ems exchange rate expectations and time varying risk premia abstract in this paper we examine exchange risk premia employing a survey dataset of ems exchange rates we are able to test a risk premium model directly i e without having to rely on the rational expectations assumption our results indicate that time varying risk premia are present in almost all cases and that a garch in mean specification for the premium is often appropriate

effects of patent protection on optimal corporate income and consumption taxes in an r d based growth model does reducing the corporate income tax accompanied by an increase in the consumption tax to meet the government s budget constraint improve welfare to respond we examine the welfare maximizing corporate income tax and consumption tax rates in an r d based growth model under the constraint that the government s budget is balanced at each point of time further we consider how welfare maximizing tax rates change as patent protection becomes stronger as seen in many countries the results show that as patent protection becomes stronger the corporate income tax rate should be higher and the consumption tax rate should be lower this implies that under stronger patent protection recovering production at the expense of innovation by raising corporate income tax and reducing consumption tax improves welfare

factor income taxation in a horizontal innovation model we consider the optimal factor income taxation in a standard r d model with technical change represented by an increase in the variety of intermediate goods in the model there are externalities both to working and to saving due to market power by firms incomplete appropriability of the benefits of inventions and the cost of economic activity in terms of public expenditures redistributing the tax burden from labor to capital will increase employment but in most cases reduce the rate of growth with conflicting effects on the deadweight loss from the externalities under plausible calibrations of the model the optimal tax rate on capital will be sizable

public budgetary rules and gdp growth an empirical study on oecd and twelve european countries we study the long term effects of budgetary rules on gdp growth rate and analyse the determinants of the short term gdp growth dynamics for both a sample of 19 oecd and a subsample of 12 european countries we show that in the long run improvements in the cyclically adjusted budget balance as well as increases in the tax burden have negative effects on gdp growth the highest effect of fiscal policy on gdp growth would be obtained if the structural deficits were used to increase the market size by reducing the tax burden in line with barro 1990 a deficit financed reduction of tax burden has a stronger effect for european than for oecd countries because in europe the government size with respect to market size is too large therefore if gdp growth is a dominant policy objective in europe specific actions should redress the 2012 treaty toward a reduction of the tax burden

fiscal policy elastic labor supply and endogenous growth abstract endogenizing labor supply leads to fundamental changes in the equilibrium structure of the ak growth model the balanced growth equilibrium can be described in terms of two tradeoff loci relating the equilibrium growth rate to the fraction of time devoted to leisure the implications of endogenous labor supply for fiscal policy are analyzed three issues are addressed first the effects of various distortionary tax changes and government expenditure changes on the equilibrium growth leisure employment tradeoff are analyzed second optimal fiscal policy is characterized finally the formal analysis is supplemented by numerical results focusing particularly on the quantitative welfare implications

the growth and welfare effects of deficit financed dividend tax cuts the dividend tax cut enacted in 2003 with the job growth and taxpayer relief reconciliation act jgtrra has generated a heated public debate and prompted a new wave of research in public and corporate finance supporters argue that the act has reduced the corporate cost of capital and thus raised investment growth and employment critics focus on its distributional implications and on the budget deficits that it has generated given the government s failure to reduce public spending as a large scale experiment in fiscal policy the act provides a unique research opportunity for modern growth economics since one of the central ideas perhaps the central idea driving the field is precisely that policy matters the theory of endogenous innovation in particular has produced novel analytical insights that appear well suited to make a significant contribution to a debate spurred by a drastic change in the taxation of corporate source income and heavily loaded on both sides

the expectations hypothesis of the term structure of interest rates open interest rate parity and central bank policy reaction abstract a rational expectations model with endogenous monetary policy reacting to the exchange rate and the term spread shows that the empirical performance of the expectations hypothesis of the term structure and the uncovered interest rate parity hypothesis improves with the strength of the policy reaction to the exchange rate and the term spread respectively

time consistent taxation in a dynastic family model with human and physical capital and a balanced government budget this paper analyzes optimal time consistent taxation in a dynastic family model with human and physical capital and with a balanced government budget when tax revenue is used for publicly provided consumption or lump sum transfers leisure would be higher than its social optimum pareto optimal taxation requires taxing capital income more heavily than labour income and subsidizing investment at the same rate of the tax also it requires either subsidizing labour at the same rate as a consumption tax or subsidizing consumption at the same rate as a labour income tax and hence it is not a practical guide to policy further a consumption tax or equivalently a uniform income tax with investment subsidies at the same rate can be improved on by taxing capital income more heavily than labour income ce memoire analyse la fiscalite optimale et consistante dans le temps dans un modele de famille dynastique avec capital humain et physique et un budget gouvernemental equilibre quand le revenu fiscal est utilise pour financer la consommation publique ou pour des transferts forfaitaires le niveau de loisir sera plus eleve que l optimum social la fiscalite optimale paretienne exige qu on taxe le revenu du capital plus fortement que celui du travail et qu on subventionne l investissement au meme taux que la taxe elle exige aussi soit qu on subventionne le travail au meme taux que la taxe a la comsommation soit qu on subventionne la consommation au meme taux que l impot sur le revenu du travail et donc ce n est pas un guide pratique pour la politique de plus un regime de taxe sur la consommation ou de maniere equivalente d impot uniforme sur le revenu avec subvention a l investissement au meme taux peut etre ameliore en taxant le revenu du capital plus fortement que celui du travail

the revival of the expectations hypothesis of the us term structure of interest rates abstract us interest rate data from 1987 to 1995 show a substantial predictive power of the spread for the short rate in line with the expectations hypothesis the estimation of a mccallum policy reaction model supports our conjecture that this striking result can be attributed to the adoption of the spread as an indicator for us monetary policy since the late eighties 1997 elsevier science s a

the timing and persistence of fiscal policy impacts on growth evidence from oecd countries the literatures testing for aggregate short run or long run growth impacts of fiscal policy use quite different methodologies the former generally focuses on temporary fiscal shocks the latter typically have no short run dynamics or assume homogeneity we use regression methods that treat heterogeneous short run dynamics explicitly within a long run model results suggest that previously estimated long run growth effects of fiscal policy are typically achieved quickly consistent with results from short run models in principle these short run effects persist in practice regular fiscal policy changes in oecd countries mean that persistent increases or decreases in growth rates are rare the recent global recession has brought renewed interest in the question can fiscal policy affect the growth rate of output if so are these effects temporary affecting only output levels over the longer run or permanent so that output growth rates are persistently higher perhaps surprisingly the literatures looking for growth impacts of fiscal policy over the short run say up to five years and over the longer run of 10 years or more have tended to be quite distinct and followed quite different methodologies this article considers how far the results from these two literatures are consistent to do so we apply the heterogeneous panel econometric methods mean group and pooled mean group proposed by pesaran and smith 1995 pesaran 1997 and pesaran et al 1999 to an annual panel dataset for oecd countries these methods allow both long run equilibrium relationships and short run dynamic adjustments around those equilibria to be investigated simultaneously in brief our results support the conclusion that changes in fiscal structure that is between different types of tax

trade secrets law and corporate disclosure causal evidence on the proprietary cost hypothesis this study exploits the staggered adoption of the inevitable disclosure doctrine idd by u s state courts as an exogenous shock that generates variations in the proprietary costs of disclosure we find that firms respond to idd adoption by reducing the level of disclosure regarding their customers identities supporting the proprietary cost hypothesis our results are stronger for firms in industries with a higher degree of entry threats for firms in more volatile industries and for firms with a lower degree of external financing dependence overall this study represents one of the first efforts in identifying the causal effect of proprietary costs of disclosure on the supply of disclosure this article is protected by copyright all rights reserved

optimal government spending in an economy with imperfectly competitive goods and labor markets this article examines the growth and welfare maximizing government spending in an economy that is characterized by market imperfections namely unionization in the labor market and monopolistic competition in the goods market to thoughtfully explore the optimal spending two distinct scenarios where the government spending is financed by labor capital income taxes are considered our analysis shows that the optimal growth maximizing government spending is inconsistent with the welfare maximizing government spending moreover the growth maximizing welfare maximizing government spending have quite different responses to distinctive market imperfections markups in the goods and labor markets particularly in the scenarios with distinctive financing modes our numerical study indicates that the growth maximizing and welfare maximizing government expenditures in general are more responsive to the change in the labor market friction than that in the product market friction and the growth maximizing government spending is more likely to be lower than the welfare maximizing government spending

patents r d subsidies and endogenous market structure in a schumpeterian economy this study explores the different implications of patent breadth and r d subsidies on economic growth and endogenous market structure in a schumpeterian growth model we find that when the number of firms is fixed in the short run patent breadth and r d subsidies serve to increase economic growth as in previous studies however when market structure adjusts endogenously in the long run r d subsidies increase economic growth but decrease the number of firms whereas patent breadth expands the number of firms but reduces economic growth therefore in accordance with empirical evidence r d subsidy is perhaps a more suitable policy instrument than patent breadth for the purpose of stimulating long run economic growth

robust endogenous growth abstract this paper studies a generalization of the schumpeterian models with endogenous market structure that allows the overall production structure to be more than linear in the growth driving factor and yet generates endogenous growth defined as steady state constant exponential growth of income per capita this version of modern growth theory therefore is robust in the sense that its key result obtains for a thick set of parameter values instead of as often claimed for a set of measure zero the paper moreover pays close attention to transitional dynamics showing not only the existence but also the global stability of the endogenous growth steady state

corporate taxes growth and welfare in a schumpeterian economy abstract i take a new look at the long run implications of taxation through the lens of modern schumpeterian growth theory i focus on the latest vintage of models that sterilize the scale effect through a process of product proliferation that fragments the aggregate market into submarkets whose size does not increase with the size of the workforce i show that the following interventions raise welfare a granting full expensibility of rd b eliminating the corporate income tax and or the capital gains tax c reducing taxes on labor and or consumption what makes these results remarkable is that in all three cases the endogenous increase in the tax on dividends necessary to balance the budget has a positive effect on growth a general implication of my analysis is that corporate taxation plays a special role in schumpeterian economies and provides novel insights on how to design welfare enhancing tax reforms

a reconsideration of the uncovered interest parity relationship abstract this paper argues that the uncovered interest parity uip relationship is distinct from and more important than the unbiasedness of forward exchange rates as predictors of future spot rates the standard finding that the slope estimate b is roughly 3 in regressions of s t on t 1 s t 1 implies rejection of unbiasedness but not necessarily uip the hypothesis that monetary authorities manage interest rates so as to smooth their movements while also resisting changes in exchange rates is attractive conceptually and is capable of explaining not only the b 3 finding but also several other notable features of the data

uncovered interest parity and policy behavior new evidence abstract mccallum j monet econ 33 1994 105 132 introduces policy behavior to resolve previous empirical rejections of the uncovered interest parity uip theory in this note we reexamine his policy behavior argument first we extend the data set used by mccallum to include the recent 8 years and contrary to the analysis provided by mccallum we make a thorough econometric analysis of his uip specification it is shown that in most cases his theory is supported by the data as well as it passes conventional econometric tests we then take a closer look at his policy behavioral relationship but unfortunately it turns out that this specification is inconsistent with the uip specification suggested by mccallum

the growth effects of tax rates in the oecd this paper explores the merits of macro and micro based tax rate measures within an open economy fiscal policy and growth model using annual data for 15 oecd countries we find statistically small non robust long run growth effects of macro based average tax rates on capital income and consumption but some evidence for average labor income tax effects changes in micro marginal income tax rates at both the personal and corporate levels yield statistically robust gdp responses of modest size both domestic and foreign corporate taxes appear relevant in general tax effects on gdp operate largely via factor productivity rather than factor accumulation

government spending composition technical change and wage inequality in this paper we argue that government spending played a significant role in stimulating the wave of innovation that hit the u s economy in the late 1970s and in the 1980s as well as the simultaneous increase in inequality and in education attainments since the late 1970s u s policymakers began targeting commercial innovations more directly and explicitly we focus on the shift in the composition of public demand toward high tech goods which by increasing the market size of innovative firms functions as a de facto innovation policy tool we build a quality ladders non scale growth model with heterogeneous industries and endogenous supply of skills and show that an increase in the technological content of public spending stimulates r d raises the wage of skilled workers and at the same time stimulates human capital accumulation a calibrated version of the model suggests that government policy explains between 12 and 15 of the observed increase in wage inequality in the period 1976 1991 jel e62 j31 o33 o41

conditional variance and the risk premium in the foreign exchange market abstract we investigate the existence of a risk premium in the foreign exchange market based on the conditional variance of market forecast errors the forecast errors are assumed to follow the arch process introduced by engle 1982 estimation and diagnostic testing of the model are discussed and results are presented for the currencies of the united kingdom france germany japan and switzerland