Taxes and female labor supply

The Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986 changed the U.S. income tax structure in a dramatic fashion. In particular, these two reforms reduced the marginal tax rates for married households. In this paper I investigate what part of the rise in labor force participation of married women between 1980 to 1990 (a rise of 13 percentage points) can be accounted by the changes in taxes. I build an heterogeneous agent model populated by married households. Households differ by age and educational attainment levels of their members and decide whether the second earner, the wife, should participate in the labor market. I select parameter values so that the model economy is consistent with the 1980 U.S. economy in terms of income tax structure, wages (skill premium and gender gap), marital sorting (who is married with whom), and female labor force participation. Using counterfactual experiments I find that 20–24 percent of the rise in married female labor force participation is accounted for by the changes in the income tax structure. Changes in wages account for 62–64 percent, and changes in marital sorting account for 14–16 percent of the rise in the participation rate of married women.     

Pricing-to-Market: the Japanese Experience with a Falling Yen and the Asian Crisis

The paper examines whether Japanese exporters changed their strategic pricing behavior as a result of the profit squeeze of the late 1980s. It shows that shocks such as the end-of-bubble, the prolonged yen depreciation, and the Asian crisis affected export prices. These effects, however, are too small to change the long-run equilibrium relation between sectoral export prices and their determinants. In particular, results suggest that Japanese exporters are not using the depreciation of the yen to gain market share.     

A general impossibility result on strategy-proof social choice hyperfunctions

A social choice hyperfunction picks a non-empty set of alternatives at each admissible preference profile over sets of alternatives. We analyze the manipulability of social choice hyperfunctions. We identify a domain D^λ of lexicographic orderings which exhibits an impossibility of the Gibbard–Satterthwaite type. Moreover, this impossibility is inherited by all well-known superdomains of D^λ. As most of the standard extension axioms induce superdomains of D^λ while social choice correspondences are particular social choice hyperfunctions, we are able to generalize many impossibility results in the literature.     

Nonlinear Alternatives to Unit Root Tests and Public Finances Sustainability: Some Evidence from Latin American and Caribbean Countries*

We analyse the sustainability of government debt for Latin American and Caribbean countries employing unit‐root tests with nonlinear alternative hypotheses and examine the robustness of our results against those from unit‐root tests with breaks and threshold nonlinearities. We show that, in general support for sustainability substantially improves when nonlinear mean reversion is taken into account. We also find that the results obtained from applying various tests with nonlinear alternatives, although broadly consistent, are not identical. This suggests that reliance on a single unit‐root test for assessing fiscal policy sustainability may be misleading.     

Does the worldwide shift of FDI from manufacturing to services accelerate economic growth? A GMM estimation study

We examine the effect of manufacturing and service FDI (foreign direct investment) on their own sector growth, the spillover to the other sectors and the overall economy in host countries. We identify significant sectoral and inter-industry spillover effects with various data classifications and types of FDI flows. Evidence reveals that growth effect of manufacturing FDI operates by stimulating activity in its own (manufacturing) sector and is prevalent in Latin America-Caribbean, in Europe-Central Asia, middle to low-income countries and economies with large industry share. A surge of service FDI is likely to spur growth in service industries but hurt activity in manufacturing industries. Financial service FDI enhances growth in South-East Asia and the Pacific, high income countries and service-based economies by stimulating activity in both manufacturing and service sectors. However, nonfinancial service FDI drains resources and hurts manufacturing industry in the same group of countries. We conclude that a shift from manufacturing to service FDI is likely to lead to deindustrialization in certain regions and types of economies if this shift is spearheaded by nonfinancial FDI.     

An Allocation Rule with Wealth-Regressive Tax Rates

We introduce a public good allocation rule whose direct implementation by asking agents their endowments leads to Nash equilibrium outcomes—always Pareto dominating voluntary contributions outcomes. Although the Nash equilibrium allocations induced by this rule are not Pareto optimal in general, they are so in two-person economies.     

Are Southern‐poor Countries’ Governments more Profligate than their Northern‐rich Counterparts? Fiscal Criteria and Impulse Responses

This study examines the health of public finances in different geographical regions by emphasising the discrepancies in North versus South and rich versus poor countries. The last decade's debt and deficit figures depicting a general fiscal consolidation across regions and income levels show signs of worsening. When the fiscal criteria are adjusted for cyclical factors, fiscal pressure appears in most countries since the end of the 1990s, but has been more persistent in poor countries, and in Asia. The dynamics of governments’ reaction to debt accumulation reveals, however, that most regions exhibit consistent anti‐debt policies to various degrees. The exception is the Latin American and Caribbean region where results suggest a lack of debt‐fighting policies. Among income categories, rich countries generate the highest primary surpluses when confronted with debt accumulation.     

Why Have Corporate Profits Declined? An International Comparison

The paper compares the trends and determinants of US profits with those of Japan, Germany, and Canada in a model of pricing-to-market in the export and domestic markets. It is found that during the 1970s increasing unit production costs lowered profits in all countries. After 1980, cost factors still affected profits except in the USA where lower real import prices depressed profits. It is shown that a currency appreciation hurts US profits three times more than Japanese profits via the imported inputs channel. This finding may explain why an overvalued currency is sustainable for a longer period in Japan than in the USA.     

Crises, portfolio flows, and foreign direct investment: An application to Turkey

We analyze how financial and economic crises affect the relation between the components of capital flows and their determinants in an emerging economy. Our results suggest that the composition of capital flows matters, crises can explain the volatility of portfolio flows and foreign direct investment, and modeling them as endogenous breakpoints improves the results considerably. By using data from the Turkish economy, we estimate these breakpoints together with the parameters of the model and find that they correspond to international and domestic crises that hit the country. Although both components are affected by similar crises, direct investment reacts strongly to the domestic crisis, while portfolios flows are more sensitive to global financial conditions. Breaks also have an effect on the significance and sign of determinants of each type of international investment. Evidence indicates changes in all coefficients in both investment types and suggests that analyses assuming parameter constancy lead to misleading results if they ignore the influence of endogenous breaks.