Knowledge that Transforms

A UNIQUE feature of the Kennedy Round of the General Agreement on Tariffs and Trade (GATT) Negotiations (1964-1967) was the use of the technique of reducing tariffs. Under a linear approach each participant agrees to make a uniform across-theboard percentage cut in import duties, subject only to a bare minimum of exceptions and to the condition that the country achieves overall reciprocity. This approach was adopted in an effort both to reduce the time and effort involved in traditional item-by-item negotiations and to achieve a deeper average duty-cut for all participants. In prior negotiations under the GATT, the bargaining technique was essentially bilateral. Request and offer lists were exchanged between all pairs of countries and bargaining then proceeded on a two-by-two basis. In order to make this type of negotiation feasible, the so-called principal supplier rule was followed. A country's offer list to another country covered only those items for which the other country was the principal or at least, a very important import supplier.1 This procedure minimized the problem of conducting simultaneous negotiations on the same item by different country teams. At times during the negotiations, however, information concerning concessions tentatively agreed upon in the independent bilateral negotiations was made available to all pair-wise teams so that each might evaluate the indirect effects of the other negotiations on its bilateral balance of concessions. Finally, when each pair of countries had reached a mutually satisfactory balance of concessions, the list of offers by a country to each other country was combined into a single tariff reduction list that applied to all countries. Just what constituted a satisfactory balance of concessions or reciprocity was never openly defined, but it came to mean that a country would achieve an approximately equal increase in exports from the concessions it obtained as the increase in imports from the concessions it granted.2 The main concern of negotiators was to achieve this reciprocity on the total trade of their country with the rest of the world. However, since the negotiations were conducted mainly on a bilateral basis, the notion of reciprocity also tended to dominate the pair-wise negotiations between countries. As became increasingly apparent through successive GATT negotiating rounds, following the principal supplier rule and imposing a condition of approximate bilateral balance for changes in the volume of trade considerably limited the set of feasible total increases in exports and imports. The early hopes of many Kennedy Round negotiators that most of the difficulties connected with the item-by-item, bilateral negotiating technique would be eliminated by following a linear-cut rule proved to be much too optimistic. Some industrial countries, namely Canada and Australia, as well as all the less developed countries did not accept the linear rule. More disappointing, however, was the reluctance of most major countries to cut agricultural duties on a linear basis and the insistence of the European Economic Community (EEC) on a special rule to handle significant disparities in tariff rates of various countries on the same item.3 Lists of exceptions for certain countries also proved to be larger than was hoped for initially. Once it became apparent that reciprocity could not be achieved by bargaining on a

W HILE the subject of racial discrimination has enjoyed considerable attention in the literature, a careful distinction between discrimination based on color and discrimination based on economic status of one's parents continues to be a rare event. This paper attempts to render that distinction more explicit by examining the relative socio-economic achievements of black and white children who were reared in families receiving public assistance. An examination of those achievements leads to the suggestion that the educational and early occupational handicaps imposed upon these lower class youths by reason of their impoverished economic origins are of the same kind and perhaps quantitatively as important as those handicaps attributable to racial discrimination. Thus, class discrimination is seen to be potentially as potent a force as is racial discrimination in limiting the attainments of poor youth. The basic data employed here are taken from a national sample of families who had received Aid to Families with Dependent Children (AFDC) up until the beginning of 1961.' The immediate focus of this inquiry is on the 1,653 male offspring of those families who were at least 16 years of age at the time of the interview (January-March 1961). Nearly all of these have completed their education and already embarked upon their occupational careers. Estimates of the relative impacts of class discrimination and racial discrimination are obtained by contrasting these educational and early occupational achievements of the white and black AFDC sons both to each other and to a representative cross section of the entire male population in the United States.

ECONOMETRIC studies of production at the aggregate and semiaggregate levels have concentrated largely on the relation between capital and labor inputs, on the one hand, and some measure of real gross value added on the other. Studies that have gone beyond this scope to include a larger number of inputs have been confined to a highly restrictive class of production functions. Input-output studies using fixed production coefficients and studies in the agricultural field using CobbDouglas functions fall within this category.' A growing number of important economic questions, however, cannot be answered within the traditional models, but require instead a framework that allows a richer specification of the substitution possibilities among factors of production. The question of whether there are differences in the extent of substitutability or complementarity between capital and different skill categories of labor, which has been considered by Bowles [4], Cook [6], and Griliches [8], is one example where a more general production model is required. In addition, it is likely that the estimation of production parameters, in particular the elasticity of substitution (ES) between capital and labor, is biased when factors other than capital and labor are ignored. This paper presents the results of an econometric investigation of these problems using time-series data for Swedish manufacturing for the period 1870-1950. Section II presents some simple evidence that shows the extent of variation in factor output ratios in the data. Variation in these ratios is not consistent with the conditions under which the use of a valueadded production function can be justified. Section III then presents a general production model that allows the measurement of the price responsiveness of factor utilization, and section IV discusses the results of estimating the model. Finally, in section V the results of the general model are compared with the results obtained using the alternative gross value added framework and using direct production functions.

unemployment rates quoted in table 1; however, a fuller statement is available on request from the author. The United Kingdom figures for 1960 onward are based on a letter to the author (dated 28/1/71) revising [7]. For earlier years the official statistics have been raised by a percentage based on the revised BLS information. Percentage adjustments have also been made to the French (Institut National de la Statistique et des Etudes Economiques) and German (registration series from the ILO Yearbook of Labour Statistics) figures in similar fashion, except that the 1958 German figure was supplied by the BLS. The Swedish figures for 1953-1961 come from [3]. The Italian figures for 1954-1958 are based on the irregular ISTAT surveys adjusted for seasonality and for comparability with United States definitions (the latter on an absolute basis) on the basis of experience since 1959. The 1953 figure, for reasons described in the supplementary statement, is the average for 1954-1956. The Australian unemployment rates for 1964 and 1965 are those of the Commonwealth Statistician, while those for 1958-1963 are based on an upward percentage adjustment of the Department of Labour and National Service's registration series. The Belgian figures throughout are based on the percentage reductions indicated by [10] and [11]. The Dutch rates are those contained in the ILO Yearbook, since [10] and [11] indicated slight adjustments in conflicting directions.

T HE normative principle of horizontal equity in personal income taxation calls for the levying of equal tax liabilities on taxpaying units enjoying identical pretax levels of economic well-being. Unfortunately, the only straightforward application of this principle is the proposition that tax-paying units identical in every other relevant respect should bear equal tax burdens if and only if they enjoy the same level of pretax money income. Economists have long recognized, of course, that the level of money income is only one of several objective factors that determine a tax-paying unit's level of economic well-being its ability to pay. Probably the foremost of the other factors is the number of individuals who must share a given total money income. Economists generally accept the principle that some system of personal exemptions, deductions, tax credits or other technical devices designed to adjust gross money income for the size of the tax-paying unit is necessary to maintain horizontal equity in personal income taxation. The purpose of this paper is to evaluate the structure of personal income tax exemptions for dependent children in the present personal income tax law against the horizontal equity standard stated above.' A review of the literature reveals that this subject has received only a sparse and elementary treatment. Public finance texts go no further than to suggest the qualitative norm that relatively large families should pay somewhat less taxes than averagesize families at a given level of gross money income. A very small number of studies take an approach which we shall pursue in greater depth-the application of a large body of work in consumption economics concerned with the determination of equivalent welfare incomes or for families that differ in size and composition to a quantitative assessment of the personal income tax exemption structure.2 Unfortunately, the direct adaptation of existing equivalence scale results is inappropriate for the purposes of tax policy, as we shall demonstrate in section II of the paper. The major contribution of this study is the estimation of a new set of equivalence scales that can legitimately be applied to the evaluation of aspects of the present tax structure that are relevant to the issue of horizontal equity. Section II of the paper briefly reviews the traditional methodology for estimating equivalence scales and then proceeds to detail the conceptual and pragmatic problems involved in adapting this methodology to our particular problem. Section III presents the statistical model for estimating our new set of equivalence scales and discusses the data source for the estimates. Section IV reports our empirical results and a final, brief section V treats the policy implications of our findings.