Discriminating Among Alternative Theories of the Multinational Enterprise

Recent theoretical developments have incorporated endogenous multinational firms into the general–equilibrium model of trade. One simple taxonomy separates the theory into "vertical" models, in which firms geographically separate activities by stages of production, and "horizontal" models, in which multiplant firms duplicate roughly the same activities in many countries. The authors nest a horizontal and a vertical model within a hybrid (unrestricted) "knowledge–capital model" and estimate the specifications with data on US foreign direct investment activity. In the nested econometric tests, the data sample cannot distinguish statistically between the unrestricted model and the restricted horizontal model, indicating that the latter captures virtually all of the determinants of FDI. The tests overwhelmingly reject the vertical model.     

Deficit financing,liquidity, and the government budget constraint

This article presents a macroeconomic model in which government deficits are bond financed and the stock of bonds may affect both expected income and liquidity. If either of these effects exists, then comparative statics analysis requires the government budget to be balanced. Temporary divergences from a balanced budget and changes in the maturity structure of the government debt may be analyzed in terms of changes in the stock of bonds. It is shown that traditional fiscal and monetary policies may have a perverse effect; that to ensure effective policy, deficit financing and open market operations should be avoided; and that only policies involving a balanced budget or the financing of deficits or surpluses through changes in the stock of money should be undertaken.     

Taxation and the stock market valuation of capital gains and dividends: Theory and emphirical results

Dividends seem to be more heavily taxed than capital gains. Why then do corporations pay dividends rather than repurchasing shares or retaining earnings? Either corporations are not acting in the interests of shareholders, or else shareholders desire dividends sufficiently for nontax reasons to offset the tax effect.In this paper, we measure the relative valuation of dividends and capital gains in the stock market, using a variant of the capital asset pricing model. We find that dividends are not valued differently systematically from capital gains. This finding is consistent with share price maximization by firms but inconsistent with the fact that most shareholderspay a heavier tax on dividends.We also show that the relative value of dividends provides an indirect measure of a marginal Tobin's q. The measured value of dividends relative to capital gains tends to be higher during prosperous periods, as is consistent with this interpretation. We hope that this time series on a marginal Tobin's q will prove to be useful in forecasting the rate of investment.     

Money disillusion and stagflation

In the conventional income-expenditure model with rigid wages, the aggregate supply curve is upward sloping. Increases in demand therefore imply increases in real output and employment. We demonstrate here that this conclusion depends on the form of money illusion implied by the rigid wage assumption. If we assume instead that labor supply is more sensitive to price increases than to wage increases, the aggregate supply curve is negatively sloped, and the conventional policy multipliers are thereby reversed. In the second section, we show that this result also follows if labor supply depends on the expected real wage.     

Profit inefficiency of Indian farms: A system approach

This article attempts to measure the level of profit inefficiency of Indian farms using a stochastic profit function. In the process, the degree of misallocation of inputs and nonoptimal supply of output is also estimated. Likelihood ratio tests allow division of total observations into two groups-large and small farms. Results indicate that both groups are profit-inefficient due to misallocation of inputs and undersupply of output. However, small farms are less profit inefficient than their larger counterparts. Within each group relatively larger farms are less inefficient.The editor for this paper was Lennart Hjalmarsson.     

Delaying integration of immigrant labor for the purpose of taxation

Delayed integration (DI) is a rule for taxing migrants. It requires that immigrants be taxed in the host country only after some period of transition. Conversely, emigrants are released from the obligation to pay taxes only after a certain period. DI is an alternative to the Employment Principle and the Home-Country Principle. The former governs the international taxation of labor. The latter is a close substitute for the Nationality Principle, on which US tax law is based. The paper studies DI in a setting which allows one to trade off the efficiency costs of distortionary taxation and of wasteful government.     

Monotonicity of Rank Statistics in some Non–parametric: Testing Problems

For some non–parametric testing problems (one–sided two–sample problem, k –sample trend problem, testing independence against positive dependence) a partial ordering, denoted by ≥, over the alternatives is defined. This partial ordering expresses the strength of the deviation from the null–hypothesis. All familiar rank tests turn out to become more powerful under "increasing" alternatives; that is, all familiar rank statistics preserve the ordering stochastically in samples whenever it is present between underlying distributions. As a tool, the sample equivalence of ≥ is introduced as a partial ordering over pairs of permutations. Functions, defined on pairs of permutations, which preserve this ordering are studied.