Knowledge that Transforms

This paper is a critical review of the empirical evidence on the operation of the international mechanism under both fixed and floating exchange rates. I limit the discussion to recent studies on the to balance of payments (BOP) and foreign exchange rate (EX rate) determination for individual countries. The monetary approach contrasts with the to the BOP (see, e.g., Martin Prachowny); according to the latter, the BOP is determined by combining behavioral equations for all of the components of the BOP with the BOP accounts identity. The two approaches can be reconciled in a general equilibrium framework with goods, assets and money. But reduced-form estimates of equilibrium in any one of the three markets should include the exogenous determinants of equilibrium in the other two markets. On this score, some of the monetarists err, just as some trade flow and capital flow empiricists, in estimating only a single structural equation rather than a reduced-form equation. This error notwithstanding, research efficiency dictates that if we want a simple (Occam's razor) explanation of the BOP and FX rates, then we should examine international money markets directly rather than the international markets for eggs, potatoes and AAA bonds. Critics counter that the monetarists actually apply Occam's scimitar to the research victim and that while they succeed in getting down to bare bones, the skeletal remains sustain insufficient life to be worthy of continued scientific interest. This critique misses the point that the is a macro theory and that simplicity is an important criterion for any theory which must be understood and used by policy makers. A second virtue of the is that it avoids the error easily made by component analysts of identifying movements in the BOP components with identical movements in the BOP. For example, increases in home income and prices reduce trade balances and decreases in interest rates cause capital account deterioration. However, all three of these phenomena lead to increases in the demand for money, and hence improvements in the BOP (or appreciation of the FX rate) according to the monetarists. We turn to the empirical evidence on these pre* Associate Professor, Graduate School of Business, University of Chicago. The author is indebted to the National Science Foundation for research support and to Robert Aliber, John Bilson, Paul Evans, Jacob Frenkel, Harry Johnson, Richard Karplus, Arthur Laffer, Aris Protopapadakis and Myles Wallace for useful discussions. They are absolved from any responsibility for the views expressed and for errors.

There are two sections to this paper. The first summarizes relative black-white earnings and wage ratios by schooling class and estimated time out of school (work experience) for both 1960 and 1970. The second presents a partial accounting giving order-of-magnitude estimates of import for some sources of black-white income differences as of 1970 and of changes between 1960 and 1970.

TFhe last few years have seen a resurgence of interest in the old question of how best to raise tax revenue. Roughly speaking, two different problems have been studied. TFhe first is to find a set of commodity taxes that is optimal given certain efficiency and (sometimes) equity considerations. In a second strain of the literature, it is assumed that the revenue system is based upon income rather than commodity taxation, and the problem is to determine the optimal degree of progressivity (or regressivity) .1,2 TI he principal motivation of some writers in the optimal taxation literature seems to be the discovery of fairly simple rules which policy makers actually can implement. Others are more interested in theoretical exploration of the implications of alternative economic assumptions than in developing usable policy recommendations. Practically all the contributions, however, have been quite mathematical and thus inaccessible to many practitioners in the public finance area. The purpose of this essay is to discuss in a nontechnical way the methodology and principal conclusions of the optimal taxation literature.3 In Sections 1 and II are discussed the optimal commodity and income tax literatures, respectively. Following this are some observations on the accomplishments of optimal taxation research and on some open questions.

This paper deals with the cost-benefit valuation of urban land in residential and road use, when there is flow congestion in transportation and congestion tolls are not imposed. Conventional procedures for determining the shadow value of land in road or residential use ignore certain general equilibrium effects, and always overstate the true values. To illustrate the correct procedures, an urban simulation model is used to calculate shadow rents of land as a function of location. The model is more realistic than most theoretical urban models, particularly in its treatment of congestion.

I consider the health, family structure, and labor supply inter-relationships at both a theoretical and empirical level. The paper is organized in the following way. SectionI introduces the material. In Section II, a theoretical model of family time allocation among market, home, and health activities is developed. The concept of a family health maintenance function is formalized to generate qualitative predictions of the effect of wages, health status, health care efficiency, and property income on the labor supply of husband and wife. In Section III, data from the older male portion of the National Longitudinal Surveys are used to estimate labor supply functions for married and single men with special attention to differences in poor health responses. A simultaneous model of male labor supply and other family income (chiefly transfer income and the earnings of the wife) is then estimated to determine whether variations in the work hours of males, largely due to health differences, induce any substantial changes in income producing activities by other family members. Finally, in Section IV the detailed time budget data on both males and females from the Productive Americans Survey are used to estimate more precisely the effect of health on total family time allocations. These data provide estimates of the impact of poor health on home production time as well as market time for both husband and wife.