a multicountry characterization of the nonstationarity of aggregate output the authors compute the scaled varlogram the variances of kth differences scaled by the variance of first differences of the log of annual per capita real aggregate output gdp or gnp as measured by 1 the long series for the united states and united kingdom 2 angus maddison s 1982 long series for twelve countries and 3 the postwar ifs data for thirty two countries simulations show that the scaled varlogram of real output is nearly always more consistent with the data being generated by parsimonious difference stationary than trend stationary univariate processes in fact the data reveal some excess nonstationarity relative to parsimonious arima models the power of the scaled varlogram to discriminate between trend stationary and difference stationary processes is somewhat greater than that of a dickey fuller type f test copyright 1990 by ohio state university press

new tests of the life cycle and tax discounting hypotheses abstract we first test a version of the permanent income consumption function recently suggested by barro the results support the theory except that consumption expenditures show sensitivity to transitory income next we use the consumption model to test the tax discounting hypothesis which is strongly supported this support for tax discounting disagrees with results from some earlier studies using more traditional specifications of the consumption function however we show that when certain obviously inadequate estimation procedures are corrected the traditional models also support tax discounting this uniform support for tax discounting suggests that the sensitivity of consumption to transitory income is not due to liquidity constraints

how efficient is the substitution of debt for taxes in influencing demand a 52 country macro theoretic model is developed in order to test the ricardian view that debt and tax finance are equivalent the alternative traditional view is that government expenditures financed by tax revenue affect the economy in profoundly different ways than expenditures financed by bond issuance a rigorous testing of the model indicates that a present value preserving transfer of income from future generations affects the consumption of the current generations in a positive for solvent countries or negative for debt ridden countries way an explanation for this divergence in consumer s behaviour is attempted via the concept of debt illusion

the behavior of treasury securities monthly 1942 1984 abstract the monthly market value statistics on outstanding united states treasury debt are reported for the 1981 1984 period in addition a monthly series on privately held gross federal debt is reported for the extended 1942 1984 period together with monthly security price indices for various federal debt aggregates examination of the stochastic structure of t bill prices indicates that the riskiness of t bills has increased dramatically in recent years

government debt government spending and private sector behavior reply roger kormendi 1983 presents apparently strong evidence that in contrast to the standard view consumption is not reduced by taxes but is reduced by government expenditure he interprets his results as supporting a consolidated approach to private sector behavior in which consumers effectively internalize the government budget constraint specifically he claims that consumers regard government spending as the true measure of the government s claim on private resources and so do not respond to changes in taxes given spending this is basically the approach advocated by robert barro 1974 and known also as the ricardian equivalence proposition hereafter rep kormendi s results appears to contradict other empirical work based on the life cycle hypothesis for example martin feldstein 1982 modigliani 1984a sterling 1985 although results similar to his have been reported see david aschauer 1985 john seater and roberto mariano 1985 and the references in kormendi in our view kormendi s analysis is seriously flawed his heuristic derivation of the consumption function leads him to a specification of the aggregate consumption function which is not consistent with the life cycle hypothesis lch or with rep and to questionable methods of estimation once his conceptual and methodological errors are corrected his formulation and more generally the rep hypothesis are found to receive little empirical support in the next section we rely on the lch to derive an aggregate consumption function which shows explicitly how government expenditure and taxes should effect private consumption this derivation helps to bring out the observable implications of rep which are shown to be equivalent to a limiting form of the lch in which the planning horizon is infinite it also serves to clarify the appropriate specification of the variables appearing in the consumption function next section ii reports our empirical estimates and tests section iii compares our results with kormendi s finally section iv reports the results of endeavors to improve the specification of fiscal variables notably by distinguishing between permanent and transitory tax changes

the economics of ideas and the ideas of economists william r johnson is professor of economics university of virginia this paper was delivered as his presidential address on november 19 2005 in washington dc at the annual meeting of the southern economic association

public sector and economic growth the greek experience over the past two decades there has been an increase in the relative size of the public sector accompanied by a decline in the growth performance of the greek economy in an attempt to highlight the contribution of the government size to growth an analytical framework is developed incorporating the possibility that marginal factor productivities are not equal in the public and private sectors econometric analysis utilizing this framework points to a negative relationship between government size and economic growth this seems to derive in part from intersectoral diseconomies generated by the growing share of deft financed government activities

ricardian equivalence expansionary fiscal contraction and the stock market a vecm approach the effect of government taxation on future consumption has been explained in three ways the keynesian approach the ricardian equivalence proposition and the german view of expansionary fiscal contraction efc this paper reports empirical evidence on the validity of these explanations by examining the impact of a shock in government taxation upon private consumption once the effect of the stock market is removed a vector error correction model is estimated for the usa japan germany france the uk italy and canada for 1950 1997 and the impulse response functions of a shock in taxation and in expenditure are examined the responses to an increase in government taxation appear to lend support to the efc while the responses to an increase in government expenditure upon consumption suggest that the reaction of private consumption is more in line with the traditional keynesian approach

consumption wealth and finite horizons tests of ricardian equivalence i introduction a continuing debate in macroeconomics concerns the ability of fiscal policy to affect aggregate demand in other words if the government reduces taxes and finances a given level of government spending by issuing new bonds does it generate an increase in aggregate demand the answer to this question depends on the degree to which consumers treat government debt as net wealth under the textbook model the tax cut would raise current disposable income and cause consumers to increase spending while this spending increase may be offset to some extent by the effects of higher interest rates the net effect would be an increase in aggregate demand in contrast under ricardian equivalence interest in which was rekindled by barro s 1974 seminal paper permanent income consumers who are connected to future generations by operative inter generational transfers would not consider the current tax cut and increase in disposable income as permanent they would recognize that the government s intertemporal budget constraint implies that for a given level of government spending a tax cut now implies a tax increase in the future under certain conditions one of which is the assumption of infinite planning horizons see sweeney 1988 for a discussion of the potential importance of this and other conditions imposed in barro s model the present value of the future tax increase implied by the current tax cut would exactly equal the present value of the concomitant increase in government debt as a result consumers will save their increased disposable income to cover their future taxes and the tax cut will not affect aggregate demand put differently consumers would not treat government bonds as net wealth although many empirical tests of the ricardian proposition have appeared in the literature see seater 1993 and the literature cited therein most have used somewhat ad hoc estimating equations that do not properly nest the ricardian hypothesis with a reasonable alternative hypothesis it was not until blanchard s 1985 elegant representation of the behavior of consumers with finite planning horizons that a clear path for empirical work was delineated blanchard s paper spawned a series of empirical papers designed to test ricardian equivalence within the framework of his model which does nest both the ricardian hypothesis and a non ricardian alternative in a widely cited paper evans 1988 was the first to derive the empirical implications of blanchard s model the model reduces the test of ricardian equivalence to a test of whether wealth affects current consumption after accounting for the effect of consumption in the previous period if it does then the model implies that consumers have finite planning horizons and treat government bonds as net wealth although evans s results cannot reject ricardian equivalence they do not resolve the controversy about the ricardian hypothesis other equally well grounded empirical studies e g graham and himarios 1991 and references therein find results that favor the finite horizon interpretation in the first part of the paper we re estimate evans s 1988 model using a better approximation of the market value of wealth contrary to evans s conclusions we find that ricardian equivalence should be rejected in favor of a non ricardian alternative hypothesis in which consumers have finite planning horizons 1 our results differ from evans s primarily because our wealth measure takes account of available information on the market value of corporate equity held by households our series is markedly more volatile than evans s as a result of the decidedly larger movements in the market relative to the book value of corporate assets in the second part of the paper we test whether the long run properties of the data are consistent with our regression results in contrast to earlier work by gali 1990 we find that they are

the permanent income hypothesis estimation and testing by instrumental variables the permanent income hypothesis with rational expectation is restated estimated and tested by an instrumental variables technique on the postwar u s aggregate time series data the hypothesis is accepted on a consumption series which includes service flows from consumer durables if the consumption series is the one in the national income and product accounts the hypothesis is decisively rejected an explanation is suggested to reconcile the conflicting test results

vertically differentiated simultaneous vickrey auctions theory and experimental evidence we study settings where a number of sellers simultaneously offer vertically differentiated vickrey auctions for imperfect substitute goods to unit demand buyers vertical differentiation can arise from differences in item quality item value certainty seller reliability or a combination of these factors we characterize the form of the bidding equilibria and derive expressions for the corresponding allocative efficiency and expected seller revenue when bidders are restricted to submit at most one bid our theory predicts the existence of a unique bayes nash equilibrium that resembles a form of probabilistic mating of likes allowing unit demand bidders to place an arbitrary number of bids induces complex strategy profiles where bidders place positive bids in all available auctions higher bidder types tend to follow more targeted strategies focusing their serious bids on fewer and generally higher quality auctions the nature of the bidding equilibria introduces allocative inefficiencies that arise from the lack of coordination in auction selection among bidders we test our theoretical propositions in a controlled laboratory experiment while also utilizing a domain specific risk score to help assess how the bidders risk type affects their bidding behavior in support of our theory we find evidence of a probabilistic assortative matching between bidder and auction types we also find that low risk type bidders tend to crowd on the highest auction and will pay a premium for the certainty it offers whereas high risk type bidders fail to appropriately adjust for risk associated with the lowest auction leading to overbidding these lead to an interesting focal anomaly whereby bids are concentrated on the highest and lowest auctions bypassing intermediate auctions

evidence on the substitutability between government purchases and consumer spending within specific spending categories abstract this paper examines the response of consumer spending to government purchases within four spending categories education health housing and transportation estimation suggests they are either complements or independent and confidence intervals exclude large estimates of substitutability found in the literature

deficits and the demand for money in recent years the large budget deficits of the federal government have renewed interest in the effects of government debt on private sector behavior to date empirical research has focused on the relationship between debt and two key variables consumption and interest rates by contrast empirical research on the effects of government debt on other variables of interest to macroeconomists is limited this paper examines the relationship between government debt and one such variable real money balances the neglect of government debt as a determinant of money demand is surprising many traditional macroeconomic models such as blinder and solow s 9 influential work include government debt as an argument to the money demand function moreover macroeconomic theorists have long been aware that a government debt money demand relationship has important implications for the efficacy of fiscal policy 2 this paper examines the relationship between government debt and real money holdings over the 1950 1990 period a positive money debt relationship was previously noted by butkiewicz 12 and deravi hegji and moberly 15 hereafter referred to as dhm our work improves upon this research in two ways first in contrast to butkiewicz 12 and dhm 15 we investigate the time series properties stationarity cointegration of relevant variables second we distinguish between supply side and demand side explanations of the debt money relationship the explanation advanced by butkiewicz 12 and dhm 15 is that an increase government debt is perceived by the private sector as an increase in net wealth and hence should increase money demand 3 this explanation ignores a potentially important connection between government debt and money supply if the federal reserve monetizes debt and if the private sector s adjustment to this monetization is lagged then debt and real money balances will exhibit a positive correla

government deficits and aggregate demand abstract the evidence presented in this paper indicates that changes in government spending transfers and taxes can have substantial effects on aggregate demand the estimates also indicate that the promise of future social security benefits significantly reduces private saving each the basic implications of the so called ricardian equivalence theorem is contradicted by the data the results are consistent with the more general view of the effects of fiscal actions and fiscal expectations that is described in the paper

the interest rate neutrality of fiscal deficits testing for ricardian equivalence and capital inflow abstract this paper examines the extent to which the ricardian equivalence theorem as restated by barro 1974 and the capital inflow hypothesis of dwyer 1985 provide valid explanations of the observed interest rate neutrality of fiscal policy in open economies a theoretical open economy macromodel is specified and subsequently tested on a multi country dataset which spans the recent period of floating exchange rates on balance the empirical results favour the capital inflow hypothesis which emphasizes the importance of international financial integration in facilitating the financing of public deficits by the savings of agents who reside across political frontiers

consumers are not ricardian evidence from nineteen countries i introduction in conventional macroeconomic analysis government debt affects the economy because households view it as net wealth the larger the government debt is the wealthier households feel and the more they consume in principle however households need not view government debt as net wealth david ricardo pointed out that they might conceivably treat the future taxes servicing the government debt as exactly offsetting it 1 robert barro 1974 has shown that maximizing households will actually do so if they accurately anticipate future taxes if they face perfect capital markets and if they have effectively infinite horizons ricardian equivalence is said to hold if households do treat future servicing taxes as an exact offset to the government debt many empirical papers on consumption have investigated whether ricardian equivalence is consistent with observation kochin 1974 barro 1978 tanner 1979 seater 1982 kormendi 1983 aschauer 1985 seater and mariano 1985 kormendi and meguire 1986 1990 leiderman and razin 1988 evans 1988 and evans and hasan 1993 have reported evidence consistent with ricardian equivalence by contrast blinder and deaton 1985 feldstein 1978 1982 boskin and kotlikoff 1985 modigliani and sterling 1986 1990 and feldstein and elmendorf 1990 have reported evidence inconsistent with ricardian equivalence unfortunately most of these studies do not estimate regression equations that derive from well specified theoretical models nesting both ricardian equivalence and an alternative theory in which budget deficits and current taxes are not equivalent consequently their results are often hard to interpret moreover these studies consider the data for only one country typically the united states as a result the tests that are performed may not have much power to distinguish an economy for which ricardian equivalence would be a good approximation from one for which it would be a bad approximation olivier blanchard 1985 has provided one of the few models in the literature that tractably nests ricardian equivalence and an alternative in which households view government debt as net wealth depending upon whether a crucial parameter is zero or positive households have infinite horizons internalize all future generations and exhibit ricardian behavior or have finite horizons are at least somewhat disconnected from future generations and exhibit non ricardian behavior that strengthens as the parameter becomes larger the model has testable implications that this paper examines using annual data for nineteen countries when the data for the countries are pooled the tests have sufficient power not only to reject ricardian equivalence in favor of blanchard s alternative but also to yield a precise estimate of the deviation from ricardian equivalence this estimated deviation is approximately what one would expect if capital and insurance markets were perfect and households did not have altruistic bequest motives the deviation is however also economically unimportant for many purposes the rest of the paper is organized as follows section ii lays out blanchard s model and derives the testable implications of ricardian equivalence section iii tests these implications section iv summarizes the findings of the paper and interprets them ii empirical implications of ricardian equivalence in the stochastic variant of blanchard s model formulated in this section the economy is inhabited by a constant population of households that have finite horizons and face perfect capital and insurance markets 2 each household has a finite horizon because it has a probability p of dying each period and being replaced by another household from which it is entirely disconnected with the population normalized to unity the number of households born 0 1 2 periods earlier is always p p 1 p p 1 p sup

the economics of copyright the copyright industries such as music film software and publishing occupy a significant and growing share of economic activity current copyright law protects the creator for up to 70 years after their death significantly longer than patent protection 20 years after invention copyright law aims to balance the incentive to create new work against the costs associated with high prices and restricted access to this work this paper reviews the economic issues behind copyright and how these are challenged by changes in technology and market structure while economics provides a powerful conceptual framework for understanding the trade offs involved the paper argues that our empirical knowledge base is very weak much more empirical analysis is needed to understand the impacts of changes to copyright legislation without such analysis policy and legal debates will continue to be based largely on anecdote and rhetoric

government debt government spending and private sector behavior a current period tax reduction financed by issuing government debt shifts the timing of tax collection from the current period to the future if the future taxes implied by government debt are not fully perceived and discounted by the private sector there will be a net wealth effect that increases private sector consumption thus reducing capital accumulation and growth if on the other hand the implied future taxes are perceived and discounted by the private sector the current period tax reduction will be used to increase private saving to pay for the future taxes and government debt will be absorbed without any real effects on the economy the effects of government spending financed by current period taxation also depend upon private sector perceptions 2 if the benefits of government spending are ignored private sector consumption will decrease in accordance with the reduction in permanent disposable income to the extent that government spending is on consumption type goods that are perceived as substitutes for privately provided consumption goods there will be a relatively greater reduction in private sector consumption to the extent that government spending is on investment type goods yielding future goods and services that are perceived as substitutes for future privately provided consumption goods there will be a relatively smaller reduction in private sector consumption the standard approach to modeling private sector consumption saving behavior involves a rather asymmetric set of assumptions as to how the private sector perceives the various elements of government fiscal policy 3 current period taxes are assumed to be fully perceived but current period government spending is implicitly assumed to be completely ignored by the private sector in considering permanent personal disposable income the private sector is assumed to be forward looking in its assessment of income and taxation the stock of government debt is nevertheless included as part of the stock of private wealth the implicit assumption associate professor of economics graduate school of business university of chicago 1101 east 58th street chicago il 60637 i thank eugene fama levis kochin michael mussa paul evans and an anonymous referee for helpful comments i am particularly grateful to daniel benjamin for contributing many hours of discussion and laura lahaye who was a research assistant and valuable adviser on earlier drafts the theoretical debate on the burden of the debt has been long standing gerald o driscoll 1977 documents ricardo s nineteenth century position robert barro 1974 reopened the debate by introducing the fundamental issue of intergenerational transfers also discussed in merton miller and charles upton 1974 the empirical side of the debate was initiated by levis kochin s 1974 attempt to test for the effects of deficits on consumption and by martin feldstein s 1974 attempt to test for the effects of social security wealth on consumption other empirical contributions include jess yawitz and laurence meyer 1976 myself 1978 and j earnest tanner 1978 1979 with respect to the effects of government deficits and debt and barro 1978 michael darby 1979 and dean leimer and selig lesnoy 1982 with respect to social security wealth see also interesting recent papers by john seater 1982 who generates detailed tests of the effects of deficits and debt on consumption charles plosser 1982 who explores the effects of government spending and debt shocks on interest rates and feldstein 1982 who attempts tests similar to some in this paper see fn 29 2martin bailey s 1962 1971 development of the effects of government spending on private consumption and aggregate economic activity is the seminal contribution paul david and john scadding 1974 extend bailey s ideas and provide some supporting empirical evidence more recently willem buiter 1977 and myself 1978 developed models based on bailey s earlier work barro 1981 has an interesting paper on related issues see also david aschauer 1982 3the standard approach incorporates fiscal policy through the concept of personal disposable income and by including the stock of government debt as part of personal wealth see for example the empirical specification of albert ando and franco modigliani 1963 which has been the basis of most empirical consumption studies since and feldstein 1974 for one of the more influential papers based on the ando modigliani specification

the tax versus debt controversy in a multivariate cointegrating system the empirical literature is replete with evidence that budget deficits and government debt affect traditional view or do not appreciably affect ricardian equivalence private consumption however the validity of the relative empirical estimates can be questioned to the extent that they do not adequately distinguish among countries with varying levels of indebtedness the present paper attempts to address this problem by using johansen s cointegration technique and by sorting the sample countries into groups according to the ratio of debt to gdp the empirical evidence generated finds support for the debt illusion hypothesis as a means of expounding variations in consumers behaviour among countries with varying degrees of indebtedness

containing piracy with product pricing updating and protection investments we consider a monopolistic producer offering software that is updated periodically but by the end of one period a pirated version is available at a transaction cost this presents the consumers who are different in terms of their willingness to pay for the original compared to the pirated version with possible strategies for either buying a new product or pirating it we address pricing and protection investment strategies to regain the profits affected by the piracy in particular we find that even when the transaction cost is exogenous the producer does not necessarily want to fully price out the piracy the decisive factor in such a case is the level of product newness relative to the transaction cost if the producer is able to achieve high newness for the updated product relative to the transaction cost then a high retail price ensures that he will gain the largest profit possible even though some of the demand will be lost due to piracy on the other hand when the transaction cost is endogenous the producer may have two alternatives in terms of profit for dealing with the piracy pricing the software out or investing heavily in software protection as newness levels rise the option of pricing out the piracy becomes increasingly preferable

on the importance of the measurement of consumption in tests of ricardian equivalence abstract the contradictory results in the ricardian equivalence literature may be due largely to the use of alternative consumption measures within kormendi s 1983 empirical framework changing the empirical treatment of the service flow from consumer durables has dramatic effects

fiscal dependence on trade taxes and the level of economic development a comment 1993 fiscal dependence on trade taxes and the level of economic development a comment applied economics vol 25 no 11 pp 1393 1397

the value of intellectual property rights to firms and society economists view intellectual property rights iprs as policy tools for encouraging innovation but they recognize that they can also inhibit competition there are many types of iprs and institutions concerned with their administration we begin by outlining how these complex and varied rights are supposed to work and how they interact with other characteristics of firms and markets we then survey the available literature on patents trade marks and copyright to assess the value of these iprs to firms and the costs to firms of acquiring and defending their rights the paper concludes with suggestions for topics requiring further research to inform public policy better

ricardian equivalence and the public and private saving nexus in india abstractthis study tests the ricardian equivalence theorem ret and examines the responsiveness of private saving to public saving in india most estimators do not provide support for the empirical validity of ret and long run cointegration between public and private saving the increases in household saving hhs seem to have been engendered by the provision of saving incentives institution of saving schemes self driven motivation to save and the precautionary accumulations induced by uncovered uncertainties in incomes rather than by ricardian behaviour of households the self imposed aversion to debt and debt bequest borrowing and liquidity constraints and the intertemporal smoothing of consumption have been the added catalysts that contributed to the increases in hhs the households with binding borrowing constraints inadequate or no insurance and uncovered uncertainties in incomes seem to have been saving more to pay for higher inflation tax the fiscal consolidation and generation of public s

government debt government spending and private sector behavior reply and update the preceding articles by martin feldstein and douglas elmendorf and by franco modigliani and arlhe sterling give us a welcome opportunity to return to the effects of fiscal policy on private consumption at stake in this debate we believe is a potential paradigm change from what kormendi 1983 termed the standard approach which bases private consumption on disposable personal income to what he termed the consolidated approach which bases consumption on aggregate income government spending and transfer payments each with separate effects the standard approach excludes ricardian equivalence a priori the consolidated approach not only incorporates ricardian equivalence but in its augmented form allows one to nest the various hypotheses associated with the two approaches feldstein and elmendorf argue that kormendi s 1983 results and implicitly those of kormendi and meguire 1986 which reject the standard approach in favor of the consolidated ricardian alternative are not robust to the exclusion of data from world war ii and other specification changes modigliani and sterling argue that accounting for temporary taxes reverses our rebuttal of their 1986 comment we first take up the challenge of feldstein and elmendorf before turning to modigliani and sterling we then assess the validity of our preference for estimating in differences by testing whether consumption income and the fiscal variables are cointegrated finally we summarize what can be learned from the debate i feldstein and elmendorf