Knowledge that Transforms

One of the most startling tax policy prescriptions to appear in recent years is the tax of Yew-Kwang Ng (1987). Diamond goods are goods, such as diamonds, precious stones and metals, expensive fur coats, and luxurious cars, which are valued for their values more than for their intrinsic consumption effects. Consumers of diamond goods are viewed as deriving utility from exhibiting their wealth and/or by using these goods as store of value and/or giving them as gifts of value. In these cases it is the value of the good that matters most. After analyzing the taxation of diamond goods, Ng formally asserts three propositions and corollary. His principal findings are that a change in the price of diamond good leaves its value and the amounts of all other goods consumed, and hence the utility level of the consumer unaffected (Proposition 1) and that the demand curve for diamond good is rectangular hyberbola with unit elasticity throughout the whole range where it remains pure diamond (Corollary 1). These findings form the basis for his conclusion that a pure diamond good has an infinite tax in an optimal tax system (Proposition 3). The taxation of diamond goods thus represents burdenless tax policy panacea. The purpose of this paper is to reconsider the microeconomic analysis of the taxation of diamond goods. We show that the striking results of Ng depend on the particular way in which the diamond good is specified. We demonstrate that an alternative-and eminently reasonable -specification yields drastically different results, in that Ng's principal findings do not hold. Ng considers representative consumer choosing among single pure diamond good and n -1 ordinary consumption goods. The utility function is assumed to be well behaved and is written

It has been hypothesized that when the decrease in the steady-state proportion of income class i is large enough the percentage of children in the class will fall despite increased fertility. However the mathematical model developed in this article demonstrates that in spite of a potential reduction in the relative proportion of steady-state population born to that class will always increase and moreover will increase the most. As a direct consequence the possible decrease in the steady-state proportion of income class i is limited. Through the use of matrix algebra rather than differential calculus upper and lower bounds for the relative change in the proportion of the steady-state population of any income class can be derived. The diagonal matrix F gives the income-specific net reproductive rates while M represents the intergenerational mobility matrix. The analysis also refutes the hypothesis that if the percent children in any income class increases then the proportion of the population after intervention of mobility decreases. Apparently decreased inflows can never outweigh increased inflows. It should be noted that the results of this analysis hold without any restrictions on the mobility matrix; thus they are simply properties of the model.

Willem Buijink and Marc Jegers have pointed out that the conditional internal rate of return estimates contained in my 1985 paper are dependent on estimates of the useful life of the firms' depreciable assets and that my estimates of such useful lives are contaminated by depreciation method differences across the firms. I think their point is correct and the intent of this reply is to use their formulas to obtain corrected useful life and conditional internal rate of return estimates and to report the impact of these corrections on the relationship between profitability and firm size for the sample of firms that was the focus of my 1985 paper.

There have been major changes in recent years in the trade policy strategy used by the United States in promoting its economic and political goals. In contrast to the benevolent multilateral approach from the early 1940s through the 1960s in which international cooperation aimed at strengthening the free world was emphasized, the United States in the 1970s and 1980s has increasingly pursued an aggressive bilateral strategy oriented toward domestic economic interests and particular regional political objectives. One manifestation of this policy shift is the increased use of bilateral negotiations in which the United States threatens to restrict access to its domestic market in order to force open a trading partner's markets for more U.S. exports or to curtail market-disrupting imports from the country. Negotiating free-trade agreements with the Caribbean basin, Israel, and Canada is another. Other indicators of this strategy shift are an increased emphasis on fair trade, the greater use of the antidumping and countervailing duty laws to restrict imports, and a willingness to give up the most-favorednation principle in limiting imports even when injury to a domestic industry is not due to unfair foreign trade practices. The United States has not abandoned the multilateral approach, as its participation in the Uruguay Round negotiations demonstrates, but even here the United States seems less willing than in the past to compromise for the purpose of achieving a consensus among the participants. This paper briefly analyzes the reasons for this shift in trade policy strategy and considers its usefulness for promoting U.S. interests in the future. I. From Hegemon to Oligopsonist

This analysis compares the labor supply of black women in extended and nonextended households in the United States. two foci of the study are 1) the relationship between the labor supply of grandmothers and single mothers in extended households and 2) the interaction of labor force participation human capital accumulation and child care decisions. The study estimates a labor supply model using 1980 census data that endogenizes the decision to attend school. (EXCERPT)