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THE PRESENT STUDY is an attempt to make a systematic analysis of the short-run determinants of international travel flows by specifying and estimating a complete world travel model. International travel is similar to international trade: it can be described by a system of bilateral and multilateral relationships in which an import of foreign travel services by one country corresponds to an export of such services by another country. Thus, the structure of the world travel model presented in this study is to a large extent similar to the structure of existing world trade models.1 General conceptual problems that are met in specifying such models have already been discussed in the economic literature and will not be reviewed here.2 The present model can be employed either for forecasting for one or two years ahead the foreign travel expenditures and the receipts from foreign visitors of certain countries or to analyze the effects of certain policy changes on international travel. Forecasts for 1972 and estimates of the effects of the changes in exchange rates that occurred in 1970 and 1971 are presented in Appendix II.
THE FACT THAT INSTABILITY in the export markets of under-developed countries poses grave economic and social problems for these countries is now widely recognized. Each primary producing country can do little, individually, to influence its export and import prices expressed in foreign currencies. However, it is generally maintained that each country can adopt domestic contracyclical monetary and fiscal policies to insulate, to a large extent, its economy from the adverse effects of such instability. In view of the importance of government transactions in the total economic activity of most underdeveloped countries, and because of the lack of well-organized and integrated monetary systems, the responsibility for formulating and implementing public contracyclical policies will rest primarily on the fiscal authorities. The problems and limitations of monetary policy in underdeveloped countries have been discussed widely, but little attention has been given to the difficulties which are likely to arise in the application of contracyclical fiscal policy. The objective of this paper is to analyze the role of such policy in underdeveloped export economies, and to use the budgetary experience of Ceylon in the period from 1948 to 1957 to illustrate some of the difficulties which may be encountered in its adoption and operation.
Inflation affects individuals and income classes in many ways—as consumers, taxpayers, wage earners, savers, asset holders, lenders, borrowers, and so forth. Because of this multiplicity of influences, it is difficult, and perhaps impossible, to assess the total economic impact of inflation. For this reason, empirical studies have limited themselves to analyzing the impact of inflation on individuals or income classes in their roles as consumers, savers, or wage earners. This partial approach does not answer the question of whether the total impact of inflation is or is not beneficial to individuals in particular income classes, but it does provide interesting information that can be useful for policy purposes. This paper will follow this partial approach and analyze the impact of inflation on individuals in connection with the tax treatment of interest paid or received in the United States.
MITSUO SATO and RICHARD M. BIRD *
IT IS WIDELY RECOGNIZED that the most efficient method of evaluating the role of money in economic activity is by estimating a complete econometric model in which the financial sector is represented in some detail.1 Because estimation of these models is time consuming and difficult, however, a number of simple, “short-cut” methods have been proposed and used in recent years. Three of these methods in particular have achieved considerable prominence. One method involves relating income to money in the current and earlier periods (years or quarters). These regressions are usually run in level or first difference form.2 A second method is to run regressions of consumption against money and autonomous expenditures.3 This approach has several variants: alternative definitions of money and autonomous expenditures may be used; money and autonomous expenditures may be used together or separately; and, finally, one may experiment with a range of lag patterns for the two variables. Essentially, this particular test is intended to compare the relative efficiency of money (representative of a version of the Quantity Theory) and autonomous expenditures (representative of Keynesianism) in predicting consumption. A third method is to run regressions of income against an indicator of monetary policy and an indicator of fiscal policy.4 This method is not too dissimilar to the second one, in that it also represents a test of some variant of the Quantity Theory against Keynesianism. The difference is that Keynesianism here is represented by budgetary policy rather than expenditure in general.5 The paper presents the results for 17 developed countries of the first two approaches mentioned above.6 Section I deals with the first approach, Section II deals with the second approach, and Section III summarizes the main results of the paper.
The sensitivity (i.e., elasticity and built-in flexibility) of the U. S. individual income tax to changes in national income is of great interest to researchers and policymakers. However, the direct measurement of this sensitivity—that is, the measurement obtained from time-series observations of the relevant variables—has always been difficult, and even at times impossible, because changes in the legal structure of the tax have been too frequent to provide enough observations that relate to the same legal structure to allow statistically significant coefficients to be determined. This was particularly true in the United States before 1954, when the rates were changed frequently; it has also been true since 1963, when important changes occurred in rates, personal exemptions, deductions, and other features. In contrast, during the period between 1954 and 1963, hardly any significant statutory changes occurred in the tax.
Evans (1991) has demonstrated that Blanchard’s (1985) finite-horizon model obeys approximate Ricardian equivalence. This paper shows th at this result is determined largely by an unrealistic assumption that labor income grows monotonically over the consumer’s entire lifetime. With more realistic lifetime earnings profiles, the effects of government debt on the real interest rate and the capital stock are considerably larger. In particular, leaving aside the effects of distortionary capital taxation, the extended model with liquidity constraints predicts that real interest rates would decline by about 150–200 basis points if government debt were eliminated completely in all countries of the Organization for Economic Cooperation and Development (OECD).
During the past two or three years, the center of attention on the underground economy has gradually moved from the pages of newspapers into the pages of scholarly reviews. Reflecting this scholarly interest, several books have been published1 and conferences have been organized. The reason for studying the underground economy is self-evident because of the possible influence on economic policies of the distortion of official estimates of such macroeconomic variables as the national accounts, the employment rate, and the rate of inflation if the underground economy is large.2
In his comment1 on my 1983 paper,2 Acharya lists five problems relating to the use of what he calls the “Tanzi method” in estimating the size of the underground economy, problems that he considers “quite significant.” I fully agree that there are limitations to my approach, and I clearly indicated them in my concluding remarks to the paper: