household neoclassical one sector framework the household sector is based on intertemporal utility maximization the main result is the equivalence of a perfect foresight solution and an artificial central planning solution if there is no tax this is the equivalence of a market equilibrium and social optinum the equivalence result is used to deduce the implications of a partial tax reform policy it is shown that a partial reform increases capital at each time following the initial period of the program

tax incidence in a two sector growing economy with perfect foresight abstract the purpose of this paper is to re examine the long run incidence of taxation in so doing we shall employ a two sector perfect foresight equilibrium model with either a constant and variable discount rate in the former a change in a personal income tax or any selective tax e g a commodity payroll or profit tax on the investment goods sector affects either the factor price or factor income ratio all selective taxes on the consumption goods sector are neutral in the sense that they do not affect either ratio in the latter only the commodity tax on the consumption goods is still neutral

currency unions and trade how large is the treatment effect currency unions and trade what can the data say the impact of a common currency on trade can be grossly mismeasured if countries that belong to currency unions are systematically different from those that do not and if the relationship between trade and its observable determinants is complex i argue that such complications are plausible and likely to distort the empirical results of a recent economic policy paper by andrew rose issue 30 2000 pp 7 45 using techniques designed to be robust in this situation i find that the effects of common currency on international trade are considerably less dramatic and much less precisely estimated torsten persson i have always maintained that the measured effect of a single currency on trade appears implausibly large but i am not convinced by torsten persson s diagnosis and proposed solution i apply a variety of estimation techniques to a new larger data set where many more instances of currency union creation and abandonment make it possible to rely on time series as well as cross sectional evidence the results are similar to my earlier ones the effect of a single currency on trade is large andrew rose

the effects of taxes and dividend policy on capital accumulation and macroeconomic behavior abstract this paper analyzes the macrodynamic effects of changes in various tax rates in an intertemporal optimizing framework two aspects emphasized include the role of dividend policy and the behavior of the stock market both permanent and temporary tax changes are considered with the transitional adjustment paths being characterized in detail the contrast between the short run and long run effects is highlighted in particular an increase in any of the tax rates will cause short run employment to fall and with the capital stock fixed instantaneously the capital labor ratio immediately rises over time as the capital stock declines the capital labor ratio falls

on optimal taxation of housing abstract this paper studies the question of optimal taxation of housing when the set of tax instruments at the government s disposal is not artificially restricted there are two groups of persons who differ in earning abilities and in tastes and two types of housing goods high and low quality the paper characterizes the pareto efficient allocations that are attainable through the tax policy it demonstrates that optimality calls for differential tax treatment of housing and that the required tax rates are nonlinear it derives conditions under which consumption of housing by the poor must be subsidized it also notes the circumstances under which taxation rather than subsidization is the required policy

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

inflation taxes and housing a theoretical analysis abstract this paper examines the real effects of inflation under a distortionary tax system the presence of a tax subsidy to housing substantially alters the effects of inflation on the capital intensity of production and on the market interest rate the analysis suggests that not taxing the flow of services from housing has caused inflation to reduce capital intensity thereby decreasing u s productivity furthermore this tax subsidy has caused inflation to raise the real interest rate while reducing the after tax real returns to assets

portfolios in the ibex 35 before and after the global financial crisis abstractin this article we present an analysis of the effectiveness of various portfolio optimization strategies applied to the stocks included in the spanish ibex 35 index for a period of 14 years from 2001 until 2014 the period under study includes episodes of volatility and instability in financial markets incorporating the global financial crisis and the european sovereign debt crisis this implies a challenge in portfolio optimization strategies since the methodologies are restricted to the assignment of positive weights we have taken for asset allocation the daily returns with an estimation window equal to 1 year and we hold portfolio assets for another year this article attempts to influence the discussion over whether the naive diversification proves to be an effective strategy as opposed to portfolio optimization models for that we evaluate the out of sample performance of 15 strategies for asset allocation in the ibex 35 before and after of the global financial crisis our results sugg