asymmetry in retail wholesale and shipping point pricing for fresh vegetables the linkage among retail wholesale and shipping point prices for a select group of fresh vegetables is measured using wolffram s asymmetry model procedures for dealing with discontinuous time series are shown and granger s causality test is used to show the direction of the price linkage wholesale prices are shown to lead both retail and shipping point prices asymmetry in the retail wholesale response indicates that wholesale price decreases are reflected at the retail more so than are wholesale price increases wholesale price decreases are more fully passed through to the shipping point relative to wholesale increases

de gustibus non est taxandum heterogeneity in preferences and optimal redistribution abstract the prominent but unproven intuition that preference heterogeneity reduces redistribution in a standard optimal tax model is shown to hold under the plausible condition that the distribution of preferences for consumption relative to leisure rises in terms of first order stochastic dominance with income given familiar functional form assumptions on utility and the distributions of ability and preferences a simple statistic for the effect of preference heterogeneity on marginal tax rates is derived numerical simulations and suggestive empirical evidence demonstrate the link between this potentially measurable statistic and the quantitative implications of preference heterogeneity for policy

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

revealed social preferences of dutch political parties we measure the redistributive preferences of dutch political parties using unique detailed information from their election proposals by employing the inverse optimal tax method we calculate the political weights across the income distribution for each political party we find that all dutch political parties give a higher political weight to middle incomes than to the poor moreover the political weights of the rich are close to zero furthermore we detect a strong political status quo bias as the political weights of all political parties hardly deviate from the weights implied by the pre existing tax system we argue that political economy considerations are key in understanding these results

any non welfarist method of policy assessment violates the pareto principle reply the public at large many policymakers and a number of economists hold views of social welfare that are non welfarist that is they attach some importance to factors other than the effects of policies on individuals utilities we show however that any non welfarist method of policy assessment violates the pareto principle

marketing order impacts on farm retail price spreads the suspension of prorates on california arizona navel oranges the 1985 suspension of the prorate on california arizona navel oranges decreased fob retail price spreads in atlanta and san francisco by about 1 3 cents per pound four reduced form models of price spreads were estimated as seemingly unrelated regressions for price spreads in atlanta dallas and san francisco nested and non nested hypothesis testing procedures indicated a markup model as the most plausible one for explaining short run changes in price spreads

risk perceptions and distributional judgments abstract we examine the role of laboratory questionnaire experiments and recent applied empirical research on attitudes in understanding the relationships between people s perceptions of inequality and their perceptions of risk we consider risk in three interpretations in vacuo in day to day life and in the original position

popular acceptance of inequality due to innate brute luck and support for classical benefit based taxation abstract u s survey respondents views on distributive justice differ in two specific related ways from what is conventionally assumed in modern optimal tax research when expressing their preferences over allocations in stylized hypothetical scenarios meant to isolate key features of the tax problem a large share of respondents resist the full equalization of unequal outcomes due to innate brute luck that standard analyses recommend a similar share prefer a classical benefit based logic for taxes over the conventional logic of diminishing marginal social welfare moreover these two views are linked respondents who more strongly resist equalization are more likely to prefer the classical benefit based principle though the amazon mechanical turk survey population is not a representative sample of the u s population robustness of these results across demographic traits and political views suggests that a large share of the american public holds views inconsistent with standard welfarist objectives

perception theoretic foundations of weighted utilitarianism we provide a microfoundation for a weighted utilitarian social welfare function that reflects common moral intuitions about interpersonal comparisons of utilities if utility is only ordinal in the usual microeconomic sense interpersonal comparisons are meaningless nonetheless economics often adopt utilitarian welfare functions assuming that comparable utility functions can be calibrated using information beyond consumer choice data we show that consumer choice data alone are sufficient as suggested by edgeworth 1881 just noticeable differences jnds provide a common unit of measure for interpersonal comparisons of utility differences we prove that a simple monotonicity axiom implies a weighted utilitarian aggregation of preferences with weights proportional to individual jnds

model uncertainty and exchange rate volatility this article proposes an explanation for shifts in the volatility of exchange rate returns agents are uncertain about the true data generating model and deal with this uncertainty by making inference on the models and their parameters approach i call model learning model learning may lead agents to focus excessively on a subset of fundamental variables consequently exchange rate volatility is determined by the dynamics of these fundamentals and changes as agents alter models i investigate the empirical relevance of model learning and find that the change in volatility of gbp usd in 1993 was triggered by a shift between models

positive and normative judgments implicit in u s tax policy and the costs of unequal growth and recessions calculating the welfare implications of changes to economic policy or shocks requires economists to decide on a normative criterion one approach is to elicit the relevant moral criteria from real world policy choices converting a normative decision into a positive inference as in the recent surge of inverse optimum research we find that capitalizing on the potential of this approach is not as straightforward as we might hope we perform the inverse optimum inference on u s tax policy from 1979 through 2010 and argue that the results either undermine the normative relevance of the approach or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

revisiting the classical view of benefit based taxation this paper explores how the persistently popular classical logic of bene t based taxation in which an individual s bene t from public goods is tied to his or her income earning ability can be incorporated into modern optimal tax theory if lindahl s methods are applied to that view of bene ts rst best optimal policy can be characterized analytically as depending on a few potentially estimable statistics in particular the coe cient of complementarity between public goods and innate talent constrained optimal policy with a pareto e cient objective that strikes a balance controlled by a single parameter between this principle and the familiar utilitarian criterion can be simulated using conventional constraints and methods a wide range of optimal policy outcomes can result including those that match well several features of existing policies to the extent that such an objective re ects the mixed normative reasoning behind prevailing

can information heterogeneity explain the exchange rate determination puzzle empirical evidence shows that most exchange rate volatility at short to medium horizons is related to order flow and not to macroeconomic variables we introduce symmetric information dispersion about future macroeconomic fundamentals in a dynamic rational expectations model in order to explain these stylized facts consistent with the evidence the model implies that a observed fundamentals account for little of exchange rate volatility in the short to medium run b over long horizons the exchange rate is closely related to observed fundamentals c exchange rate changes are a weak predictor of future fundamentals and d the exchange rate is closely related to order flow

testing the monetary model of exchange rate determination new evidence from a century of data abstract we test the long run monetary model of exchange rate determination for a collection of 14 industrialized countries using data spanning the late nineteenth or early twentieth century to the late twentieth century interestingly we find support for a simple form of the long run monetary model in over half of the countries we consider for these countries we estimate vector error correction models to investigate the adjustment process to the long run monetary equilibrium in the spirit of meese and rogoff journal of international economics 14 1983 3 24 we also compare nominal exchange rate forecasts based on monetary fundamentals to those based on a naive random walk model

measuring economic efficiency using inverse optimum weights abstract this paper provides a method to measure the traditional kaldor hicks notion of economic efficiency when taxes affect behavior in contrast to traditional unweighted surplus measuring efficiency requires weighting individual benefits or surplus by the marginal cost to the government of providing a 1 transfer at each income level these weights correspond to the solution to the inverse optimum program in the optimal tax literature they are the social planning weights that would rationalize the status quo tax schedule as optimal i estimate the weights using the universe of us income tax returns from 2012 the results suggest that measuring economic efficiency requires weighting surplus accruing to the poor roughly 1 5 2 times more than surplus accruing to the rich this is because 1 of surplus to the poor can be turned into roughly 1 5 2 of surplus to the rich by reducing the progressivity of the tax schedule following kaldor and hicks original applications i compare income distributions over time in the us and across countries the results suggest us economic growth is 15 20 lower due to increased inequality than is suggested by changes in gdp because of its higher inequality the u s is unable to replicate the income distribution of countries like austria and the netherlands despite having higher national income per capita

how should capital be taxed this survey discusses how capital should be taxed in advanced economies we review the theoretical optimal tax literature survey empirical studies on the distribution of capital and the distortion

optimal incentives for labor force participation abstract optimal taxation is analyzed under a rawlsian criterion in an economy where the only decision of the agents is to participate or not to the labor force the model allows for heterogeneity both in the agent s productivities and aversions to work at a first best optimal schedule the marginal agent who decides to work pockets all of her productivity while being just compensated for her work aversion when the planner does not observe work aversion financial compensation for work is lower than productivity theory puts little restrictions on the shape of the optimal tax schedules the usual first order conditions involving the elasticities of participation only apply for sufficiently regular economies we qualitatively show how the optimal incentive schemes depend on the underlying structure of the preferences 100 marginal tax rates or subsidies to work are related to specific features of the economies

how elastic are preferences for redistribution evidence from randomized survey experiments we analyze randomized online survey experiments providing interactive customized information on us income inequality the link between top income tax rates and economic growth and the estate tax the treatment has large effects on views about inequality but only slightly moves tax and transfer policy preferences an exception is the estate tax informing respondents of the small share of decedents who pay it doubles support for it the small effects for all other policies can be partially explained by respondents low trust in government and a disconnect between concerns about social issues and the public policies meant to address them jel d31 d72 h23 h24

a theory of optimal inheritance taxation this paper derives optimal inheritance tax formulas that a capture the key equityeciency trade o b are expressed in terms of estimable sucient statistics c are robust to the underlying structure of preferences we consider dynamic stochastic models with general and heterogeneous bequest tastes and labor productivities we limit ourselves to simple but realistic linear or two bracket tax structures to obtain tractable formulas we show that long run optimal inheritance tax rates can always be expressed in terms of distributional parameters aggregate behavioral elasticities and social preferences for redistribution importantly those results carry over with tractable modications to a the case with social discounting instead of steady state welfare maximization b the case with partly accidental bequests c the standard barro becker dynastic model in all cases the optimal inheritance tax rate increases with the concentration of bequest received and decreases with the elasticity of aggregate bequests to the net of tax rate the optimal tax rate is positive and quantitatively large if concentration is high the elasticity is low and society cares mostly about those receiving little inheritance in contrast the optimal tax rate is negative when society cares mostly about inheritors we propose a calibration using micro data for france and the united states we nd that for realistic parameters

social mobility and redistributive politics just like economists voters have conflicting views about redistributive taxation because they estimate its incentive costs differently we model rational agents as trying to learn from their dynastic income mobility experience the relative importance of effort and predetermined factors in the generation of income inequality and therefore the magnitude of these incentive costs in the long run left wing dynasties believing less in individual effort and voting for more redistribution coexist with right wing dynasties this allows us to explain why individual mobility experience and not only current income matters for political attiitudes and how persistent differences in perceptions about social mobility can generate persistent differences in redistribution across countries

the value of tax progressivity evidence from survey experiments abstract the aim of this paper is to investigate how people value tax progressivity more precisely i study the potential trade off between any improvement in the final income distribution and the progressivity of the tax schedule to do this i designed survey experiments in which respondents were asked to rank or to choose between different taxation redistribution schemes with different treatments varying in terms of information availability 1 when only information about final incomes is provided and 2 when information about average tax rates is also available using a within subject design the instability of rankings between 1 and 2 indicates whether or not respondents value tax progressivity i find that information about tax rates significantly affects respondents judgments about tax schemes they exhibit a strong preference for tax progressivity i e they accept a fall in the quality of the final income distribution in exchange for progressive taxation the results of an additional treatment suggest that the mere fact of providing new information cannot account for this finding

escapist policy rules abstract we study a simple microfounded macroeconomic system in which the monetary authority employs a taylor type policy rule we analyze situations in which the self confirming equilibrium is unique and learnable and explore the prospects for the use of large deviation theory we show that the system can sometimes depart from the self confirming equilibrium towards a non equilibrium outcome characterized by persistently low nominal interest rates and persistently low inflation these events that have some of the properties of liquidity traps observed in the data even though the policymaker remains committed to a taylor type policy rule which otherwise has desirable stabilization properties

how did distributional preferences change during the great recession abstract to better understand how support for redistributive policies is shaped by macroeconomic shocks we explore how distributional preferences changed during the recent great recession we conducted identical modified dictator games during both the recession and the preceding economic boom the experiments capture subjects selfishness the weight on one s own payoff and equality efficiency tradeoffs concerns for reducing differences in payoffs versus increasing total payoffs which we then compare across economic conditions subjects exposed to recession exhibit greater selfishness and higher emphasis on efficiency relative to equality reproducing recessionary conditions inside the laboratory by confronting subjects with possible negative payoffs weakly intensifies selfishness and increases efficiency orientation bolstering the interpretation that differing economic circumstances drive our results

testing the monetary model of exchange rate determination a closer look at panels abstract in this paper we undertake an extensive evaluation of panel tests of the long run monetary model of exchange rate determination we first show how poorly the monetary model performs on a country by country basis for us dollar exchange rates over the post bretton woods period for a large number of industrialized countries in sharp contrast we find considerable support for the monetary model using panel procedures as in groen 2000 and mark and sul 2001 given the disparity in the country by country and panel approaches we carefully analyze the homogeneity restrictions inherent in the panel procedures the evidence on the appropriateness of the homogeneity restrictions is mixed in the end whether the monetary model conforms to post bretton woods data largely depends on one s prior beliefs

do americans want to tax wealth evidence from online surveys abstract a vast theoretical literature in public finance has studied the desirability of capital taxation this discussion largely ignores the political feasibility of taxing wealth we provide to our knowledge the first investigation of individuals preferences over jointly taxing income and wealth we provide subjects with a set of hypothetical individuals incomes and wealth and elicit subjects preferred absolute tax bill for each individual our method allows us to unobtrusively map both income earned and accumulated wealth into desired tax levels our regression results yield roughly linear desired tax rates on income of about 14 respondents suggested tax rates indicate positive desired wealth taxation when we distinguish between sources of wealth we find that in line with recent theoretical arguments subjects implied tax rate on wealth is 3 when the source of wealth is inheritance far higher than the 0 8 rate when wealth is from savings textual analysis of respondents justifications for their tax rates imply limited concern for the elasticity of tax bases with respect to net of tax rates

marketing order impacts on farm retail price spreads comment in a recent article in this journal thompson and lyon tl reported that the fob retail price spreads for california arizona ca navel oranges narrowed when marketing order handler prorates were suspended during the 1984 85 season p 657 tl s findings are suspect for several reasons one tl s prices are for a heterogenous commodity which makes it impossible to accurately differentiate the effect of varying quality from a suspension the composition of shipment grades and sizes changes over time and even if they did not change the proportion of shipments in each grade and size category does this point is important because when shipments include relatively large volumes of undesirable sizes and grades the price spread widens because of large shrink two tl s analysis is based on weekly data for the last half of the 1984 85 season and the subsequent two seasons they did not identify the suspensions during the 1985 86 and 1986 87 seasons failure to correctly identify the suspension periods can influence the findings three tl s price spread specifications are suspect in lieu of the findings by pick karrenbrock and carman that weekly price spreads for fresh ca navels display asymmetric response to changes in the fob price and the lag adjustment to fob price changes is one to three weeks 2 tl also assumed that the marketing margin equations are in reduced form but retail and fob prices and shipments are determined simultaneously with handler s supply and the retail demand for navels consequently an instrumental variable estimator is appropriate four tl s explanation of prorates influence on price spreads is that producers and handlers favoring prorate maintained that the price spread increased as fob prices fell while actual retail prices persisted at previous levels consumer advocates argued that the availability of a greater quantity and a wider variety f sizes benefited consumers and narrowed price spreads p 649 this explanation is vague in this comment the influence of a suspension on price spreads is analyzed by overcoming the last three problems of tl s article the findings of this analysis illustrate that tl s findings are sensitive to the time period examined data and methods of analysis and the comment also explains a suspensions influnce on price spreads however this analysis like tl s is limited by using average prices which prev nts an accurate measurement of the influence of

fair income tax fairness is a key concept in redistribution issues in this paper we study how particular requirements of fairness can shed light on the design of the optimal income tax schedule we consider a population of heterogeneous individuals or households who differ in two respects first they have unequal skills and therefore unequal earning abilities second they differ in terms of their preferences about consumption and leisure and as a consequence typically make different labour time choices both kinds of differences generate income inequalities we study how to justify and compute a redistribution income tax in this context redistribution through an income tax usually entails distortions of incentives but the resulting efficiency loss has to be weighed against potential improvements in the fairness of the distribution of resources we address this efficiency equity trade off here by constructing social preferences which obey the standard pareto principle in addition to fairness conditions

the marginal cost of public funds hours of work versus labor force participation this paper extends the theory and measurement of the marginal cost of public funds mcf to account for labor force participation responses our work is motivated by the emerging consensus in the empirical literature that extensive participation responses are more important than intensive hours of work responses in the modelling of extensive responses we argue that it is crucial to account for the presence of non convexities created by fixed work costs in a non convex framework tax and transfer reforms give rise to discrete participation responses generating first order effects on government revenue these revenue effects make the marginal cost of funds higher and we show numerically that the implications for mcf tend to be substantial

optimal taxation when people do not maximize well being abstract i derive the optimal nonlinear income tax when individuals do not necessarily maximize their own well being this generates a corrective argument for taxation optimal marginal taxes are higher lower if individuals work too much too little from a well being point of view i allow for multidimensional heterogeneity and derive the optimal tax schedule in terms of measurable sufficient statistics one of these statistics measures the degree to which individuals fail to optimize their labor supply i empirically estimate this by using british life satisfaction data as a measure of well being i find that low income workers tend to work too little and high income workers too much providing a motive for lower marginal tax rates at the bottom and higher marginal tax rates at the top of the income distribution

optimal non linear income taxation for the alleviation of income poverty there has been much discussion recently of structuring tax and transfer programs to ensure that resources go to the poor with minimal leaks to the nonpoor the poor have no incentive to earn income with 100 percent marginal tax rates but how high or low the marginal rate of taxation should be and how they should vary with income is a complex issue and opinions vary social security schemes that withdraw benefits represent an extremely high effective marginal tax rate other schemes call for relatively low marginal tax rates at the bottom of the income distribution which tax transfer schedule does most to reduce poverty the issue is one of optimal nonlinear income taxation the authors show that one of the key theoretical results of the welfarist literature is overturned if it is desirable for everybody to work the optimal marginal tax rate on the very poorest individuals is strictly negative they argue that the nonwelfarist perspective points toward lower marginal tax rates in the lower part of the income distribution than does the welfarist perspective but numerical simulations suggest that the effect is of limited quantitative significance using conventional functional forms and parameter values optimal marginal tax rates on the poor are in the 60 70 percent range

escaping nash inflation an ordinary differential equation ode gives the mean dynamics that govern the convergence to self confirming equilibria of self referential systems under discounted least squares learning another ode governs escape dynamics that recurrently propel away from a self confirming equilibrium in a model with a unique self confirming equilibrium the escape dynamics make the government discover too strong a version of the natural rate hypothesis the escape route dynamics cause recurrent outcomes close to the ramsey commitment inflation rate in a model with an adaptive government

understanding welfare stigma taxpayer resentment and statistical discrimination abstract welfare stigma is widely regarded to be of central importance in understanding the impact of welfare programs in their goal of alleviating poverty it affects both the decision to take up benefits and the well being of those who actually do this paper develops alternative models of the determinants of welfare stigma we identify two views a statistical discrimination approach and a taxpayer resentment view we discuss how each may be formalized and derive their implications we then examine what they imply about the relationship between stigma and program design

comment on positive and normative judgments implicit in u s tax policy and the costs of unequal growth and recessions by benjamin lockwood and matthew weinzierl

learning large deviations and recurrent currency crises this article studies a version of obstfeld s journal of international economics 43 1997 61 77 escape clause model the model is calibrated to produce three rational expectations equilibria two of these equilibria are e stable and one is unstable dynamics are introduced by assuming that agents must learn about the government s decision rule it is assumed they do this using a stochastic approximation algorithm it turns out that as a certain parameter describing the sensitivity of beliefs to new information gets small the algorithm converges to a small noise diffusion process the dynamics of exchange rate changes are then characterized using large deviation techniques from freidlin and wentzell random perturbations of dynamical systems second edition berlin springer verlag 1998 these methods describe the sense in which the limiting distribution of exchange rate changes is approximated by a two state markov switching process where the two states correspond to the two e stable equilibria the model is calibrated to the exchange rate histories of argentina brazil and mexico currency crises in these countries resemble the predicted escape routes of the model a key feature of these escape routes is that expectations of a devaluation erupt suddenly without large contemporaneous shocks this is consistent with evidence showing that crises are often poorly anticipated by financial markets

the monetary exchange rate model as a long run phenomenon abstract pure time series based tests fail to find empirical support for monetary exchange rate models in this paper we apply pooled time series estimation on a forward looking monetary model resulting in parameter estimates which are in compliance with the underlying theory based on a panel version of the engle and granger engle r f granger c w j 1987 co integration and error correction representation estimation and testing econometrica 55 251 276 two step procedure we find that the residuals of the panel based estimated monetary model are stationary this indicates that on a pooled time series level there is cointegration between the exchange rate and the macroeconomic fundamentals of this monetary model

the elasticity of taxable income with respect to marginal tax rates a critical review this paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data first we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis we discuss what other parameters should be estimated when the elasticity is not a sufficient statistic second we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the united states to illustrate those issues third we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out finally we discuss avenues for future research jel h24 h31 j22

a new measure of horizontal equity in this paper we propose a new measure of horizontal equity that overcomes many of the shortcomings of previous proposed measures our starting point is the observation that a well behaved social welfare function need not evaluate global vertical equity differences in after tax income using the same weights it applies to local horizontal equity differences even though this constraint has been applied in the past following work on the structure of individual preferences we show that a social welfare function can imply different preferences toward horizontal and vertical equity adopting the general approach to the measurement of inequality developed by atkinson 1970 we use such a social welfare function to derive measures of inequality that are decomposable into components naturally interpreted as indices of horizontal and vertical equity in particular the former index measures deviations from the fundamental principle that equals be treated equally finally we apply our new measure to two tax return data sets evaluating the degree to which the horizontal equity of the us personal income tax has changed over time and how horizontal equity would be altered by one version of recent proposals to do away with the so called marriage penalty this abstract was borrowed from another version of this item

accounting for exchange rate variability in present value models when the discount factor is near 1 a well known stylized fact about nominal exchange rates among low inflation advanced countries particularly u s exchange rates is that their logs are approximately random walks michael i mussa 1979 is most frequently cited for observing this regularity in a famous pair of papers richard a meese and kenneth rogoff 1983a b found that the structural models of the 1970 s could not beat a random walk in explaining exchange rate movements recently some authors menzie chinn and meese 1995 nelson mark 1995 mark and donggyu sul 2001 have argued that the models can outforecast the random walk at long horizons but a comprehensive recent study by yin wong cheung et al 2003 documents that no model consistently outperforms a random walk why one obvious explanation is that the macroeconomic variables that determine the exchange rate themselves follow random walks if the log of the nominal exchange rate is a linear function of forcing variables that are random walks then it will inherit the random walk property the problem with this explanation is that the economic fundamentals proposed in the most popular models of exchange rates do not in fact follow simple random walks one resolution to this problem is that there may be some other fundamentals ones that have been proposed in some models but are not easily measurable or ones that have not yet been proposed at all that are important in determining exchange rates if these unobserved fundamentals follow random walks and dominate the variation in exchange rate changes then exchange rates will nearly be random walks even if the standard observed fundamentals are not in engel and west 2003a hereinafter ew we propose an alternative explanation we consider linear models of the exchange rate that are in the asset market approach to exchange rates these models emphasize the role of expectations of future economic fundamentals in determining the current exchange rate the exchange rate expressed as the home currency price of foreign currency in this paper can be written as a discounted sum of the current and expected future fundamentals

generalized social marginal welfare weights for optimal tax theory this paper proposes to evaluate tax reforms by aggregating money metric losses and gains of different individuals using generalized social marginal welfare weights optimum tax formulas take the same form as standard welfarist tax formulas by simply substitut ing standard marginal social welfare weights with those generalized weights weights directly capture society s concerns for fairness without being necessarily tied to individual utilities suitable weights can help reconcile discrepancies between the welfarist approach and actual tax practice as well as unify in an operational way the most prominent alternatives to utilitarianism such as libertarianism equality of opportunity or poverty alleviation jel d60 d63 h21 h23 i38

a simpler theory of optimal capital taxation abstract this paper develops a theory of optimal capital taxation that expresses optimal tax formulas in sufficient statistics we first consider a simple model with utility functions linear in consumption and featuring heterogeneous utility for wealth in this case there are no transitional dynamics the steady state is reached immediately and has finite elasticities of capital with respect to the net of tax rate this allows for a tractable optimal tax analysis with formulas expressed in terms of empirical elasticities and social preferences that can address many important policy questions these formulas can easily be taken to the data to simulate optimal taxes which we do using u s tax return data on labor and capital incomes second we show how these results can be extended to the case with concave utility for consumption the same types of formulas carry over by appropriately defining elasticities we show that one can recover all the results from the simpler model using a new and non standard steady state approach that respects individual preferences even with a fully general utility function

optimal taxation and insurance using machine learning sufficient statistics and beyond abstract how should one use quasi experimental evidence when choosing policies such as tax rates health insurance copay unemployment benefit levels and class sizes in schools this paper suggests an approach based on maximizing posterior expected social welfare combining insights from i optimal policy theory as developed in the field of public finance and ii machine learning using gaussian process priors we provide explicit formulas for posterior expected social welfare and optimal policies in a wide class of policy problems the proposed methods are applied to the choice of coinsurance rates in health insurance using data from the rand health insurance experiment the key trade off in this setting is between transfers toward the sick and insurance costs the key empirical relationship the policy maker needs to learn about is the response of health care expenditures to coinsurance rates holding the economic model and distributive preferences constant we obtain much smaller point estimates of the optimal coinsurance rate 18 vs 50 when applying our estimation method instead of the conventional sufficient statistic approach

on the efficiency of equal sacrifice income tax schedules abstract in an economy which primitives are exactly those in mirrlees 1971 we investigate the efficiency of tax schedules derived under the equal sacrifice principle for a given exogenous government consumption level we assess whether there is an alternative tax schedule that raises more revenue while delivering less utility to no one for our preferred parametrizations we find that inefficiency only arises at the top of the income distribution for marginal tax rates well above the ones we currently observe in most countries we also recover the implicit marginal social weights associated with the equal sacrifice schedule and find them not to be monotonic in types for the environments we study

on the optimal provision of social insurance progressive taxation versus education subsidies in general equilibrium in this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk but distort the education decision of households optimally chosen tertiary education subsidies mitigate these distortions we highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits we also argue that a full characterization of the transition path is crucial for policy evaluation we find that optimal education policies are always characterized by generous tuition subsidies but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium

learning to forecast the exchange rate two competing approaches this paper compares two competing approaches to model foreign exchange market participants behavior statistical learning and fitness learning these learning mechanisms are applied to a set of predictors chartist and fundamentalist rules we examine which of the learning approaches is best in terms of replicating the exchange rate dynamics within the framework of a standard asset pricing model we find that both learning methods reveal the fundamental value of the exchange rate in the equilibrium but only fitness learning creates the disconnection phenomenon and only statistical learning replicates volatility clustering none of the mechanisms is able to produce a unit root process but both of them generate non normally distributed returns

a scapegoat model of exchange rate fluctuations while empirical evidence finds only a weak relationship between nominal exchange rates and macroeconomic fundamentals forex markets participants often attribute exchange rate movements to a macroeconomic variable the variables that matter however appear to change over time and some variable is typically taken as a scapegoat for example the current dollar weakness appears to be caused almost exclusively by the large current account deficit while its previous strength was explained mainly by growth differentials in this paper we propose an explanation of this phenomenon in a simple monetary model of the exchange rate with noisy rational expectations where investors have heterogeneous information on some structural parameter of the economy in this context there may be rational confusion about the true source of exchange rate fluctuations so that if an unobservable variable affects the exchange rate investors may attribute this movement to some current macroeconomic fundamental we show that this effect applies only to variables with large imbalances the model thus implies that the impact of macroeconomic variables on the exchange rate changes over time this abstract was borrowed from another version of this item

multiproduct nonlinear pricing typically work on mechanism design has assumed that all private information can be captured in a single scalar variable this paper explores one way in which this assumption can be relaxed in the context of the multiproduct nonlinear pricing problem it is shown that the firm will choose to exclude some low value consumers from all markets a class of cases that allow explicit solution is derived by making use of a multivariate form of integration by parts in such cases the optimal tariff is cost based

the promise of positive optimal taxation normative diversity and a role for equal sacrifice abstract a prominent assumption in modern optimal tax research is that the objective of taxation is utilitarian i present new survey evidence that most people reject this assumption s implications for several prominent features of tax policy instead preferring tax policies based at least in part on a classic alternative objective the principle of equal sacrifice i generalize the standard model to accommodate this preference for a mixed objective proposing a method by which to make disparate criteria commensurable while respecting pareto efficiency then i show that optimal policy in this generalized model calibrated to the survey evidence and u s microdata is capable of quantitatively matching several features of existing tax policy that are incompatible in the conventional model but widely endorsed in the survey and reality including the coexistence of substantial redistribution and limited tagging together these findings demonstrate the potential of a positive theory of optimal taxation

adaptive expectations underparameterization and the lucas critique abstract a striking implication of the replacement of adaptive expectations by rational expectations was the lucas critique which showed that expectation parameters and endogenous variable dynamics depend on policy parameters we consider this issue from the vantage point of bounded rationality where for transparency we model bounded rationality by means of simple adaptive expectations we show that for a range of processes monetary policy remains subject to the lucas critique however there are also regimes in which the expectation parameter is locally invariant and the lucas critique does not apply

economists interest in collective decision after world war ii a history this paper tracks economists rising yet elusive and unstable interest in collective decision mechanism after world war ii we replace their examination of voting procedures and social welfare functions in the 1940s and 1950s in the context of their growing involvement with policy making confronted with natural scientists and mccathythes accusations of ideological bias positive studies emphasizing that collective decisions mechanisms were unstable and inefficient and normative impossibilities economists largely relied on the idea the policy ends they worked with reflected a social consensus as the latter crumbled in the 1960s growing disagreement erupted on how to identify and aggregate those individual values which economists believed should guide applied work in particular in cost benefit analysis the 1970s and 1980s brought new approaches to collective decision arrow s impossibility was solved by expanding the informational basis it was showed that true preferences could be revealed by making decision costly and experimentalists and market designers enabled these mechanisms to be tested in the lab before being sold to those public bodies looking for decision procedures that emulated markets in this new regime the focus paradoxically shifted to coordination revelation and efficiency and those economists studying collective decision processes were marginalized

a simple recursive forecasting model abstract we compare the performance of alternative recursive forecasting models a simple constant gain algorithm used widely in the learning literature both forecasts well out of sample and also provides the best fit to the survey of professional forecasters

sympathy for the diligent and the demand for workfare abstract we study the role of fairness concerns in the demand for redistribution through workfare in the first part of the paper we present new evidence from a survey we show that individuals are more generous towards poor people whom they perceive to be diligent workers relative to poor people whom they perceive to be non diligent a social preference that we label sympathy for the diligent this preference is much stronger than preferences regarding other characteristics of the poor such as race nationality and disability more important we show that subjects with higher sympathy for the diligent have a stronger preference for workfare programs in the second part of the paper we incorporate our empirical findings into a model of income redistribution we consider the case of a benevolent government with fairness concerns that prioritizes the well being of individuals who exert the most effort we characterize the optimal conditions under which the government introduces work requirements even if wasteful work requirements can be optimal because they allow for a better distinction between individuals who exert great effort and individuals who do not however if the government lacks commitment power the availability of screening through work requirements leads to a lower equilibrium effort and possibly a pareto dominated allocation

optimal taxation and human capital policies over the life cycle this paper derives optimal income tax and human capital policies in a life cycle model with risky human capital the government faces asymmetric information regarding agents ability its evolution and labor supply when the wage elasticity with respect to ability is increasing in human capital the optimal subsidy involves less than full deductibility of human capital expenses on the tax base and falls with age income contingent loans or a deferred deductibility scheme can implement the optimum numerical results suggest that full deductibility of expenses is close to optimal and that simple linear age dependent policies perform very well

social preferences self interest and the demand for redistribution preferences for redistribution may be influenced by values and beliefs about distributive justice as well as by self interest people may prefer more redistribution to the poor if they believe that poverty is caused by circumstances beyond individual control therefore beliefs about the causes of income may affect demand for redistribution alternatively the effect of these beliefs on redistributive preferences may be spurious if they are correlated with income and self interest is not properly controlled for they may also measure incentive cost concerns using social survey data i find that self interest cannot explain the effect of these beliefs on redistributive preferences 2001 elsevier science b v all rights reserved

the monetary model of the exchange rate long run relationships short run dynamics and how to beat a random walk abstract the monetary model is re examined for the sterling dollar exchange rate first it is demonstrated using a multivariate cointegration technique that an unrestricted monetary model is a valid framework for analyzing the long run exchange rate second we find once proper account has been taken of the short run data dynamics that an unrestricted monetary model outperforms the random walk and other models in an out of sample forecasting contest jel f31

temporal and spatial aggregation alternative marketing margin models the effects of temporal and spatial data aggregation on the performance of alternative marketing margin models is assessed using monthly quarterly and semiannual fluid milk prices from three u s cities nonnested tests for multivariate and single equation models with serial correlation are used to choose among alternative models at each aggregation level while model choice is affected by temporal and spatial aggregation model choice becomes more difficult as data are temporally or spatially aggregated

to what extent do fiscal regimes equalize opportunities for income acquisition among citizens to what extent do fiscal regimes equalize opportunities for income aquisition among citizens journal of public economics

exchange rates and fundamentals under adaptive learning abstract this paper studies a monetary model that is standard in all respects except that market participants have incomplete knowledge about the economic structure and employ adaptive learning rules to learn about the economic environment market participants also must contend with unannounced regime shifts simulation results suggest that the models under adaptive learning especially constant gain learning combined with a structural change dominate the alternative specifications of expectations in their ability to account for why fundamentals predict exchange rate returns over long horizons but not over short horizons and for generating excessively volatile returns and persistent deviations of the exchange rate from the monetary fundamentals

optimal redistribution with endogenous social norms in this paper we examine the effect of social norms on redistributive policies where social norms are reflected in the degree of work participation among the different skill classes participation is driven both by the material incentives and heterogeneous preferences for leisure of each skill class and by an endogenous social norm results for optimal redistributive taxation show that when the social norm enters as a benefit or cost for participants participation taxes are generally lower than in its absence multiple participation equilibria can occur and an engineered shift from a low to a high participation equilibrium can be pareto improving in the long run

redistribution and pollution taxes with non linear engel curves abstract this paper analyses optimal corrective taxation and optimal income redistribution the pigouvian pollution tax is higher if pollution damages disproportionally hurt the poor due to equity weighting of pollution damages moreover under general utility functions optimal pollution taxes should be set below the pigouvian tax if the poor spend a disproportionate fraction of their income on polluting goods however if engel curves are linear optimal pollution taxes should follow the first best rule for the pigouvian corrective tax even if the government wants to redistribute income and the poor spend a disproportional part of their income on polluting goods the often used quasi linear ces and stone geary utility functions all have linear engel curves if engel curves are linear and if pollution taxes are not optimised pareto improving green tax reforms exist that move the pollution tax closer to the pigouvian tax simulations demonstrate that optimal corrective taxes should be pigouvian if the demand for polluting goods is derived from a les demand system but deviate from the pigouvian taxes if demand for polluting goods demand is derived from a piglog demand system

fair allocation of indivisible goods and criteria of justice a set of n objects and an amount m of money is to be distributed among m people example the objects are tasks and the money is compensation from a fixed budget an elementary argument via constrained optimization shows that for m sufficiently large the set of efficient envy free allocations is nonempty and has a nice structure in particular various criteria of justice lead to unique best fair allocations that are well behaved with respect to changes of m this is in sharp contrast to the usual fair division theory with divisible goods