capital income taxation and welfare in a small open economy abstract the paper studies the effects of various capital income tax policies in a small open economy households are infinitely lived and possess endogenous time preferences investment by firms is subject to adjustment costs it is shown that welfare paradoxes may exist in that increases in tax instruments may improve welfare

capital mobility fiscal policy and growth under self financing of human capital formation this paper which is to appear in a volume honoring the memory of doug purvis considers the effects of fiscal and financial policy on economic growth in open and closed economies when human capital formation by young households is constrained by the illi quidity of human wealth both endogeneous and exogenous growth versions of the basic olg model are analysed we find that intergenerational redistribution policies that discourage physical capital formation may encourage human capital formation despite common tech nologies and perfect international mobility of financial capital the noti tradedness of human capital and the illiquidity of human wealth make for persistent differences in productivity growth rates in the endogenous growth version of the model or in their levels in the exogenous growth version we also consider the productivity growth or level effects of public spending on education and of the distortionary taxation of financial asset income

country portfolios under global imbalances abstract this paper studies the composition of country portfolios under global imbalances when countries are identical the optimal portfolio is fully diversified which reflects the cross country symmetric self hedging lucas 1982 assuming a structural country asymmetry in patience we construct a model of portfolio choices that features persistent non zero net foreign assets nfa because the latter opens a gap between gnp and gdp we found that an asymmetric hedging of net portfolio returns emerges in addition to the otherwise only lucas symmetric self hedging in shaping the gross country portfolios which implies a short long position of the local asset in the debtor creditor country the resulting portfolio is home biased we calibrate our model to the u s and china data over 1999 2017 and show that it matches the portfolio data for countries with unbalanced net external positions well

economic dynasties with intermissions we consider a model of successive generations with a fixed proportion of selfish and altruistic members in each individual s offspring in contrast with the others selfish members bequeath nothing to their own children we assume that parents cannot recognize their heirs types and that negative bequests are forbidden we study markov perfect equilibria of this multistage game of incomplete information and their implications for wealth distribution

population growth and steady state welfare in an overlapping generations model abstract in one sector growth models an increase in the population growth rate raises the economy s growth rate but lowers steady state welfare or consumption per capita i show that in a two sector overlapping generations model it can raise the steady state welfare

the role of net foreign assets in a new keynesian small open economy model abstract this paper develops a small open economy sticky price model that determines a unique stable long run asset position for households as function of their incentive to anticipate or postpone consumption and labor effort across periods this is accomplished by adopting an overlapping generations structure in which new households with no assets enter the economy in each period the same characteristics of household behavior that determine long run assets are also important determinants of the model s responses to shocks stabilizing producer prices results in a milder recession following a drop in world demand than stabilizing consumer prices because it prevents the markup in the pricing of goods from increasing in addition given an initial foreign debt allowing consumer prices to rise causes a decrease in the ex post real interest rate on impact lowering the interest burden of the initial debt the differences across policy rules generated by the initial asset position are robust to changes in the latter as long as these are brought about by changes in parameter values that do not alter the fundamental characteristics of household and firm behavior that are also the key determinants of long run assets

criteria of external sustainability abstract this paper examines the problem of assessing external sustainability that is determining whether present paths of external imbalance can continue indefinitely conditional on present policies being maintained the main contribution of the analysis is to show how conditional forecasts of external imbalance may be generated in a consistent way that explicitly incorporates a mechanism for achieving sustainability an index of external unsustainability is derived that reflects the probability of future changes in policy expected by private agents over time

dynamic efficiency in the two sector overlapping generations model abstract this paper examines dynamic efficiency in the context of a two sector overlapping generations model first conditions for dynamic efficiency in a centrally planned economy are derived then in a competitive environment the implications of dynamic in efficiency for the steady state relative price and steady state welfare are demonstrated for the special case of a log linear world the golden rule savings rate is identified along with restrictions on parameters that yield dynamically efficient steady states the results are further demonstrated via a welfare analysis of a simple tax subsidy scheme

time preference and international lending and borrowing in an overlapping generations model two economies represented by diamond type overlapping generations models and differing only in their pure rates of time preference are joined together capital formation balance of payments behavior and welfare are compared under autarky and openness with a positive natural rate of growth the low time preference country runs a current account surplus in the steady state but not necessarily outside it if preexisting capital is not shiftable between countries integration in the world economy makes the high time preference country worse off in the short run the ranking of stationary utility levels under autarky and openness is ambiguous

optimal seigniorage and financial liberalization abstract this paper analyzes the effect of financial integration for countries relying on the taxation of their domestic financial system a two country model with overlapping generations and explicit financial intermediation is used goverments derive revenues from seigniorage and set optimally but non cooperatively the rate of inflation and the level of required reserves on bank deposits a financial liberalizations leads to lower reserve ratios higher inflation rates and larger stocks of government debt when the liberalization is anticipated governments may temporarily increase the reserve ratios before the liberalization occurs jel f30 e60

heckscher ohlin revisited implications of differential population dynamics for trade within an overlapping generations framework abstract this paper investigates the implications of the addition of differential population dynamics to a simple 2 2 2 model of international trade within an overlapping generations framework the two regions considered are assumed to be identical in every respect except for the way their populations evolve over time the effects of these demographic differences are explored by comparing autarky and trade on the basis of i the analytical solutions obtained for the steady state values of key variables and ii the paths of these variables plotted using numerical results from simulation experiments carried out under two different demographic scenarios unequal population dynamics are shown to affect the relative abundance of the factors of production in each region giving rise to differentials in wage rates and rentals for capital under autarky conditions this in turn causes costs of production and relative prices to differ creating the grounds for trade in the sense of heckscher ohlin ho yet the results reveal that static ho results cannot be generalized to hold in a dynamic setting where differences in demographics cause factor proportions to evolve independently of trade over time

the intertemporal effects of international transfers abstract the transfer problem is studied in an overlapping generations model with government debt the transfer is from a creditor country to a debtor country it is shown that a the effects of transfers depend on their method of finance and on their method of disbursement b the short run effects of the transfers may differ from the long run effects and c the transfers may improve welfare in both countries or they may increase welfare in the country making the transfer and reduce welfare in the country receiving the transfer and these possibilities cannot be ruled out by the stability argument

fiscal policy in a simple two country dynamic model abstract this paper analyzes the national and international effects of labor and capital income taxes in a two country infinite horizon perfect foresight neoclassical model with endogenous labor supply and capital accumulation two polar regimes of capital income taxation are considered the source based and the residence based the qualitative effects of labor income taxes are shown to be independent of the taxation regime whereas the effects of capital income taxes are not

deficits and intergenerational welfare in open economies this paper deals with public debt in open economies extending diamond s overlapping generations model to a small open economy as well as an international equilibrium of two large economies it focuses on the intergenerational welfare redistributions caused by an increase in public debt triggered by a temporary government budget deficit and shows how these redistributions differ in open and closed economies the interplay between the deficits in the government budget and the current account is also analyzed it is shown how a single period with a government deficit can be followed by a sequence of periods with a deficit in the current account

fiscal deficits and relative prices in a growing world economy abstract this paper studies the transmission of fiscal disturbances between countries and the effect of those disturbances on worldwide capital intensity in a context of growth the model developed to address these issues allows for the production of both nontradable and relatively capital intensive tradable goods a central finding is that factor markets can be a major channel for the communication of fiscal policy shocks to world interest rates to private saving decisions and ultimately to global asset supplies and their distribution among countries particular predictions of the model illustrate how changes in public debt ratios and shifts in government spending patterns affect resource allocation and the welfare of various generations both at home and abroad

the current account in the macroeconomic adjustment process macroeconomic adjustments to changes in the economic environment are to a large extent conditioned by the intertemporal choices of economic agents when agents face an intertemporal budget constraint a decision to alter current indebtedness implies changes in future consumption possibilities and will be based on expectations of the entire future path of key variables and not only current variables a formal model to show how today s current account is a function of both current and future economic variables is presented the determination of the current account under classical assumptions of market clearing and continuous full employment is emphasized

does centralization increase the size of government abstract are fiscal programs larger or smaller if they are run centrally rather than locally in a prospective federation we abstract completely from well understood economic issues and focus instead on the political effects of centralization for fiscal programs with benefits broadly spread in the population such as redistributive transfer schemes social insurance and general government consumption centralization changes the coalition of voters who favor a large program in a direction that depends on the nature of the redistributive instrument for fiscal programs with localized benefits such as provision of local public goods centralization creates opportunities for rent seeking which increases the size of government

macroeconomic interdependence under incomplete markets this paper uses a two country flexible price model with overlapping generations of infinitely lived households to study the role of net foreign asset dynamics in the propagation of productivity shocks absence of ricardian equivalence ensures existence of a unique steady state level of net foreign assets to which the economy returns following temporary shocks model dynamics are significantly different from those of a setup in which terms of trade movements perform all the international adjustment and net foreign assets do not move the difference relative to a complete markets economy in which net foreign asset movements play no role in shock transmission is smaller it is amplified if the substitutability across goods rises and if shocks are permanent

leader member exchange lmx paternalism and delegation in the turkish business culture an empirical investigation although businesses increasingly operate across cultures there is a paucity of research that examines the influence of national culture on leadership practices this study uses a structural equation modeling approach to investigate relationships among leader member exchange lmx delegation paternalism and job satisfaction in turkish business organizations results from a survey study of n 185 full time employees from turkish companies support the relationship of lmx to delegation and job satisfaction however the effect of lmx on job satisfaction is mediated by paternalism an emic cultural dimension results suggest that delegation might not be an effective management tool in the middle eastern context

international debt and world business fluctuations abstract the international transmission of real productivity disturbances is examined in an optimizing model with two countries each inhabited by an infinitely lived representative consumer producer we analyze the dynamics of output consumption investment interest rates and net external debt foreign productivity shocks can have positive or negative impacts on domestic output and international debt depending on the intertemporal distribution of the shocks transient foreign shocks are shown to be positively transmitted and lead to increased domestic indebtedness while permanent foreign shocks are negatively transmitted and lead to a decline in domestic indebtedness

voting on pensions a survey abstract the paper presents a nonexhaustive survey of the literature designed to explain emergence size and political sustainability of pay as you go pension systems it proposes a simple framework of analysis a small open two overlapping generation economy model around which some variants are displayed dictatorship of the median voter is assumed the text is organized to answer the following questions i do political equilibria with payg pension schemes exist ii why do they emerge iii what are the conditions for the participation constraint of the pension game to be verified and finally iv what is the size of the pension system chosen by the median voter and how is this size influenced by an exogenous e g demographic shock

an olg model of global imbalances in this paper we investigate the relationship between east asian countries high propensity to save and global imbalances in a two country olg model with production the saving behavior of emerging economies and capital outflows to the united states can be attributed to their poor pay as you go systems the model predicts that emerging countries run a trade surplus only as long as the long run growth rate of the economy is higher than the real interest rate capital overaccumulation case the low real interest rate in the us is therefore evidence in favor of the hypothesis that there is a global saving glut in the world economy the model can explain why the us current account deteriorated gradually and only in the late 1990s although the net foreign asset position had already turned negative in the early 1980s finally the analysis also implies that an improvement of the pay as you go system in china would have the effect of reducing the imbalances in accordance with the theory we find that the higher is the percentage of the working population covered by the pay as you go system the lower are savings and the current account balance in a cross section of countries

leadership and organizational justice similarities and differences across cultures international management scholars and practitioners agree that managers cannot simply assume that leadership behaviors effective in one culture can be readily transferred to other cultures this study examines the relationship of transformational leadership and leader member exchange to organizational justice and job satisfaction in five separate cultures results indicate that while there is consistent support for some of the proposed linkages there are also some interesting differences across cultures implications for theory and future research on international business are discussed

fiscal policy in a growth model with both altruistic and nonaltruistic agents this paper examines the long run behavior of an overlapping generations model with a population consisting of altruistic and nonaltruistic agents it also studies the effect of fiscal policy on aggregate capital accumulation and on the welfare of both types of agents it shows that an increase in the relative number of nonaltruists is pareto improving in the steady state it also shows that the introduction of public debt or unfunded social security has no effect on the longrun equilibrium but implies a transfer of resources from the nonaltruistic to the altruistic agents finally it indicates that inheritance taxation hurts not only the altruists but also the nonaltruists

explaining the absence of international factor price convergence abstract as capital markets have become integrated factor prices have not converged as expected this paper provides an explanation the key observation is that non specific output risks are borne by capital making international portfolio diversification a dominant strategy capital market integration can elicit many patterns of factor price response under this circumstance factor prices will move in parallel if countries are identical when countries differ factor prices may diverge or even have their relative sizes reversed the integration of capital markets affects welfare through changes in risk and in overall returns to savings welfare need not improve

forward exchange rates in general equilibrium abstract this paper develops a two country overlapping generations model of an economy with a forward market in foreign exchange the equilibrium forward rate exhibits the conventional decomposition into the expected future spot rate a convexity term and a risk premium unlike partial equilibrium models however the model expresses these terms as functions of the primitive structural parameters of the economy it thus provides insights into the structure of the premium which may facilitate interpretation of empirical studies of the forward markets in particular it suggests that time varying risk premia may arise from changes in the distribution of wealth between countries over time

public education under capital mobility the paper considers a two country model of overlapping generations economies with intergenerational transfers motivated by altruism and investment in human capital we examine in a non stationary competitive equilibrium the optimal provision of education with and without capital market integration first we explore how regimes of education provision public private or mixed arise and how they affect the dynamics of autarkic economies second we study the effects of capital market integration in equilibrium on the optimal provision of education third we show that capital market integration enhances government intervention in the provision of public education to improve the welfare of its constituents and consider various solutions to such a competition

capital accumulation and foreign investment taxation this paper presents a dynamic choice theoretic general equilibrium model of capital accumulation in an open economy equilibria with and without capital mobility are described and compared it is shown that neither is necessarily pareto optimal and that an equilibrium with free trade in capital does not pareto dominate an equilibrium with autarky the effects of restricting capital flows by taxing foreign investment eamings are discussed it is seen that there will be no agreement within a country as to what constitutes an optimal tax of restricting capital mobility by foreign investment taxation is discussed the model employed is a two country overlapping generations model olg with production it is an international version of diamond s 1965 closed economy model which combines a one sector solow growth model with samuelson s olg model each period a given number of agents are born the agents live two periods and then die in their first period of life agents born in period t may trade only with agents born in t 1 or t in their second period of life they may trade only with agents born in t 1 or t the model begins at period one at this time the young of generation one and the old of generation zero are alive it will be seen that in the first period of life agents save and in the second period of life agents consume the return on their savings thus the abstraction of a two period life captures the essential feature of a life cycle model the agents begin life by saving but at some point start to dissave the major results are that if two countries differ only in initial capital abundance then in autarky the initially more capital abundant country will always be more capital abundant and will always have higher wages and lower interest rates than the initially less capital abundant country however the steady state is identical in each country with or without trade neither an autarky nor a laissez faire equilibrium is necessarily pareto optimal autarky and laissez faire are shown to be pareto non comparable in the relatively capital abundant country laissez faire is preferred by generation zero and autarky is preferred by later generations the reverse is true in the relatively labour abundant country there will be no unanimity as to the optimal level of foreign investment taxation in either country generation zero in the relatively capital labour abundant country will prefer a smaller larger tax than that which would maximize current national

temporary and permanent migration with and without an immobile factor abstract this paper develops two two country overlapping generations models one with and one without an immobile factor to study temporary and permanent migration temporary migration is shown to be equivalent to international lending and borrowing one strong result found in the literature that if natives of each country are homogeneous permanent migration leads to the migration of the entire population of the impatient country in the long run is overturned welfare effects of migration are analyzed

the globalization of our mental maps evaluating the geographic scope of jibs coverage this article analyzes patterns of country coverage in the journal of international business studies during the twenty five years of its existence the analysis shows a substantial expansion in the journal s geographic reach over the years but also a somewhat narrow mental map with many countries and areas receiving only minimal coverage explanations for country preferences among researchers are explored and implications for the future are discussed

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

the welfare economics of cooperative and noncooperative fiscal policy abstract in the absence of ricardian equivalence lump sum transfers between households within a country can alter the pattern of national saving and consumption allowing the government to exploit the country s size in world trade and in international borrowing and lending redistribution across generations through unfunded social security retirement schemes or public sector deficit finance with lump sum taxes and transfers enables a national planner to affect both the static and intertemporal terms of trade when trade restrictions or discriminatory taxation of asset income are unavailable due to international agreements the case for cooperative fiscal policy formation by governments of interdependent economies is examined in an overlapping generations economy with internationally perfectly mobile capital and a single relative price the world interest rate the optimum unfunded social security scheme when no distortionary tax instruments are allowed is derived for a government with nationalistic social preferences this policy targets both intergenerational distribution objectives and interest rate objectives the absence of distortionary taxes implies that no overall loss in world surplus need result from the strategic use of lump sum transfers so that coordination of intergenerational transfers is unnecessary for pareto optimality when internationally enjoyed public goods are introduced allocational efficiency requires cooperative selection of national exhaustive public spending programs but it does not demand that the financing of public expenditures be coordinated

macroeconomic dynamics in a multi country economy a dynamic optimization approach using a multicountry model with perfect foresight dynamic optimization by infinitely lived households the authors analyze the dynamics of macroeconomic nonmonetary and monetary variables the authors show that the most patient country initially accumulates foreign debt but eventually decumulates this debt and becomes a creditor it monotonically increases its consumption and experiences monotonic price and exchange rate appreciation the moderately patient country initially accumulates foreign assets but eventually decumulates them and becomes a debtor its consumption also follows a humped path the least patient country monotonically decumulates foreign assets lowers its consumption and experiences rising inflation and exchange rate depreciation copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

sustainable balance of trade deficits abstract this paper analyzes a model of overlapping generations in which there are two currencies there are two agents born in each period and these agents have completely heterogeneous preferences and endowments the paper shows that there are monetary equilibria in which one country can sustain a trade deficit whose present value is arbitrarily close to that of its trading partner s entire stream of resources hence there may be no limit to the present value of a country s trade deficit even if the equilibrium for the world economy satisfies an intertemporal efficiency criterion

short run and long run welfare implications of free trade the author considers a two factor capital and labor two good consumption and investment goods one country overlapping generations model for the case in which the closed economy follows an efficient path the author proves that if trade lowers raises the relative price of the capital intensive good the current old people who only own capital lose gain from the opening of the economy while all subsequent generations whose only endowment is labor benefit lose from it it is also shown that the country gains from trade in the sense that the generations made better off by trade can compensate those that lose from the opening of the economy

taxing capital in a large open economy abstract this paper analyzes capital taxation in a dynamic optimizing equilibrium model of a large open economy it is shown that the existence of current account imbalances may yield surprising results for example if a country has a current account deficit the tendency of an increased tax on investment to lower wages is dampened if the deficit is sufficiently large an increased investment tax may actually increase both wages and welfare in the long run a country with a current account surplus may find that temporary investment incentives improve its current account in all but the short run

a political theory of government debt and deficits in a neo ricardian framework in the presence of different abilities and therefore different bequests some individuals are bequest constrained even in a neo ricardian world such individuals vote for taxes on future generations through the issuance of bonds thereby increasing their current consumption this produces some crowding out of capital reduces wage rates and increases the interest rate as a consequence even unconstrained individuals are no longer indifferent to the size of government debt the paper derives conditions that are conducive to larger debt and deficits when each of the living generations determines current taxes social security benefits and the national debt by majority rule copyright 1989 by american economic association

population aging and economic growth political economy and open economy effects abstract this paper addresses population aging in the context of both open economy and endogenous fiscal policy response the analysis explores the role of these modeling features and discusses how this framework differs from closed economy and other open economy models

the implications of knowledge based growth for the optimality of open capital markets this paper re examines the view that opening capital markets must have long run benefits the analysis shows that the desirability of opening a country s capital markets depends on the nature of the technology assumed models of knowledge based growth predict that changes that alter the economy s level of production will also affect the economy s growth rate and hence the welfare of future generations standard neoclassical growth models imply no such effects on growth or welfare if production does involve an important element of learning by doing inference from the standard models may be seriously misleading in particular opening capital markets does not necessarily improve welfare for the nation or for the world as a whole

saving and investment in an open economy with non traded goods the authors examine a model of a small open economy in which there is free international mobility of financial capital investment in capital goods and a nontraded good such an environment is rich enough to explain several phenomena that are inexplicable in other models the authors explain why a high saving country may nonetheless borrow from abroad to finance investment they suggest an explanation of why saving and investment may be correlated even with no restrictions on trade in assets the authors also provide an optimizing model of stages in the balance of payments copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

international market linkages and optimal monetary policy abstract the interrelation among portfolio choice and labor supply decisions and real balance effects is examined under flexible exchange rates on the asset menu are home currency domestic government bonds and foreign bonds with commodity market linkages the real balance effect is highlighted as the inefficiency of an economy with positive government bonds is demonstrated while the additional linkage of interest rates through covered interest parity may transform an economy where only money is useful into an economy in which both money and government bonds are beneficial

money time preference and external balance in monetary economies international differences in rates of time preference do not in general lead to long run trade imbalances in sharp contrast with butter s 119811 results on non monetary overlapping generation economies this claim is documented within the context of a simple two country framework in which new immortal families enter each economy over time with the two countries differing only in their subjective discount rates even if consumers are more impatient at home than abroad trade is balanced in the long run in the presence of valued fiat currencies in constant supply and the current account is indeterminate this abstract was borrowed from another version of this item

accumulation and growth in a two country model a simulation approach abstract this paper analyzes saving and capital accumulation in a two good growth model of two market economies in which economic agents optimize with perfect foresight the goal is to present a model in which short run dynamics and the steady state are soundly integrated we stress the importance of asset markets as the linkage that transmits disturbances both internationally and intertemporally while many components of the model described below can be found in the literature on optimal consumption investment and international growth models we provide a consistent synthesis our framework permits the analysis of structural adjustment in the global economy and the dynamic effects of a wide range of public policies

demographic structures savings and international capital flows abstract this paper investigates how the different demographic characteristics of two countries will drive the flow of capital between them as inhabitants of the longer lived nation have a higher savings rate than do those with the shorter lifespan it is motivated by the recent us experience during which its net foreign asset position declined dramatically while simultaneously its longevity has fallen increasingly below that of other developed g7 economies our contribution is to address the issue by introducing empirically based survival mortality functions into a traditional two country macrodynamic framework in doing so we eliminate some of the unsatisfactory aspects associated with the traditional two country representative agent model the sensitivity of the capital flows and the resulting net foreign assets of the two economies to key structural characteristics and their consequences for savings are emphasized

growth technology transfer and the long run theory of international capital movements abstract this paper provides a model of growth and international capital movements technology is assumed to be transferred via international capital movements from the developed north to the developing south it is shown that when the south shifts from autarky to free capital mobility its steady state growth rate of per capita income rises also under free capital movements an increase in the autarkic growth rate of human capital and or technological diffusion rate in the south lowers the steady state income gap between the north and the south

net foreign asset positions and consumption dynamics in the international economy we examine the effect of non zero steady state foreign assets on consumption dynamics in response to productivity shocks in a two country dynamic general equilibrium model the model generates non zero steady state net foreign assets by allowing for different discount factors across countries as a consequence of discounting differences individual steady state consumption profiles are tilted upward or downward worldwide shocks to long run productivity levels lead to dynamics that are absent in standard symmetric models with equal discount factors we then compare the model results to those of a var in common trend representation for the u s versus the rest of the g7 in the data we find that permanent worldwide productivity shocks lead to net foreign asset and consumption dynamics that are broadly consistent with interpreting the u s as the relatively impatient model economy and are not consistent with symmetric models with equal discount factors

on the determinants of net foreign investment these models do not explain why investments in productive processes in any country exceed or fall short of the wealth of the residents of that country most existing models of portfolio choice and asset pricing make the key assumption of a given world market portfolio which implies that at any point in time net foreign investment itself is given 2 the present paper does not make this assumption this paper provides a simple model of net foreign investment in a world of perfect markets 3 the model has the useful property that production decisions are made simultaneously with portfolio choice decisions as in cox ingersoll and ross 1978 the central feature of the model is that technologies in use differ across countries it is assumed that pre existing capital can be shifted costlessly between countries production decisions in other words decisions about how the existing stock of capital is invested among available technologies determine net foreign investment in the home country however production decisions depend on the distribution of the returns to investments in various technologies whereas this paper analyzes an issue which has always been of considerable interest in the field of international finance it uses a different framework from that used in most of the literature on net capital flows it recognizes explicitly the role of risk as a determinant of net foreign investment 4 because political risk is not modeled explicitly this paper constitutes only a first attempt at understanding the determinants of net foreign investment political risk must play a significant role as a determinant of net foreign investment because net university of rochester i am grateful to the members of the international finance seminar at the university of rochester to jorge de macedo ron jones don lessard and especially pat reagan for useful conversations and comments and to the center for research in government policy and business for financial support net foreign investment in the domestic country is understood to mean the difference between total wealth invested in the domestic country and domestic wealth it follows that net foreign investment is a stock and not a flow international economists would call net foreign investment the

structural adjustment to a terms of trade disturbance the role of relative prices abstract this paper investigates the impact of a terms of trade disturbance on a small economy which responds gradually to changes in relative prices the key intertemporal link is as in dornbusch 1983 between the price of nontraded goods the real interest rate savings and the current account if the traded and nontraded goods are bad substitutes in consumption then an improvement in the terms of trade leads to a transitory current account surplus and conversely international capital mobility reduces the impact of a terms of trade disturbance on relative prices and also reduces the speed with which the economy adjusts to the disturbance

capital accumulation and the current account in a two country model abstract this paper examines the joint determination of international debt and capital accumulation in a two country model national rates of time preference are endogenous adjusting along an optimal path to come into equality with one another in the steady state the characteristics of short run current account dynamics are crucially linked to world capital accumulation and to a country s long run net external asset position steady state creditor countries tend to have current account surpluses during episodes of world output growth and vice versa for debtor countries this gives rise to possible non monotonic adjustment in the current account and consumption

spillover effects and the terms of trade within a two country model this paper analyzes the long run interdependence of national fiscal policies through changes in the terms of trade and the real rates of interest between two countries the two commodity structure permits the analysis of fiscal interdependence even in the case of no capital mobility and hence more insight into welfare implications of the relationship between the degree of capital mobility and spillover effects will be obtained we shall also investigate welfare implications of import restriction or export promotion policies so as to produce favorable temporal and intertemporal terms of trade effects

intertemporal dependence impatience and dynamics abstract this paper develops simple geometric methods for analyzing consumer behavior under recursive but intertemporally dependent tastes since the preferences studied need not be time additive they allow the marginal utility of consumption on a given date to vary with consumption on other dates intertemporal dependence is induced by the presence of a variable individual rate of time preference the optimal consumption responses to transitory and anticipated changes in incomes and interest rates are easily derived and are similar in many respects to the responses implied by the standard constant time preference model intuitive explanations of the first order conditions describing optimal paths are provided

on the denomination of government debt a critique of the portfolio balance approach abstract we show that some classes of sterilized interventions have no effect on equilibrium prices and quantities the proof does not require complete markets ricardian equivalence monetary neutrality or the law of one price moreover regressions of exchange rates or interest differentials on variables measuring debt s currency composition contain no information about the affectiveness of such interventions other interventions require changes in monetary and fiscal policy their effects depend generally on the influence of these changes on the economy and not on the intervention alone in short sterilized intervention is not as the portfolio balance approach indicates an extra policy instrument

terms of trade and current account dynamics a methodological critique this paper suggests that the recent intertemporal studies concerning the implications of terms of trade deterioration on the current account of a small open economy may suffer from significant methodological deficiencies the study demonstrates that while the assumption of a small open economy represents a legitimate modeling simplification the analysis of the impact of perturbation of the terms of trade on the current account of this small open economy is methodologically erroneous in particular the paper demonstrates that a given pattern of terms of trade deterioration may be associated with opposing evolutionary patterns of the current account of this small economy this paper argues that the methodology employed by several influential intertemporal studies concerning the relationship between the terms of trade and the current account of a small economy suffers from critical deficiencies it demonstrates that while the assumption of a small open economy confronting exogenously determined terms of trade represents a legitimate modeling simplification the analysis of the impact of perturbations of this terms of trade on the small open economy and on its current account is methodologically erroneous in particular the paper demonstrates that a small economy may experience diametrically opposing evolutionary patterns of the current account in association with a given pattern of terms of trade deterioration the paper suggests therefore that predictions based on this literature are in need of reassessment these intertemporal studies of the relationship between the terms of trade and the current account of a small economy have been conducted under the simplifying assumption that perturbations in the terms of trade are exogenous and do not affect the world interest rate 2 this approach may reflect a valid simplification as long as the study is concerned with exportable goods whose prices are insignificant in the determination of the general price level in the world economy however if the focus of the analysis is a small country that exports a group of commodities such as agricultural goods or industrial goods a change in the terms of trade for the small economy may reflect fundamental changes in the world relative prices that are

job satisfaction in joint venture hotels in china an organizational justice analysis in a survey of local employees of joint venture hotels in china it was found that procedural and performance based distributive justice was related to job satisfaction but interactional justice was not comparison with other local employees was related to job satisfaction but comparison with overseas employees was not senior managers reported a lower level of procedural and interactional justice and senior managers and supervisors regarded their pay as less fair in comparison with local employees in state owned hotels employees who worked with overseas chinese and japanese expatriates were less satisfied than those who worked with expatriates from the west and this difference was explainable in terms of differences in perceived distributive justice

endogenous fiscal policy and capital market transmissions in the presence of demographic shocks abstract previous analyses of population aging mainly focused on the social security implications of the aging trend this paper addresses aging in an open economy framework with two regions that have politically responsive fiscal policy regarding education finance demographic shocks start an economic growth process but results are sensitive to a critical parameter in the model that indicates return to education spending low values of this parameter are associated with less favorable economic outcomes hence a policy implication emerges that enhancing the education system might pay off in terms of easing the negative growth and welfare consequences of expected demographic shocks

fiscal deficits and intergenerational welfare in almost small open economies the intergenerational welfare effects of government deficits are examined in a simple life cycle economy which can borrow at given interest rates and import at given prices but has unexploited market power in exports despite perfect capital market integration a deficit financed tax cut to the current young causes an immediate real exchange rate of return on domestic assets subsequently the real exchange rate depreciates to a lower steady state value and the after tax wage decreases by more than the tax increase needed to service the larger deficit

consumption permanent income and financial wealth in canada empirical evidence on the intertemporal approach to the current account the intertemporal approach to the current account is rejected as a complete explanation of the canadian current account federal government fiscal policy plays an important role in the determination of the current account a private sector agent that treats its holdings of net liabilities of the federal government as net wealth accumulates the sum of these liabilities and the net liabilities of non residents as part of an intertemporally optimal plan this result indicates both fiscal policy and intertemporal considerations are important determinants of current account behaviour consommation revenu permanent et richesse financiere au canada resultats empiriques d une approche au compte courant mettant l accent sur la dimension intertemporelle cet article montre que l approche mettant l accent sur la dimension intertemporelle ne produit pas une explication complte du comportement du compte courant canadien i1 semble que la politique fiscale du gouvernement federal joue un r6le important dans la conformation du compte courant un agent economique prive composite qui traite son portefeuille de dettes nettes du gouvernement federal comme richesse nette va accumuler la somme de ces dettes et des dettes nettes des non residents dans le cadre de son plan intertemporel optimal les resultats montrent que la politique fiscale et des considerations intertemporelles sont des elements determinants du comportement du compte courant

leader openness nationality dissimilarity and voice in multinational management teams we argue that leader directed voice i e communicating critical suggestions for change to the leader is a relational phenomenon and that it is affected by an inherent feature of multinational teams members dis similarities in nationality we tested our hypotheses in a sample of middle managers who were working in multinational teams the results of this study show that leaders of multinational teams are more likely to profit from the local know how of employees from underrepresented nationalities when they are open to their ideas and when they have the same nationality the study also shows that the effects of being open to employees ideas and sharing the same nationality are mediated by affective commitment and psychological safety respectively we discuss how even though the current relational demography perspective with its dichotomous understanding of dis similarity is not suited to capture the dynamics of cultural differences it does set the stage for future studies to examine the cultural dynamics behind an individual s experience of being different from other team members in multinational teams we also discuss the practical implications of these findings for multinational companies

labor migration in europe experiences from germany after unification abstract this paper examines the effects of diverging economic conditions on labor migration within reunified germany we employ a life cycle model with consumers sovereignty regarding choice of location to derive estimates of labor migration in future periods heterogeneity of individuals is explicitly taken into account by adopting a random utility approach due to insufficient data on east west migration the results are only illustrative and have the character of educated guesstimates within limits our predictions can serve as rough indicators of potential future migration between eastern and western europe

risk and capital accumulation in a small open economy this paper examines the dynamics of capital accumulation in a small open economy where home capital is risky and consumers are risk averse it is assumed that the economy participates in perfect international bond markets but that risky home capital is held by domestic residents only under these assumptions the rate of investment is no longer independent of the saving rate and they are positively related as a result a rise in savings does not increase foreign investment by the same amount but by less and in some situations the quantity of foreign assets may even decrease

heterogeneous dynasties and the political economy of public debt we consider a small open overlapping generations economy with descending altruism heterogeneity is introduced by assuming that each parent procreates a fixed proportion of selfish children altruistic parents can recognize the type of each child there is no ricardian equivalence and an active public intergenerational transfer policy is attractive to altruistic dynasty members although there may be no unanimity among them we display reasonable conditions for indirect preferences to be single peaked and we apply the median voter theorem we then describe political equilibrium paths and discuss their compatibility with the steady path of an underlying closed economy with autonomous labor productivity growth

strategic aspects of public finance in a world with high capital mobility abstract in a world with high capital mobility an increase in equity taxes is likely to induce a capital out flow it is commonly believed that in consequence there may be an under provision of public goods when governments have only equity taxes at their disposal this paper compares the provision of public goods under cooperative and non cooperative tax policies suprisingly the non cooperative regime may result in either an over or an under provision of public goods it is also shown that the gains from coordination increase as countries become atomistic

aging pension reform and capital flows a multi country simulation model we present a quantitative analysis of the effects of population aging and pension reform on international capital markets first demographic change alters the time path of aggregate savings within each country second this process may be amplified when a pension reform shifts old age provision towards more pre funding third while the patterns of population aging are similar in most countries timing and initial conditions differ substantially hence to the extent that capital is internationally mobile population aging will induce capital flows between countries all three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply in order to quantify these effects we develop a computational general equilibrium model we feed this multi country overlapping generations model with detailed long term demographic projections for seven world regions our simulations indicate that capital flows from fast aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings we also conclude that closed economy models of pension reform miss quantitatively important effects of international capital mobility this version 25 august 2004

current accounts in debtor and creditor countries the authors reexamine a classic question in international economics what is the current account response to a transitory income shock such as a temporary improvement in the terms of trade a transfer from abroad or unusually high production to answer this question they construct a world equilibrium model in which productivity varies across countries and international borrowing and lending take place to exploit good investment opportunities despite its conventional ingredients the model generates the novel prediction that favorable income shocks lead to current account deficits in debtor countries and current account surpluses in creditor countries evidence from thirteen oecd countries broadly supports this theoretical prediction

bequests taxation and the distribution of wealth in a general equilibrium model this paper examines the role of bequests and of taxation on bequests for the distribution of wealth we investigate a model with overlapping generations and heterogenous households where parents derive utility directly from their bequests we obtain all results analytically using the coefficient of variation as the measure of inequality bequests per se diminish the inequality of wealth since they raise private savings and hence average wealth holdings more than the variance of wealth from a policy perspective taxing bequests and redistributing government revenue lump sum among the young generation further decreases wealth inequality

measurement issues in cross national research substantive inference from cross national studies have important implications for theory e g because they reveal insights into generalizability and boundary conditions and managerial practice e g because they offer guidelines to mnc managers however few empirical studies attend to measurement issues involved in cross national research and still fewer recognize the risk of inferential errors that are likely to occur by overlooking measurement issues we discuss four measurement issues namely 1 standardized versus unstandardized coefficients 2 the impact of measurement error and unequal reliability 3 the overall error rate and simultaneous analysis and 4 construct equivalence using illustrate examples we demonstrate the nature of each of these problems the likely impact they can have on substantive conclusions and approaches for tackling these problems additionally we reanalyze a recently published three nation study by dubinsky michaels kotabe lim and moon 1992 to clarify these measurement concerns highlight a methodological approach and delineate the extent and severity of inferential errors our reanalysis shows that the interactive effects of these measurement issues are pervasive complex and unpredictable we close with implications for cross national research in general

capital income taxation in a world economy a territorial system versus a residence system this paper investigates the effects of a tax reform of conversion from capital income to consumption taxes on capital accumulation in a two country model in the territorial system the tax reform will normally lead to a negative comovement between capital accumulation in two countries while in the residence system it will lead to a positive comovement copyright 1991 by royal economic society

luxury and wealth i develop a dynamic theory of luxury consumption particularly emphasizing the causal effect that pursuit of luxury goods has on wealth accumulation a quasi luxury is defined as a good whose marginal rate of substitution is increasing in a utility index under certain conditions it is indeed a luxury good when current wealth holding falls short of exceeds long run needs luxury consumption is postponed more less easily than necessity consumption due to a lower higher time preference for luxury and or a higher intertemporal elasticity of substitution thereof preferences for quasi luxuries lead to a higher steady state value of wealth or capital

global imbalances in the xix xx and the xxi centuries we establish a new stylized fact while the current account and the trade balances are positively correlated during the second globalization 1990s 2010s they were negatively correlated during the first globalization 1870s 1910s we show that the reason behind is that the world interest rate is currently low relatively to the world growth rate due to a global saving glut while this was not the case during the first globalization

capital markets integration growth and income distribution the paper considers a two country model of overlapping generation heterogenous economies with intergenerational transfers carried out in the form of bequest and investment in human capital we examine in competitive equilibrium the transitory and long run effects of capital markets integration first we explore how the regime of public education affects the dynamics of the integrated economy second we study the effects of capital markets integration in equilibrium on the intragenerational income distribution in both the host and investing country

terms of trade factor intensities and the current account in a life cycle model this paper examines the effects of terms of trade changes on the external adjustment of a small open economy where each consumer has a life cycle saving function the supply side of the economy is given by the standard two sector model with two primary factors labour and capital it is shown that when both commodities are produced a terms of trade deterioration leads to a current account deficit surplus if the export import sector is more labour intensive

current account effects of a temporary change in government expenditure a perfect foresight model of intertemporal utility maximization is used to analyze the current account effects of a temporary increase in government spending the relationship between the marginal utility of private consumption and the supply of public goods in the economy is shown to play a crucial role in determining the qualitative nature of the optimal current account response the link between the timing of the policy change and the magnitude of the current account effect is also examined

tax reform and external balance abstract this paper examines the effect of a transformation from capital taxation to consumption in an open economy with the residential capital tax rate being endogenous an increase in the domestic consumption tax rate decreases the interest rate increases capital accumulation and increases the domestic country s net foreign asset holdings and trade surplus with the territorial capital tax rate being endogenous an increase in the domestic consumption tax rate may either increase or decrease the domestic country s interest rate net foreign asset holdings and trade surplus depending on the interest elasticity of capital demand

ageing migration and endogenous public pensions abstract this paper analyses migration behaviour of mobile workers in reaction to population ageing we show that the conventional wisdom that a decrease in fertility will lead to a rise in wages and thus to an inflow of immigrants that mitigates the adverse effects of ageing on public pensions may not hold if labour is heterogeneous moreover we demonstrate that if public pensions are endogenous i e if ageing leads the elderly to successfully lobby for higher taxes it may take several generations before a steady state is reached and the initial migration flow may be opposite to the steady state migration

fiscal deficits and current account deficits abstract recent fiscal stimulus packages depend for their effectiveness on the assumption of non ricardian savings behavior we show that under the same assumption higher fiscal deficits can have problematic implications if they turn out to be permanent first if they occur in large countries they significantly raise the world real interest rate second they cause a short run current account deterioration equal to around 50 of the fiscal deficit deterioration third the longer run current account deterioration equals almost 75 for a large economy such as the united states and almost 100 for a small open economy