U.S. States,the Medicaid Program,and Tax Smoothing

This paper tests the tax smoothing theory by focusing on its implication that a change in permanent government spending should result in an equal sized change in the tax rate. The effect of Medicaid, a state administered, federal and state funded medical insurance program for the poor, on state tax rates is investigated. The Medicaid program provides a natural experiment for this test as states are required to cover certain groups in order to receive federal matching money. Additionally, during the 1980s, a series of federal mandates greatly increased state Medicaid expenditures. Two stage least squares is used on a panel of U.S. states (1978-1994) to test whether changes in permanent state Medicaid expenditures resulted in equal sized tax rate changes. Tax smoothing as a positive theory of state government behavior is rejected. Additionally, it is found that this rejection cannot be attributed to the stringency of balanced budget rules.     

Unit Root Tests,Persistence, and the Unemployment Rate of the U.S. States

In this paper, we investigate the existence of infrequent shocks and the degree of persistence of U.S. state unemployment over the period 1976-2004. We first apply individual Lagrange multiplier (LM) unit root tests and fail to reject the hysteresis hypothesis in forty states. When two changes in level are incorporated, we again fail to reject the hysteresis hypothesis in forty states. Since individual unit root tests normally lack power, we employ the recently developed panel LM unit root tests with up to two changes in level. Only in this case are we able to reject the joint unit root hypothesis in favor of regime stationarity. Computation of half-lives through impulse-response functions indicates the high degree of persistence of U.S. state unemployment. These results contrast with the common belief among scholars that U.S. state unemployment is closer to the natural rate paradigm than to the hysteresis paradigm.     

Pollution and the firm Robert E. Kohn Edward Elgar, 1998, 251 pp.

The book, Pollution and the Firm, by Robert E. Kohn, provides a detailed and nearly definitive look at the application of Pigouvian taxation applied to competitive polluting firms in a static, general equilibrium framework. The reader is offered the most thorough examination of how the firm's long-run scale of output is related to the activities of pollution abatement and avoidance of which this reviewer is aware. While the reader would be advised to treat with skepticism some of the results of the models involving uncertainty, the overall set of models offers an excellent set of derivations and conclusions. Any student of firm-generated externalities would gain by exposure to this book.     

International trade and the U.S. automobile industry: Current research, issues, and questions

This paper has dual goals. On the one hand, it attempts a review of recent econometric work on the U.S. automobile industry. Three studies of this industry are reviewed, compared, and contrasted. These are studies by Koujianou Goldberg [Koujianou Goldberg, P., 1993, U.S. trade policy implications of a new approach to modelling the demand for automobiles, mimeo (Princeton University)], Feenstra and Levinsohn [Feenstra, R. and J. Levinsohn, 1994, Estimating markups and market conduct with multidimensional product attributes, Review of Economic Studies, forthcoming] and Berry et al. [Berry, S., J. Levinsohn and A. Pakes, 1994, Automobile prices in market equilibrium, Econometrica, forthcoming]. On the other hand, a number of current policy issues facing the industry are also reviewed. These issues include the Voluntary Export Restraint applying to exports from Japan, the NAFTA, anti-dumping law, and industry globalization. The paper provides a broad overview, then, of econometric and policy issues as they relate to the U.S. automobile industry.     

Money,income, and exchange rate regimes: Evidence from the U.K.

This study examines the money-income correlation in the U.K. using monthly data over both fixed and flexible exchange rate regimes. Most previous studies find unidirectional causality running from income to money. The results presented here indicate that money and income are independent over the fixed rate period, while unidirectional causality runs from money to income over the flexible rate period. There are two major reasons for the difference between the results reported here and those provided by other studies. First, unlike the current study, previous studies employing U.K. data have tested for Granger causality using bivariate or trivariate tests which suffer from an omitted variables bias. Second, unlike many previous studies, the current study does not mix data from different exchange rate regimes.