Testing for the utility maximization hypothesis of consumers using the revealed preference theory

The objective of this paper is to test the utility maximization hypothesis in various Western countries using the non-parametric approach based on the revealed preference theory. The data employed are annual time series covering the period 1964 to 1992 of per capita consumption and prices from Germany, France, the United Kingdom, Spain, Sweden and Canada. The results indicate that all sample countries are consistent with the weak, strong and generalized axioms of the revealed preference theory. This implies that the observed behaviour of these consumers is consistent with the condition of utility maximization or, in other words, that the hypothesis of stability of individual preferences is accepted.     

On-the-Job Training, Immigration Reform, and the True Wages of Native Male Workers

This study measures the Immigration Reform and Control Act's (IRCA) impact on the "true" earnings of native workers. True earnings include observed wages and compensation received in the form of on-the-job training (OJT). Using 1983–1992 NLSY data, we present evidence suggesting IRCA reduced the true wages of male natives most likely to be mistaken as unauthorized. Our findings suggest that Mexican Americans suffered the largest decline in post-IRCA OJT. It appears then that antidiscrimination policies following recent immigration reform have not fully protected some U.S. natives against unintended IRCA-related employment discrimination.     

ON THE FEASIBILITY OF A ONE-SPEED OR MULTISPEED EUROPEAN MONETARY UNION

This paper addresses two questions: (1) Is a twelve-country monetary union in Europe feasible? (2) Can monetary union be achieved at multispeed, i.e., with a small group of countries going first, and later admitting the others? After examining several politico-economic arguments concerning problems of feasibility of the union, we conclude with a fair amount of skepticism concerning the multispeed idea. We show that the final result of the process of monetary integration is dependent upon the number of countries that initiate it. Our discussion of feasibility sheds some light on the political economy of the recent (Fall 1992) turmoil in the monetary system of Europe.     

The Time Variation of Risk and Return in the Foreign Exchange and Stock Markets

This paper attempts to determine whether the fluctuations of conditional first and second moments—which are observed for many assets—are consistent with the Sharpe-Lintner-Mossin capital asset pricing model. We test the mean-variance model under several different assumptions about the time variation of conditional second moments of returns, using weekly data from July 1974 to December 1986, that include returns on a portfolio composed of dollar, Deutsche mark, sterling, and Swiss franc assets, together with the U.S. stock market. The results indicate that estimated conditional variances cannot explain the observed time variation of risk premia.     

Nonoptimality of the Friedman Rule with Capital Income Taxation

This paper studies the efficient taxation of money and factor income in intertemporal optimizing growth models with infinite horizons, transaction costs technologies, and flexible prices. Second‐best optimality calls for a positive inflation tax and a nonzero capital income tax when there are restrictions on taxation of production factors or profits/rents. Our cases of nonoptimality of the Friedman rule—which differ from those of Mulligan and Sala‐i‐Martin (1997) and extend substantially those of Schmitt‐Grohè and Uribe (2004a) —follow from the violation of the Diamond and Mirrlees (1971) principle on production efficiency.     

International Evidence on the New Keynesian Phillips Curve Using Aggregate and Disaggregate Data

We present a unique empirical analysis of the properties of the New Keynesian Phillips Curve (NKPC) using an international data set of aggregate and disaggregate sectoral inflation. Our results from panel time‐series estimation clearly indicate that sectoral heterogeneity has important consequences for aggregate inflation behavior. Heterogeneity helps to explain the overestimation of inflation persistence and underestimation of the role of marginal costs in empirical investigations of the NKPC that use aggregate data. We find that combining disaggregate information with heterogeneous‐consistent estimation techniques helps to reconcile, to a large extent, the NKPC with the data.     

Designing Intergovernmental Fiscal Relations: Some Insights from the Recent Italian Reform

During the last decade, the Italian system of intergovernmental fiscal relations has been involved in a radical process of reform that is still under way. The reform has assigned Regions new taxing powers and has introduced a new system of interregional transfers. This paper provides a review of the recent reform and offers some tentative answers to the issues still open, relying on a series of simulations and projections. A number of conclusions have been reached. First, when the long‐run performance of the new financing systems is investigated, regional resources may no longer be adequate to meet future health needs. Second, the incentives for active tax policies seem either to prove too weak or even to cause undesirable results. Finally, the complete devolution to the Regions of some significant public expenditure functions risks strengthening the polarisation of financial flows between the Northern and Southern Regions in the long run.     

Decentralized Investment Management: Evidence from the Pension Fund Industry

Using a unique data set, we document two secular trends in the shift from centralized to decentralized pension fund management over the past few decades. First, across asset classes, sponsors replace generalist balanced managers with better‐performing specialists. Second, within asset classes, funds replace single managers with multiple competing managers following diverse strategies to reduce scale diseconomies as funds grow larger relative to capital markets. Consistent with a model of decentralized management, sponsors implement risk controls that trade off higher anticipated alphas of multiple specialists against the increased difficulty in coordinating their risk‐taking and the greater uncertainty concerning their true skills.     

FIRM‐LEVEL DETERMINANTS OF POLITICAL INFLUENCE

This paper uses a large cross‐country survey of business firms to assess their influence on government policies. When controlling for endogeneity, we find that such an influence is associated with larger firms and to a lesser extent with government ownership, but not with the degree of competition. We also find that firms' perception of being politically influential is enhanced with the country's level of institutional quality.