TAX REFORM

After brief individual presentations, panelists discuss among themselves and with the audience a broad spectrum of issues regarding various taxes and tax reform proposals. The discussion includes such issues as privatizing Social Security and Medicare, eliminating income tax withholding, and the merits and demerits of income taxes, consumption taxes, value added taxes, sales taxes, and taxes on resources that have an inelastic supply. One panelist relates his recent experiences using his tools as an economist to deal with tax and related issues as a current member of the Canadian Parliament. Another cites practical problems of implementing tax reform from his long experience advising governments, especially in Latin America. A major focus of the exchange of views is on public choice problems involved in passing and implementing a so-called flat tax. However, the discussion also deals with economic efficiency and equity considerations and with nearly all other types of taxes. The discussion includes not only the impact on the country within which tax reform occurs, but international implications, as well.     

The Effect of Sequential Information Arrival on Asset Prices: An Experimental Study

A complete understanding of security markets requires a simultaneous explanation of price behavior, trading volume, portfolio composition (ie., asset allocation), and bid-ask spreads. In this paper, these variables are observed in a controlled setting—a computerized double auction market, similar to NASDAQ. Our laboratory allows experimental control of information arrival—whether simultaneously or sequentially received, and whether homogeneous or heterogeneous. We compare the price, volume, and share allocations of three market equilibrium models: telepathic rational expectations, which assumes that traders can read each others minds (strong-form market efficiency); ordinary rational expectations, which assumes traders can use (some) market price information, (a type of semi-strong form efficiency); and private information, where traders use no market information. We conclude 1) that stronger-form market models predict equilibrium prices better than weaker-form models, 2) that there were fewer misallocation forecasts in simultaneous information arrival (SIM) environments, 3) that trading volume was significantly higher in SIM environments, 4) and that bid-ask spreads widen significantly when traders are exposed to price uncertainty resulting from information heterogeneity.     

Effects of Shifting Saving Patterns on Interest Rates and Economic Activity

Individuals in the United States consistently do most of their saving through financial intermediaries, but over time there have been and continue to be major shifts in people's reliance on specific kinds of intermediary institutions. This paper assesses the potential effects on interest rates, and via interest rates (and asset prices and yields more generally) on nonfinancial economic activity, of four specific shifts in saving behavior: additional pension contributions financed by individuals, additional pension contributions financed by businesses, additional purchases of life insurance by individuals, and additional deposits in thrift institutions by individuals. The paper's results indicate that such shifts, in plausible magnitudes, would have significant effects not only on interest rates and asset-liability flows but also on both the level and the composition of nonfinancial economic activity. In particular, although the specific effects differ from one shift to another, each would disproportionately stimulate capital formation in comparison to other forms of spending.     

Factors Related to Employees’ Desire to Join and Leave Unions

Regression analyses based on a sample of 3372 nonunionized and unionized employees showed that, while the desire to join a union is associated with a wide range of work attitudes, perceived company performance, and facets of satisfaction, one's desire to leave one's union is associated with a narrow range of economic concerns. Implications of the findings are discussed in light of the declining unionization rate in the United States.     

Crosscurrents in Workers Participation

As I contemplate developments in recent years relating to participation in management, I am impressed by the uncertainties, the shifting tides of thought, the atmosphere of experimentation. At the level of participation theory, there is more rather than less doubt. A few years ago in the United States, optimistic theories like those of McGregor and Likert regarding workers needs and desires for self-actualization seemed to be sweeping the field; today they are regarded as psychologically inadequate and faulty. In England the theory of joint consultation is confronted with something of a polarization - either toward apathy or toward codetermination. In Israel the ideology of participation, derived originally from socialist theory, has been subjected to increasing challenge from pragmatic considerations of efficiency and profitability. Profit-sharing plans, after a hundred years of experience and a widening acceptability, do not necessarily entail increased worker participation. At the level of practice, the dominant note once again is uncertainty rather than a clear progression toward either success or failure. Neither the Scanlon Plan in the US nor the Glacier Metals experiment in England have generated many followers. Joint consultation schemes appear generally to have declined in number. In Israel Koor experiments in joint management at the plant level have frittered away. Participation has not even been seriously tried in Australia. Reports from Yugoslavia and Germany, where participation programs have been most fully developed, raise questions about the impact of participation on the productivity and efficiency of the enterprises involved, as well as the degree of involvement of workers. On the other hand, there are some positive currents. The spread of collective bargaining to the local level in England and other European countries, the rising interest in productivity bargaining, the absorption of joint consultation committees by unions - all point in the direction of more worker participation in management, although the model may be one of bargaining rather than integration. Out of these crosscurrents we can distinguish some of the main problems confronting the advocates of greater workers participation in management:

• 1 How to persuade managers that their professional interests are best served by cooperating, if not taking the lead, in different types of participation schemes.
• 2 How to convince workers that “participating” is worth the effort, and how to educate them in various forms of the process.
• 3 How to involve worker representatives in both administration and policy-making on a basis other than bargaining that will not estrange them from their constituents.

Resolution of these problems will depend in part at least on recognition that participation is a multi-dimensional process, that different types of participation may work better with regard to different issues or subjects (depending on requirements of technical knowledge and time), and that participation expectations and arrangements may vary with the different levels of an enterprise.     

THE BEHAVIOR OF U.S. SHORT-TERM INTEREST RATES SINCE OCTOBER 1979

Short-term interest rates in the United States have been “too high” since October 1979 in the sense that both unconditional and conditional forecasts, based on an estimated vector autoregression model summarizing the prior experience, underpredict short-term interest rates during this period. Although a nonstructural model cannot directly answer the question of why this has been so, comparisons of alternative conditional forecasts point to the post-October 1979 relationship between the growth of real income and the growth of real money balances as closely connected to the level and pattern of short-term interest rates. This finding is consistent with the authors' earlier conclusion, based on analysis of a small structural macroeconometric model, that the high average level of interest rates has been due to a combination of slow growth of (nominal) money supply and continuing price inflation, which together have kept real balances small in relation to prevailing levels of economic activity.     

Globalization from Below: The Ranking of Global Immigrant Cities

Immigration to major cities is an important dimension of cultural globalization, one that has been largely ignored in the global cities literature. Rates of immigration to major world cities are an important indicator of global city status and should be included in determining urban hierarchy indexes. Our study considers immigration in more than 100 metropolitan areas, using data from national censuses from more than 50 countries. We rank major cities of immigration and compare them to well‐known global city hierarchies. Using immigration data, we create an urban immigrant index. The index considers four factors of immigration: (1) the percentage of foreign‐born, (2) the total number of foreign‐born, (3) the diversity of the foreign‐born stock, and (4) whether immigrants are from neighboring countries or non‐neighboring countries. This is the first time that an international urban immigrant data set and index have been created. The study explains the empirical challenge of acquiring comparable international metropolitan data and the limits of this research. Some of the cities that rank highly in the index are commonly cited as world cities (London, New York and Frankfurt); others such as Toronto, Amsterdam and Dubai seldom appear so highly ranked. L’Immigration vers les grandes villes est une dimension importante de la mondialisation culturelle, dimension largement ignorée dans la littérature sur les villes planétaires. Les taux d’immigration vers les grandes villes mondiales sont un indicateur significatif du statut de ville planétaire et devraient être pris en compte pour établir des répertoires de hiérarchie urbaine. Cette étude, qui couvre l’immigration dans plus de cent zones métropolitaines, utilise les données de recensements nationaux provenant de plus de 50 pays. Elle classe les principales villes d’immigration et les compare aux hiérarchies de villes planétaires reconnues. A partir des données sur l’immigration, est créé un répertoire des immigrants urbains, lequel se réfère à quatre facteurs d’immigration: (1) le pourcentage néà l’étranger, (2) l’effectif total néà l’étranger, (3) la diversité de la population née à l’étranger et (4) si les migrants viennent de pays voisins ou non. C’est la première fois qu’un fichier de données et un répertoire d’immigrants urbains internationaux sont créés. L’étude expose le défi empirique pour récupérer des données métropolitaines internationales comparables, ainsi que les limites de cette recherche. Certaines des villes placées en tête du répertoire sont fréquemment citées comme villes mondiales (Londres, New York et Frankfort), d’autres comme Toronto, Amsterdam et Dubaï apparaissent rarement à ce niveau de classement.