nonoptimality of the friedman rule with capital income taxation this paper studies the efficient taxation of money and factor income in intertemporal optimizing growth models with infinite horizons transaction costs technologies and flexible prices second best optimality calls for a positive inflation tax and a non zero capital income tax when there are restrictions on taxation of production factors or profits rents our cases of nonoptimality of the friedman rule which differ from those of mulligan and sala i martin 1997 and extend substantially those of schmitt grohe and uribe 2004a follow from the violation of the diamond and mirrlees 1971 principle on production efficiency

tax evasion and the optimal inflation tax abstract we developed a simple monetary model to study the effects of tax evasion on the optimal inflation tax the model is constructed so that inflation might be an indirect way of taxing the underground sector of the economy we show that while there are theoretical reasons for positive optimal inflation rates the effects are quantitatively small even in countries with large underground sectors we calculate the optimal nominal interest rate for peru to be between 7 and 19 despite the fact that its underground sector is close to 40 of measured gnp according to our calculations the welfare gain of using inflation to tax the underground sector is also very small

third world cities the changing national settlement system this is a review of recent literature on trends in urbanization in developing countries the author examines the decline in the pace of urbanization in the middle east and latin america changes in migration related to changes in spatial structure a trend toward a more polycentric form of metropolitan development around some major urban centers a decline in the pace of metropolitan expansion associated with economic recession and the failure of regional policy to affect urbanization trends annotation

the optimal inflation tax when money reduces transactions costs abstract it has been argued that if money acts as an intermediate good the optimal inflation tax is zero this paper reexamines such a claim in the context of a model in which money reduces transactions costs it is shown that modeling money as an intermediate good does not necessarily imply that the optimal inflation tax is zero the optimality of a zero inflation tax depends on the properties of the transactions costs technology in particular if the transactions costs technology does not exhibit constant returns to scale it is optimal to resort to the inflation tax

big business and urban congestion in taiwan the origins of small enterprise and regionally decentralized industry respectively abstract two pillars of taiwan s economy that are regarded as models for other developing countries to follow are small and medium size enterprises smes and regional decentralization of industry this paper suggests that the historical roots of both phenomena make the policies necessary to reproduce the taiwan model elsewhere less straightforward than is typically supposed by the mid 1960s the major factor behind regional decentralization was urban congestion big business seems to have been instrumental in the growth of smes

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

politics and perceived country creditworthiness in international banking this paper marks a departure from most previous studies of country creditworthiness in international banking because it incorporates systematically generated quantitative indicators of political instability in the analysis the authors empirically test for the effects of political instability on perceived country creditworthiness using data on thirty heavily indebted developing countries for the period 1967 86 in addition to economic factors they examine the effects of three types of political instability regime change political legitimacy and armed conflict the authors also distinguish between proximate instability and chronic instability they find significant effects of proximate instability particularly in governmental regime on indicators of countries perceived creditworthiness copyright 1990 by ohio state university press

on a simple rule for the optimal inflation rate in second best taxation abstract the optimal inflation rate is analyzed in the framework of dynamic second best with endogenous factor prices it is shown that when the marginal excess burden of taxation is relatively small the optimal inflation rate is approximated by a simple rule the paper also analyzes the robustness of this rule to the specification of the model money as an input in utility or production

market frictions technology adoption and economic growth this paper develops an endogenous growth model with labor market matching and technology adoption while labor market search and entry frictions lengthen technology diffusion exogenous technology arrival may creatively destruct jobs in the short run such interrelationships give rise to multiple equilibria global and local indeterminacy under which a small autonomous technological improvement may create a large growth effect we characterize the effects of exogenous technology arrival on equilibrium matching adoption effort wage and the overall dispersion of wages social inefficiency arises as a result of individuals failure to account for free rider thick matching job destruction effects in making technology adoption decision

intersectoral linkages and the role of the state in shaping the conditions of industrial accumulation a study of ludhiana s manufacturing industry abstract this article traces the historical and institutional sources of small firm competitiveness in ludhiana s manufacturing sector four features emerge as salient the indirect historical links and dynamics between the region s industrial and agrarian sectors past policies and the key role of the state in indirectly transforming the local skill base and creating the conditions for small scale accumulation among skilled metal workers demand surges early in the region s industrial history and complex ties among firms of different sizes that created a capital conserving interdependent production network in the region these processes together help explain why despite being located hundreds of miles from any mineral or resource base firms in this region outcompeted others in the country to dominate national markets in the sectors in which they specialized bicycles and parts sewing machines and woolen hosiery

south korean and taiwanese development and the new institutional economics the publication of books by both alice amsden and robert wade provide an opportune moment to reflect on the study of east asian development after an initial surge of interest beginning in the 1970s the field has reached a plateau and scholars recently have cast a wide net in searching for ways to extend the field in assessing the state of the art regarding the economic development of the east asian newly industrialized countries nics this review will treat three themes first i will argue that the focus on states versus markets is becoming stale and that much of the scholarly interest lies in the politics behind the economics second i argue that political scientists have underexplored the historical origins of korean and taiwanese capitalism and that such attention promises to strengthen both theories and explanations of development third i argue that the international system has been more important in promoting development in east asia than accounts in the first wave have recognized the purpose of this review is to assess the field reveal

non optimality of the friedman rule and optimal taxation in a growing economy with imperfect competition abstract this paper shows that if capital generates production externality there exists a wedge between returns to money and to capital driving the friedman rule is not optimal however in the absence of capital externality the friedman rule may be valid even under imperfect competition

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

optimal fiscal and monetary policy equivalence results in this article we analyze the implications of price setting restrictions for the conduct of cyclical fiscal and monetary policy we consider standard monetary economies that differ in the price setting restrictions imposed on the firms we show that independently of the degree or type of price stickiness it is possible to implement the same efficient set of allocations and that each allocation in that set is implemented with policies that are also independent of the price stickiness in this sense environments with different price setting restrictions are equivalent

unbalanced development the origin of korea s self employment problem from a comparative perspective abstract why does south korea have a demographically massive and economically vulnerable self employed population from a comparative perspective this study argues that korea s self employment problem originated in the country s process of unbalanced development korea benefited from the strategy of export led growth yet it did not manage the negative impact of this strategy on labour force absorption the consequence of unbalanced development is the limited capacity of labour markets to absorb the workforce therefore rural migrants in urban areas had no choice but to open small businesses despite having few financial and technological resources

characterization of the optimal tax on money when it functions as a medium of exchange abstract this paper compares the relative efficiency of the implicit taxation of money and the explicit taxation of real commodities to finance a given amount of government expenditures in the model used money has the property of reducing transactions costs a sufficient condition for a tax on money to be welfare dominated by a linear tax on consumption expenditures is characterized in terms of a few parameters very familiar in macroeconomics this characterization is especially useful in the cases of heterogeneous consumers and increasing returns to scale in transactions since then the optimal tax on money may in principle be positive

the division of labour is limited by the rate of growth of the market the taiwan machine tool industry in the 1970s in 1974 i visited taiwan to make a study of its machine tool industry amsden 1977 late in 1981 i returned to visit the same factories i had visited seven years earlier in the interim taiwan was transformed from an amateurish supplier of machine tools to southeast asia into the fourth largest exporter of machine tools to the united states cremeans and dalton 1982 this paper analyses the remarkable changes which occurred in the machine tool industry in this short period the object is to study the process of capital accumulation in one industry in a newly industrialising country in order to gain a better understanding of the nature of the process generally between 1970 and 1980 machine tool production in taiwan rose by more than eleven times see table 1 one way to begin to understand the process of capital accumulation is to ask how such an extraordinarily rapid increase in demand alters the nature of production this is the focus adopted in what follows most historians acknowledge a phenomenon of cumulative causation in economic development or decline economies which begin to grow rapidly tend to grow even more rapidly but once growth falters there ensues a self reinforcing downward spiral most economists however recognise only one part of this cumulative process that which runs from technological progress typically taken as exogenous to increases in productivity to increases in output what tends to be ignored is that part which runs from increases in output to increases in productivity with technological change broadly defined sandwiched in between it is this which is examined below

the co evolution of technology and institutions in the catch up process the case of the semiconductor industry in korea and taiwan abstractthis paper explores the industrial specialisation of latecomer countries particularly korea and taiwan which are often referred to as successful catch up cases the traditional wisdom is that the developmental state resource leverage and technological sophistication in an export oriented strategy have been the factors for success however firm strategies and a supportive government are not sufficient to explain the different features of catch up patterns in this paper we propose that differences in industrial specialisation of catch up countries are attributable to the interaction between technological characteristics and institutional settings including corporate organisation industrial structure and the role of the public sector

should capital income be taxed in the steady state this paper provides a new economic interpretation of the well known dynamic optimal taxation principle that capital income should not be taxed in the steady state we show that the result is related to the minimization of distortions at the intratemporal margin when every factor of production can be taxed at the optimal rate capital income should not be taxed in the steady state but when there are restrictions on the taxation of production factors the tax rate on capital income in the steady state is different from zero

the evolving role of agriculture in poverty reduction an empirical perspective abstract the role of agriculture in development remains much debated this paper takes an empirical perspective and focuses on poverty as opposed to growth alone the contribution of a sector to poverty reduction is shown to depend on its own growth performance its indirect impact on growth in other sectors the extent to which poor people participate in the sector and the size of the sector in the overall economy bringing together these different effects using cross country econometric evidence indicates that agriculture is significantly more effective in reducing poverty among the poorest of the poor as reflected in the 1 day squared poverty gap it is also up to 3 2 times better at reducing 1 day headcount poverty in low income and resource rich countries including those in sub saharan africa at least when societies are not fundamentally unequal however when it comes to the better off poor reflected in the 2 day measure non agriculture has the edge these results are driven by the much larger participation of poorer households in growth from agriculture and the lower poverty reducing effect of non agriculture in the presence of extractive industries

endogenous fertility multiple growth paths and economic convergence abstract this paper extends the cass koopmans optimal growth model to allow for endogenous fertility choice it is shown that if agents choose their fertility rate then the net rate of return on capital marginal product of capital minus the population growth rate may not be monotonically decreasing in capital in this case multiple steady states and growth paths may emerge which can explain the persistent differentials in income between poor and rich countries as well as the existence of development miracles and disasters the paper provides also empirical evidence which supports the existence of multiple convergence groups and is consistent with the theoretical model

new perspectives on east asian development conventional explanations of rapid growth in east asia have focused on the efficient allocation of resources resulting from market led outward oriented strategies this study challenges that approach east asian success has centred around the accumulation dynamic both because of its direct importance to the growth process and also because of its close and interdependent linkages with exports on this basis the study considers the institutions and policies which were used to manage economic rents in support of rapid growth and to ensure a more strategic and orderly integration into the world economy the study also examines the contribution of regional trade and investment flows to east asian industrialisation the potential for replicating similar strategies is considered

lump sum taxation and the superneutrality and optimum quantity of money in life cycle growth models abstract the question of superneutrality and the optimum quantity of money is addressed in a model where money services enter the utility function and where individuals have finite lives it is demonstrated that the existing result in the literature regarding a positive relationship between money creation and the steady state capital intensity and welfare is not due to monetary policy per se on the contrary this is shown to arise because of the intergenerational wealth effects embedded in the manner in which money is created assuming that preferences are separable between consumption goods and real balances and that the consumption goods are normal it is proved that i money is superneutral and ii any other money supply rule is pareto inferior to the chicago rule provided that the government also embarks on a policy of wealth redistribution across generations through the imposition of appropriate lump sum taxes and transfers