bluuebunny/crossref_metadata_2025 huggingface dataset:
The Impact of Marginal Tax Rates on Taxable Income: Evidence from State Income Tax Differentials
Authors: Long James E.
Published: July 2021

The relationship between marginal tax rates and taxable income is analyzed with a large cross section of income tax returns filed by individuals who face different marginal tax rates because of state income tax differentials. The empirical results suggest that an increase in the marginal tax rate reduces taxable income primarily because taxpayers claim larger deductions. High‐income taxpayers are found to be more responsive to tax rate changes than lower‐income individuals. The findings are compared to those of other recent studies incorporating a wider range of taxpayer responses to tax rate changes than considered in this study.
Nepotism, Discrimination, and the Persistence of Utility‐Maximizing, Owner‐Operated Firms: Comment
Authors: Sharir Shmuel
Published: July 2021

A recent thoughtful paper by Singell and Thornton (thereafter ST) in the Southern Economic Journal deviates in definitions, modeling, and a result from the traditional literature on tastes for discrimination and nepotism that originates with Becker and Arrow. This comment provides a critique of these three aspects of the ST analysis. In particular, it shows that ST's astonishing result that discrimination will persist in a competitive labor market is unjustified, ST's unconventional definitions of owners with unbiased and biased preferences are wrong, and ST's unique modeling of discrimination and nepotism is unsupported.
Tariff and Quota Reform with International Capital Mobility
Authors: Franck David
Published: July 2021

In a small, open economy with a convex production set, international capital mobility raises the cost of tariff protection on one subset of imports if there are irremovable quotas on another. Given irremovable quotas on one subset of imports, free trade is the optimal policy toward all other imports, with or without international capital mobility. Further, in the scalar case, international capital mobility reduces the optimal implicit excess tariff on the quota‐constrained import if an irremovable tariff is in place on the other import.
Uncertainty and Optimally Uniform Commodity Taxes
Authors: Cremer Helmuth , Gahvari Firouz
Published: July 2021

This paper examines the implications of uncertainty for the structure of optimal commodity taxes in the presence of a linear income tax. Consumers face uncertain income and commit to consumption of some goods before the resolution of uncertainty and to others after. Preferences are separable between labor and consumption goods. We prove that optimal commodity taxes are (i) uniform within the category of noncommitted goods if their subutility is logarithmic; (ii) uniform within the two categories if both subutilities are logarithmic; and (iii) nonzero across categories, with the tax rate on precommitted goods being lower than the tax rate on noncommitted goods.
Smoking Status and Public Responses to Ambiguous Scientific Risk Evidence
Authors: Viscusi W. Kip , Magat Wesley A. , Huber Joel
Published: July 2021

Situations in which individuals receive information seldom involve scientific consensus over the level of the risk. When scientific experts disagree, people may process the information in an unpredictable manner. The original data presented here for environmental risk judgments indicate a tendency to place disproportionate weight on the high risk assessment, irrespective of its source, particularly when the experts disagree. Cigarette smokers differ in their risk information processing from nonsmokers in that they place less weight on the high risk judgment when there is a divergence in expert opinion. Consequently, they are more likely to simply average competing risk assessments.
The Impact of Banking and Fiscal Policies on State‐Level Economic Growth
Authors: Abrams Burton A. , Clarke Margaret Z. , Settle Russell F.
Published: July 2021

This paper investigates the hypothesis that economic growth is affected by banking structure and fiscal policies. We use data from the 48 contiguous states for the period 1950‐1980 aggregated into six five‐year time periods, primarily to test the effect of the following factors on growth of state per capita income: (i) restrictions over branch banking, (ii) restrictions over multibank holding companies, (iii) the depth of financial assets in a state, (iv) the financial‐intermediary mix, (v) the size of state government, and (vi) the methods of financing state government. We find no support for the hypotheses that branch banking or multibank holding company restrictions affect growth. However, financial depth and the mix of financial intermediaries are strongly correlated with economic growth. Finally, the state fiscal policy variables had no significant effect on income growth.
Asymmetric Information and Demand for Money in an Overlapping Generations Economy
Authors: Wang Yong
Published: July 2021

This paper studies a pure exchange overlapping generations economy in which agents have asymmetric information pertaining to their income realizations. Such an information asymmetry introduces a role for fiat money that would otherwise be absent. This information asymmetry can also drastically alter the equilibrium properties of the analogous model with perfect information. In general, the more severe the information asymmetry, the greater the demand for fiat money.
Optimal Unemployment Insurance: A Survey
Authors: Karni Edi
Published: July 2021

Unemployment insurance improves the allocation of risk bearing at the cost of reduced incentives for work. In the past two decades, a branch of the literature has emerged that deals with the optimal design of unemployment insurance. This literature has been influenced by ideas and methods from information economics and by theories from labor economics. The result is a collection of models designed to highlight a variety of issues pertaining to the provision of optimal unemployment insurance. This paper reviews these issues, summarizes the relevant literature, assesses its accomplishments, and points out problems that require further study.
S. Charles Maurice: In Memoriam
Authors: Saving Thomas R.
Published: July 2021

S. Charles (Chuck) Maurice, long‐time member and former officer of the Southern Economic Association, died March 4, 1999, in Gainesville, Florida. He was 67 years old. Maurice is survived by his wife Niccie L. McKay, an economist in Health Services Administration at the University of Florida; two sons (S. Charles Maurice Jr. and John Michael Maurice); a daughter (Ann Maurice Cragin); eight grandchildren; and a sister, Sandy McKissick.
Measuring Market Power in Bilateral Oligopoly: The Wholesale Market for Beef
Authors: Schroeter John R. , Azzam Azzeddine M. , Zhang Mingxia
Published: July 2021

Econometric methods for assessing the degree of market power typically rely on a maintained hypothesis of price‐taking behavior on one side of the market or the other. In the analysis of bilateral oligopoly, however, one would like to leave open the question of whether buyers or sellers (or both) behave competitively while allowing for the possible exercise of market power on either side. In this paper, we address the problem of measuring market power in bilateral oligopoly. This requires that we first distinguish among three candidate equilibrium concepts: bilateral price‐taking, seller price‐taking, and buyer price‐taking. Choosing among them comes down to a test of nonnested, nonlinear, simultaneous equation models. Our application to the U.S. wholesale market for beef, characterized by high degrees of concentration among both sellers (beef packers) and buyers (primarily retail grocery chains), reveals seller price‐taking among the three candidates to be the most consistent with the data. In particular, the hypothesis of price‐taking conduct on both sides of the market can be rejected. This is a conclusion that would not have been reached had we considered monopoly conduct by sellers as the only alternative to perfect competition.
The Incidence of Deficit Finance with Imperfect Capital Markets
Authors: Ben‐Gad Michael
Published: July 2021

The purpose of this paper is to examine the possible differential welfare implications of deficit finance using a portfolio allocation model. To analyze the incidence of changing the time path of taxation in an economy with heterogeneous agents, I develop a two‐period, general equilibrium extension of work done previously to analyze the effects of taxation on risk‐taking at the individual level. Constraints on short sales of assets are introduced, and fiscal policy, changing the timing of taxation, will indirectly determine which of these constraints bind as well as alter relative tax burdens. Changes in the timing of a flat‐rate tax will also alter equilibrium asset returns, and because preferences are such that agents differ in their tolerance of risk, a Pareto frontier can be derived over a range of different levels of deficit finance.
Technology, Trade Sensitivity, and Labor Displacement
Authors: Addison John T. , Fox Douglas A. , Ruhm Christopher J.
Published: July 2021

This study examines the relationship between international trade, technology, and exposure to job displacement, using data on displaced workers as well as those at risk of job dislocation, for the two‐year sample periods 1986‐1987 and 1990‐1991. Workers employed in manufacturing industries with elevated import penetration or high shares of R&D personnel appear to have increased rates of job loss. However, the risk of job loss is materially reduced when a relatively high proportion of employees report working with computers. The opposing effects on displacement probabilities of R&D employment intensity and computer‐use carry over to the nonmanufacturing sector.
LeChatelier Effects for the Competitive Firm under Price Uncertainty
Authors: Snow Arthur
Published: July 2021

The intuition that constrained choices are less elastic as well as suboptimal is confirmed by LeChatelier's principle in economic models of optimizing behavior for environments with no uncertainty. For a competitive entrepreneurial firm facing output price uncertainty, risk preferences interact with possibilities for substituting between capital and labor in production to determine the presence or absence of LeChatelier effects for labor demanded. LeChatelier's principle holds without qualification for output supplied in the neighborhood of any long‐run equilibrium with respect to both monotone likelihood ratio improvements in the price distribution and increases in risk aversion. Global LeChatelier predictions, however, are unattainable.
An Examination of Country Member Bank Cash Balances of the 1930s: A Test of Alternative Explanations
Authors: Mounts Wm. Stewart , Sowell Clifford B. , Saxena Atul K.
Published: July 2021

Around March 1933, commercial banks began accumulating unprecedented amounts of cash. Uncertainty over deposits and loans, low interest rates relative to brokerage fees, and costly de novo capital have been used to explain this behavior. This paper employs aggregate call‐date data for country member banks in the 12 Federal Reserve districts to formally investigate the role of these factors in the accumulation. The results indicate a minimal, if any, role for these factors. The findings suggest that it was the unintended consequence of unprecedented deposit growth in the face of large scale‐related adjustment costs.
Welfare Policy: Cash Versus Kind, Self‐Selection and Notches
Authors: Singh Nirvikar , Thomas Ravi
Published: July 2021

This paper investigates second‐best allocations where the government lacks full information about consumer types, and how such allocations may be implemented through notch schemes. Thus, we provide another rationale for notches in addition to that investigated by Blinder and Rosen (1985). We use a model of Blackorby and Donaldson (1988), extending their results to more general preferences and to more general tax‐subsidy instruments (piecewise linear, rather than linear). We argue that observed policies are sometimes of this nature: In‐kind subsidies that are available only if consumption equals or exceeds a particular amount have been used in practice, in housing, and medical care.
The Effect of Dismissals Protection on Employment: More on a Vexed Theme
Authors: Addison John T. , Teixeira Paulino , Grosso Jean‐Luc
Published: July 2021

This paper presents new results on the relationship between severance pay and labor market performance for a sample of 21 OECD countries, 1956‐1984. Specifically, it evaluates Lazear's empirical argument that severance pay reduces employment and elevates joblessness. His findings are shown not to survive correction for errors in the data and the application of correct estimation procedures. Furthermore, adverse labor market consequences of severance pay are not detected in a dynamic characterization of the Lazear model. Limitations of the approach followed here are also addressed and contextualized.
Nonparametric Testable Restrictions of Household Behavior
Authors: Snyder Susan K.
Published: July 2021

This paper uses semialgebraic theory to derive nonparametric testable restrictions of Pareto‐efficient bargaining behavior within a household. These tests are analogous in form to Samuelson's Weak Axiom of Revealed Preference (WARP) and are defined over data on household‐level consumption and individual labor supplies. Thus, without observing intrahousehold division of consumption, we can nonparametrically test whether there exist nonsatiated utility functions such that household behavior is Pareto efficient. I apply these tests to data from the National Longitudinal Surveys on U.S. households and find that preferences exist that are consistent with Pareto efficiency for each household in the data set.
The Price of Alcohol, Wife Abuse, and Husband Abuse
Authors: Markowitz Sara
Published: July 2021

Alcohol consumption has been frequently linked to violence. This paper examines the direct relationship between the price of alcohol, which determines consumption, and violence toward husbands and wives. The data come from the 1985 cross section and the 1985‐1987 panel of the National Family Violence Survey. A reduced form violence equation is estimated, and individual‐level fixed effects are used to control for unobserved characteristics in the panel. Results indicate that an increase in the price of pure alcohol, as measured by a weighted average of the price of alcohol from beer, wine, and liquor, will reduce violence aimed at wives. The evidence on the propensity of an increase in the price of alcohol to lower violence toward husbands is mixed.
Un‐COLA: Why Have Cost‐of‐Living Clauses Disappeared from Union Contracts and Will They Return?
Authors: Ragan James F. , Bratsberg Bernt
Published: July 2021

For more than 20 years, unions have been trading cost‐of‐living adjustment clauses (COLAs) for other forms of compensation. Various explanations have been offered for the erosion of COLA coverage—including reduced inflationary uncertainty, lower union power, and structural shifts in the economy—but the relative importance of these and competing hypotheses remains untested. We investigate the reasons for the decline in COLA coverage using a pooled cross‐sectional, time‐series model that accounts for industry fixed effects and recognizes the multiyear nature of most union contracts. After assessing the relative importance of alternative hypotheses, we conclude with a discussion of the potential for a rebound in COLA rates.
The Effects of Operating and Capital Subsidies on Total Factor Productivity: A Decomposition Approach
Authors: Obeng K. , Sakano R.
Published: July 2021

Past studies relied on ad hoc associations to establish relationships between productivity on one hand and operating and capital subsidies on the other. This article deviates from these studies. It builds on recent research based on private cost to derive a total factor productivity formula that includes subsidy effects. It specifies an empirical model to estimate the required parameters to apply the formula. The application to urban transit systems shows that the effects of these subsidies on productivity through technical change reinforce the decline in productivity.
Economics Faculty Research at Teaching Institutions: Are Historically Black Colleges Different?
Authors: Agesa Jacqueline , Granger Maury , Price Gregory N.
Published: July 2021

This paper examines the difference in research output of economics departments at historically black colleges and universities (HBCUs) and non‐HBCUs that are teaching institutions. We also examine the causal relationship between economics faculty research and the number of an institution's baccalaureate graduates who earn doctorates in economics. Our findings suggest that economics departments at HBCUs produce less research output relative to non‐HBCUs. However, research output is equally effective in producing economics doctorates at both types of institutions. These findings suggest that a plausible way to increase the stock of black Ph.D. economists is to increase economics research at HBCUs.
The Determinants of Educational Attainment: Modeling and Estimating the Human Capital Model and Education Production Functions
Authors: Wilson Kathryn
Published: July 2021

This paper develops and estimates a theoretical model of an individual's high school graduation choice. The model incorporates the idea of a utility‐maximizing youth responding to the economic incentives associated with incremental education, as posited by the human capital literature. However, it also allows for family, neighborhood, and school characteristics to affect the process of being educated, as posited by the education production function literature. Estimation of the model, using the Panel Study of Income Dynamics (PSID) supplemented with neighborhood and school data, indicates that indeed students respond to economic incentives in making education choices; however, most of the effects of background characteristics are working through the education process rather than affecting returns to schooling.
Multinational Learning under Asymmetric Information
Authors: Jain Neelam , Mirman Leonard J.
Published: July 2021

The aim of this paper is to analyze the competition between a multinational and the incumbent firm in a foreign market under asymmetric information about demand and unobservable outputs. It is shown that the incumbent firm increases its production in the first period to signal to the multinational that the demand is low. The multinational reduces its output in the foreign market in order to signal‐jam. In addition, the multinational increases its production in the other market. However, total production of the multinational is lower. Implications for research and development expenditure by the multinational are examined.
Provider Availability, Race, and Abortion Demand
Authors: Brown Robert W. , Jewell R. Todd , Rous Jeffrey J.
Published: July 2021

Variations in the availability of abortion providers may impact the demand for abortions since greater provider availability reduces the travel cost associated with obtaining an abortion. This paper applies a fertility‐control model to estimate the responsiveness of abortion demand to travel‐cost variations using individual data from all births and abortions of women over age 20 in the state of Texas for 1993. The probability that a pregnant woman chooses an abortion appears to be sensitive to availability‐induced variations in the travel cost of abortion services. Controlling for the endogeneity of travel distance, the results suggest that pregnant women who reside in counties with longer travel distances to the nearest abortion provider have lower probabilities of aborting their pregnancies than women in counties closer to abortion providers. Simulations show that changes in travel distance will have relatively large impacts on overall abortion rates and, furthermore, that these effects vary across race. In addition, these simulations show substantial differences by race in the effects of changes in other explanatory variables.
A Standard‐Setting Agency and Environmental Enforcement
Authors: Neilson William S. , Kim Geum Soo
Published: July 2021

This paper considers an environmental regulatory agency that sets both the emissions standard and the enforcement parameters in contrast to the usual treatment in which the agency sets only one of the two. It is shown that if the agency's budget is sufficiently small, it sets the strictest possible standard and adopts a policy that minimizes noncompliance with that standard, thus legitimizing the literature that assumes this behavior on the part of the agency. In contrast, if the budget is sufficiently large, the agency can obtain its unconstrained optimum, but this optimum has too little pollution from a social perspective.
Has Leviathan Been Bound? A Theory of Imperfectly Constrained Government with Evidence from the States
Authors: Caplan Bryan
Published: July 2021

This paper develops a formal theory that combines power‐maximizing “Leviathan” political parties with well‐defined imperfections in the political process. The model implies that both parties tend to make government larger as their likelihood of electoral victory increases. Empirical tests on state‐level data confirm this prediction. Racing the Leviathan hypothesis against alternative theories of party motivation indicates that both the Leviathan and the “contrasting ideologies” views have some degree of validity.
Disability Reporting Choices by Married Couples: Evidence from Census Data
Authors: Zimmer Michael
Published: July 2021

The purpose of this paper is to analyze determinants of the decision to self‐report health impairments that limit or prevent work. Its particular focus is on joint reporting behavior by married couples, with a view toward potential interdependence of spouses' reporting decisions. The model is based on a large sample of married couples taken from the 1990 Public Use Microdata Sample of the U.S. Census. Empirical analysis is based on a simultaneous probit model of spouses' reports. Results of the analysis show evidence of an association between spouses' reports, after controlling for important background variables. The extent of association appears to be more pronounced among low earners and among older wives.
The Demand For Money: A Structural Econometric Investigation
Authors: Dutkowsky Donald H. , Atesoglu H. Sonmez
Published: July 2021

This study empirically investigates dynamic microfoundations for the conventional static money demand equation. An intertemporal substitution model with the addilog utility function yields a money demand relationship that closely approximates the double log specification. Results from previous empirical studies largely support the derived equation. Estimations with quarterly U.S. data support cointegration among real per capita M1 and consumption, and an after‐tax long‐term interest rate for the post‐1980 period. Estimated short‐run intertemporal interest rate elasticities of consumption vary from ‐0.26 to ‐0.93. Estimated long‐run elasticities of substitution between consumption and money range from ‐0.26 to ‐0.41.
Public Goods, Tax Policies, and Unemployment in LDCs
Authors: Hatzipanayotou Panos , Michael Michael S.
Published: July 2021

We build a general equilibrium model of a small open economy characterized by unemployment and producing two privately traded goods and one nontraded public consumption good. The provision of public good is financed with an income tax or an excise tax on the manufactured good or an import tariff. Within this framework, the paper examines the effects of such policies on the country's unemployment ratio and welfare, and it derives the efficiency rules for public good provision for each policy instrument. It shows, among other things, that the private marginal cost of the public good always overstates its social marginal cost in the case of income taxes and may overstate it in the case of an excise tax on the manufactured good or a tariff even if the taxed good and the public good are substitutes in consumption.
Restaurant Prices and the Mexican Peso
Authors: Fullerton Thomas M. , Coronado Roberto
Published: July 2021

Of prime interest to border economies is exchange rate performance and currency valuation. Commonly used tools for this task include purchasing power parity (PPP) nominal benchmarks, and inflation‐adjusted trade‐weighted indices. The latter have the advantage of relying on commonly available international macroeconomic data but overlook microeeonomic information that may offer additional insight to issues surrounding exchange rate policy debates. Other efforts have utilized small samples of international product price comparisons to shed light on currency valuation questions. This paper develops one such tool by repeated sampling of prices charged for identical menu items sold at restaurant franchises in El Paso, Texas, and Ciudad Juárez, Chihuahua. A battery of statistical tests indicate that the international currency value of the peso consistently differed from the exchange rate implied by the border region restaurant price ratios in 1997, 1998, and 1999.
Age Structure and the Personal Savings Rate in the United States, 1956‐1995
Authors: Thornton John
Published: July 2021

Cointegration techniques are applied to time series data on the personal savings rate and the age structure of the population in the United States over the period 1956‐1995. The personal savings rate is cointegrated with the ratios of minors and of retired persons to the working‐age population and both of these ratios had a negative and significant impact on the personal savings rate. The results support the life‐cycle hypothesis of savings.
Environmental Duties and International Harmonization of Standards
Authors: Ederington Josh
Published: July 2021

Demands by domestic industries for protection from foreign competition aided by lower standards have led to proposals to set trade barriers conditional on the environmental policies of other countries. This article shows that the threat of such environmental duties can assist in achieving global efficiency when countries cannot commit to a negotiated environmental standard. In addition, this article shows that, in a repeated game framework, the enforcement of a free‐trade agreement may require some convergence in environmental standards across countries when trade is driven by differences in such standards. However, it is also shown that it is more efficient to enforce a trade agreement by setting tariffs to partially offset differences in policy standards than to attempt to harmonize standards within environmental side agreements.
Transaction Costs and the Present Value “Puzzle” of Farmland Prices
Authors: de Fontnouvelle Patrick , Lence Sergio H.
Published: July 2021

The present study introduces a theoretical land pricing model that allows for proportional transaction costs, and a corresponding kernel regression test. The model is tested with farmland returns data for 20 individual states, and also with two aggregate U.S. level series. The constant discount rate (CDR) present value model (PVM) of farmland prices is strongly rejected. However, it is found that the behavior of land prices and rents is consistent with the CDR‐PVM in the presence of empirically observed values of transaction costs. Findings are very robust in that they apply to both individual state‐level data and the U.S. aggregate‐level series.
Estimating Asymmetric Output Cost of Lowering Inflation for Australia
Authors: Huh Hyeon‐seung
Published: July 2021

The purpose of this paper is to estimate the output cost associated with lowering inflation for Australia. The paper is particularly motivated by a strand of theoretical and empirical evidence in the literature suggesting nonlinearity in the output‐inflation relationship, namely, a nonlinear Phillips curve. To accommodate this potentially important departure from linearity, a vector autoregression (VAR) model of output, inflation, and the terms of trade is augmented with logistic smooth transition autoregression specifications. My empirical results indicate that the model captures the nonlinear features present in the data well. Based on this nonlinear approximation, the output costs for reducing inflation are found to vary, depending critically on the state of the economy, the size of intended inflation change, and whether policymakers seek to disinflate or prevent inflation from rising. This implies that inferences based on the conventional linear Phillips curve may provide misleading signals about the cost of lowering inflation and thus the appropriate policy stance.
The Effect of Recessions on the Relationship between Output Variability and Growth
Authors: Henry Ólan T. , Olekalns Nilss
Published: July 2021

This paper investigates the relationship between output volatility and growth using postwar real GDP data for the United States. We expand on recent research by Beaudry and Koop (1993), documenting the asymmetric effect of recessions on output growth. The results presented in this paper suggest that output volatility is highest when the economy is contracting. While we find that the economy expands most rapidly following a recession, this expansion is offset by the negative impact of output uncertainty.
Causality Links between Consumer and Producer Prices: Some Empirical Evidence
Authors: Caporale Guglielmo Maria , Katsimi Margarita , Pittis Nikitas
Published: July 2021

This paper reexamines the relationship between consumer and producer prices in the G7 countries (United States, Canada, Germany, France, Italy, United Kingdom, and Japan), and it improves on the existing literature in two ways. First, it takes into account causality links arising from the transmission mechanism of monetary policy, which are generally overlooked. Second, it employs the causality testing method for unstable systems recently introduced by Toda and Yamamato (1995), which results in standard asymptotics, thereby obtaining valid statistical inference. The empirical results are consistent with the conventional wisdom according to which there is unidirectional causality running from producer to consumer prices, bidirectional causality (or even no significant links) only being found when the causality links reflecting the monetary transmission mechanism are ignored.
Evaluating Monetary Policy Options
Authors: Fackler James S. , McMillin W. Douglas
Published: July 2021

We present a procedure for evaluating ex ante the effects of alternative paths of a monetary policy tool (the federal funds rate in our illustrations) on output and the price level within a variant of a widely used vector autoregressive model of the U.S. economy. This exercise is a supplement to, or even an alternative to, analysis that relies on a particular structural model. Illustrations of the method are provided by evaluating the effects of changes in the funds rate target. Additionally, the Taylor rule is used to generate target funds rates for different target inflation rates, and the effects of these are evaluated.
On the Feasibility of Unpopular Policies under Re‐Election Concerns
Authors: Chiu Y. Stephen
Published: July 2021

A common concern about political decision making is that re‐election concerns compel incumbent politicians to select policies that, although popular among the electorate, are inferior to available, less popular alternatives. Through studying a series of models, 1 find that, as long as politicians differ solely in the utility derived from holding office, there always exists an equilibrium where incumbents with strong re‐election concerns still make efficient policy choices. However, when other aspects of heterogeneity among politicians are present, incumbents with strong re‐election concerns may have the incentive to condition their decisions according to policy popularity. Suppose, for instance, some politicians are dumb in the sense that they are even more ignorant about policy efficacy than the public. To avoid being viewed as dumb, nondumb politicians (especially those with strong reelection concerns) may accept popular but inefficient policies or reject unpopular but efficient policies.
Precautionary Saving by Young Immigrants and Young Natives
Authors: Amuedo‐Doranles Catalina , Pozo Susan
Published: July 2021

This paper uses data from the 1979 Youth Cohort of the National Longitudinal Surveys (NLSY79) to explore the wealth accumulation patterns of younger cohorts as well as immigrants' and natives' precautionary saving in response to income uncertainty. We use two measures of wealth and construct a time‐varying, conditional measure of income uncertainty, instead of relying on a constant, unconditional, summary measure of income uncertainty. We use a buffer‐stock model of savings, and find that immigrants accumulate less wealth than do natives. Additionally, young natives' wealth accumulation patterns appear more responsive than those of their immigrant counterparts to income uncertainty.
Purchasing Power Parity under the Gold Standard
Authors: Hegwood Natalie D. , Papell David H.
Published: July 2021

Long‐run purchasing power parity (LRPPP), the basis of most open economy macroeconomic models, has proved difficult to back up empirically. However, there is one standout exception to the otherwise mixed results. Diebold, Hasted, and Rush (1991) are consistently cited as having found strong evidence of LRPPP by using a fractionally integrated moving‐average model whose restrictions are looser than those of traditional unit root tests. We propose structural change rather than fractional integration as a plausible behavior pattern for the data. Using the Bai‐Perron (1998) test for multiple structural change, we find mean shifts in each of the real exchange rates. When those shifts are included in the model, the speed of mean reversion is greatly improved. We assert that quick mean reversion around an occasionally changing mean provides a more reasonable representation of the data than does fractional integration.
A Model of Public Education and Income Inequality with a Subsistence Constraint
Authors: Sylwester Kevin
Published: July 2021

This paper constructs a model in which incomes do not necessarily converge under a public education system. School attendance creates an opportunity cost of foregone income that poorer agents might need. These poorer agents, unlike high‐income agents, allocate less time to schooling and so are less able to increase their human capital. However, some agents in a poverty trap might actually have higher income, at least temporarily, than do agents who do not fall into this trap. The model also shows why better public education systems can lead to more income inequality and why a gradual allocation of resources to public education may prove more beneficial than a sudden, large shift of resources.
Detrending and the Money‐Output Link: International Evidence
Authors: Hafer R. W. , Kutan Ali M.
Published: July 2021

An important policy question is whether nominal money is relatively more useful than interest rates in explaining movements in real output. Previous analyses usually rely only on U.S. data or other financially developed countries from a specific region, such as the EU. This study examines the empirical relation between money, interest rates, and output across a sample of 20 countries, including industrial countries from different regions as well as economically and financially less‐developed countries. On the basis of estimating an unconstrained, four‐variable VAR model, the weight of evidence indicates that rejecting money as a potentially informative tool in setting monetary policy is unwarranted.
The Inflation‐Output Variability Tradeoff and Monetary Policy: Evidence from a GARCH Model
Authors: Lee Jim
Published: July 2021

This paper empirically investigates the Taylor curve volatility tradeoff in light of the stochastic behavior of the conditional variances of output and inflation. Stressing structural instability between periods before and after the 1979‐1982 monetary policy regime change, I implement a bivariate generalized autoregressive conditional heteroskedasticity model to capture the output‐inflation variability tradeoff and to explore the plausible impact of a change in the federal funds rate on the two conditional volatilities. I further evaluate the impacts of anticipated and unanticipated policy actions measured by two alternative policy reaction functions—one from a vector‐autoregression‐based reduced‐form equation and another based on the Taylor rule. In addition to showing a volatility tradeoff relationship, the empirical model reveals different magnitudes of policy effects on output and inflation volatility across the two sample periods.
International Interdependence and Business Cycle Transmission between Turkey and the European Union
Authors: Sayek Selin , Selover David D.
Published: July 2021

This study investigates the economic interdependence between Turkey and the European Union (EU). The main questions addressed are (i) Do Turkish and European business cycles move together? and (ii) Are European business cycles transmitted to Turkey? This investigation is important as Turkey seeks to become a full member of the EU. Trade flows, graphs, correlations, and a principal‐components analysis are used to identify possible macroeconomic interdependence and transmissions. A structural vector autoregression (SVAR) model is estimated to determine the effects of European economic fluctuations on the Turkish economy. The SVAR includes GDP, consumer prices, money supplies, interest rates, and the exchange rate for Turkey and Germany. The investigation finds that Turkey's economy is only modestly influenced by European business cycles and is largely determined by domestic economic and political developments and various regional conflicts. The findings of this study have implications for Turkey's increasing economic integration into the EU.
Aggregating Capacity‐Limiting Separable Inputs
Authors: Li Sung Ko
Published: July 2021

The concept of separability is closely related to aggregation. Previous studies on separability are important mainly for theoretical contributions, not for empirical results. This paper provides a theoretical justification for using the maximum capacity of a subset of inputs as an aggregate index in empirical settings. The method is demonstrated with two examples, aggregating inputs within a firm and across firms.
Effects of Job Security Laws in a Shirking Model with Heterogeneous Workers
Authors: Lin Chung‐cheng
Published: July 2021

This paper explores the policy implications of job security laws. It extends Carter and De Lancey's (1997) efficiency wage model from the assumption of two types of workers to allow for infinite types of workers. One key difference between the models is that the proportion of nonshirking workers in equilibrium is an exogenous constant in their model, whereas it is an endogenous variable in this study. They find that a job security law increases the welfare of both shirkers and non‐shirkers without reducing output. In this setting, it is shown that the law may increase the welfare of both shirkers and nonshirkers at the cost of lower output, or it may result in higher output, but the welfare effect of workers is uncertain.
What Determines Public Support for Affirmative Action?
Authors: Iyigun Murat F. , Levin Andrew T.
Published: July 2021

We present a public higher‐education finance model in which demand for education can exceed supply because of indivisibilities in educational investment. In such situations, a screening mechanism—which may exhibit a selection system bias—is required for allocation. We show how changes in the education premium and the test score gap between the minority and the majority might affect political support for affirmative action. When the education premium is relatively low, the matching efficiency gains provided by affirmative action are high compared with the opportunity cost of not acquiring education, and the majority supports affirmative action. When the education premium is high, the opportunity cost of not getting educated is high relative to the matching efficiency gains provided by affirmative action policies, and the majority's support for affirmative action is weaker. In contrast, a higher test score bias has a generally ambigious effect on the majority's political support. If the test score bias is sufficiently large, however, the majority does support affirmative action.
The Economics of Suicide, Revisited
Authors: Marcotte Dave E.
Published: July 2021

Only a small fraction of suicide attempts are fatal. Nonfatal attempts might elicit resources and care from others, enhancing economic prospects for those who survive. I expand the standard utility‐maximizing model of suicide to include a nontrivial probability of survival and the possibility that the utility function may be affected by the suicide attempt. This expanded model predicts that suicide attempts are more likely when future income may be positively affected by the attempt, conditional on survival. Data from the National Comorbidity Survey show that ex post, individuals who made a suicide attempt had higher incomes than peers who seriously considered suicide but who never made a suicide attempt. Moreover, those who reported making the most serious attempts experienced the largest subsequent effects on income.
Divestiture and Its Implications for Innovation and Productivity Growth in U.S. Telecommunications
Authors: Datta Anusua
Published: July 2021

This study has sought to determine the impact of policy changes that led to the breakup of the monopoly structure of U.S. telecommunications on productivity and research activities of AT&T. A simultaneous‐equations model is used to examine the relationship between research intensity, market share, firm size, and total factor productivity (TFP) before and after divestiture. The results show that the effect of divestiture on productivity is negative but that competition has a significantly positive effect. Contrary to popular argument, competition led to significant increases in R&D investment by AT&T. The study also finds a strong and positive relationship between R&D and productivity in the postdivestiture period, marked by its absence in the predivestiture years. Scale economies remain important, indicating the industry continues to favor large firms.
Income Uncertainty and Optimal Redistribution
Authors: Kreider Brent
Published: July 2021

Implications of income uncertainty for socially efficient redistribution are examined. Counter‐intuitively, a policymaker may respond optimally to a negative utility shock in the economy by redistributing income away from those who suffered the shock. In particular, it may be welfare enhancing to redistribute income away from risk‐averse taxpayers who suffer an increase in the variance of their earnings. The direction of redistribution following an increase in uncertainty depends on the degree to which absolute risk aversion declines with consumption. A condition is provided for when an efficient policy redistributes away from those facing the greatest uncertainty.
Profiting from Smokers*
Authors: Bulow Jeremy
Published: July 2021

In the late 1990s more than 40 state attorneys general sued the major tobacco companies for the excessive medical costs imposed on the states by smoking. In November 1998 this litigation was concluded with the companies agreeing to pay approximately $9 billion a year, to be adjusted for inflation, in damages and lawyers' fees. The deal was incredibly corrupt; had it been made in any other industry it would surely have been declared illegal. And the tobacco companies were not the only bad guys in this story. The trial lawyers, the politicians, and even the public health officials and antismoking advocates who believed that any means were appropriate to achieve their desired ends of massive fees, political victories, and higher cigarette prices were the ones who most abused the system.

W. Kip Viscusi, an economist and professor at Harvard Law School, focuses on the merits of the state tobacco litigation, principally whether the companies were guilty of inadequately communicating the risk of their products to smokers, which links to youth smoking, and the economic damages the states suffered because of smoking. Viscusi, who has worked on these issues for many years, was hired by Philip Morris to testify on these two topics in the litigation. Nevertheless, he makes a credible case on both issues. Viscusi is substantially less interested in the actual structure and implications of the negotiated deal and spends only a limited amount of time exploring the policy implications of today's tobacco politics, though he does spend a concluding chapter advocating improved information about tobacco for smokers.
Economic Science: An Experimental Approach for Teaching and Research
Authors: Holt Charles A.
Published: July 2021

Economics experiments have been used to study theories and policies that are often difficult to evaluate with data from naturally occurring markets. This article is a selective summary of my work in the main areas of experimental economics: markets, individual decisions, games, and public choice. The discussion pertains both to scientific discoveries and teaching innovations.
Are Factor Substitutions in HMO Industry Operations Cost Saving?
Authors: Okunade Albert A.
Published: July 2021

Past research on the potentials for cost‐saving scale and scope economies in multiproduct HMO operations in the United States are incomplete in their economics of the underlying technology structure. This article exploits the translog cost model estimates of all past studies of HMO production to infer the extent to which pairwise factor substitutions (e.g., administrative services vs. medical care resources, e.g., hospital days, physician services) suggest potential for cost savings in groups and independent practice associations. Given the industry's nonhomothetic production over a 20‐year period, the conceptually valid Morishima elasticity measure at constant output reveals limited cost‐saving potentials from factor interchange and input demands. These opportunities differ for groups and IPAs across Medicare and non‐Medicare products. My findings add a timely and significant dimension to understanding potential cost savings in HMO operations. Policy suggestions and cost implications are rationalized in light of the declining Medicare HMO enrollment and recent changes in factor input prices.
Social Security Outcomes by Racial and Education Groups
Authors: Liu Liqun , Rettenmaier Andrew J.
Published: July 2021

This article evaluates the Social Security outcomes for different racial and education groups. Outcomes differ across groups due to the interactions between group‐specific mortality risks and lifetime earnings, the benefit formula, and the benefit package, which includes life insurance, spousal benefits, and retirement pensions. Based on either the rate of return or present value, individuals with less education fare better than those with higher educations. This holds even before accounting for preretirement survivors' benefits, which, when accounted for, reinforce this finding. Single whites do considerably better than single blacks when outcomes are compared by internal rates of return. Accounting for survivors' benefits reduces regressivity, but blacks continue to fare worse than whites. In contrast, based on present values, whites generally do worse than their respective counterparts.