Knowledge that Transforms

This paper is an econometric analysis of the on-the-job training (OJT) decisions of a group of white American males during 1975. The data are obtained from the Panel Study of Income Dynamics, which asked a very careful series of questions concerning the individual's OJT status. Each individual's internal rate of return is estimated and used as an explanatory variable to predict the probability of taking OJT. The individual's marginal tax rate is also entered in the equation. The results suggest that income taxation has tended to increase the probability of being involved in OJT. I conjecture that this is because income taxation makes investment in physical capital a less desirable vehicle for carrying consumption into the future, and hence increases the attractiveness of human capital.

THE primary purpose of this work is to conduct an empirical investigation concerning the role of in consumption, and to test a few postulates of the wealth theories of consumption. The opportunity for such an investigation is provided by the recent publication by Kendrick (1976) of annual data on human and nonhuihan for the United States for the period 1929-69. Specifically, the paper (a) provides estimates of a consumption function in which a variable is included in addition to the income variable; (b) compares the responses of consumption expenditures to changes in human and nonhuman and tests empirically Friedman's hypothesis (1957, p. 17) regarding the effect on consumption of an increase in nonhuman relative to total wealth; and (c) throws some light on the stock adjustment' and habit persistence' postulates by reporting estimates for equations in which a lagged consumption term is added to the variables. The organization of the paper follows the aspects stated above. After a discussion of some methodological questions, we provide estimates of the parameters of consumption functions that include as a distinct variable in addition to income, and show that the variable has significant coefficients, and the coefficients look plausible. The income variable coefficients are substantial, and while being consistent with the life cycle' hypothesis are not necessarily inconsistent with Friedman's theory. Next, we discuss the separate effects of human and nonhuman on consumption. The evidence seems to favor Friedman's postulate that an increase in nonhuman wealth, relative to the total, increases consumption. Estimation of separate equations for (a) durable goods and (b) nondurables and services, by including a lagged consumption term in addition to the variables, suggests that the coefficient pattern can be interpreted as indicative of a stronger habit formation' effect for nondurables and services than for durables. A summarizing section concludes the paper.

Young Chin Kim, The Cross-Sectional, Inter-Industry Structure of Capital Utilization in a Developing Economy: The Case of S. Korean Manufacturing, The Review of Economics and Statistics, Vol. 64, No. 1 (Feb., 1982), pp. 84-89

Aaron (ed.), Inflation and the Income Tax (Washington, D.C.: Brookings Institution, 1976). Tanzi, Vito, Measuring the Sensitivity of the Federal Income Tax from Cross-section Data: A New Approach, this REVIEW 51 (2) (1969), 206-209. , 'The Sensitivity of the Yield of the U.S. Individual Income Tax and the Tax Reforms of the Past Decade, International Monetary Fund Staff Papers 23 (2) (1976), 441-454. United States Statistical Abstract (annually), U.S. Government Printing Office, Washington, D.C. Verway, David I., 'A Ranking of States by Inequality Using Census and Tax Data, this REVIEW 48 (3) (1966), 314-321.

JN working with various data sets for the United States in the 19th century, it has come to my attention that pronounced patterns emerge which depict the relationship between increases in wealth of individuals as they become older. When we abstract from long-run growth, by examining age-specific wealth averages in a given year such as 1850, 1860, or 1870 or even a century later, this wealth-age gradient appears to rise about 4% a year. The increase is usually attributed to savings and capital gains of individuals rather than to transfers from inheritance. If such is the case, the reason for taxing wealth is less compelling since wealth is, in part, a reward for current effort and can not easily be identified as the cumulative effort of past generations. John Brittain has recently publicized and criticized this particular way of measuring and factoring the influence of individual endowment, that is, the effort of activity of the present generation as contrasted to that which is the product of past generations. He has suggested that specialized studies be made of inheritance in an endeavor to better determine whether the wealth of one's parents might explain, in some statistical sense, 1/10, or 1/3, or even 2/3 of the wealth of the present generation. ' It is the purpose of this paper to study some of the relationships between wealth, number of children, and age of fathers, as related to the inheritances and ages of sons, by using data from the 1870 U.S. census of wealth. Statistics will be presented which describe the possible amounts of wealth that are passed on from generation to generation in any given year during the life cycle of the son. I shall argue that a 4% wealth-age gradient can appear within one generation which duplicates any original wealth-age configuration; incentive implications of any current patterns are less cogent in this sense even though only 1/3 of all current aggregate wealth may be considered a transfer from the past. The patterns to be described are of significance not only for the general cultural historian, but also for anyone trying to understand an economic model of inheritance since the extent of parental domination, the influence of family size, and, more generally, the degree of wealth inequality imposed from one generation to the next all contribute some sense of the quantitative impact of inheritance factors even if the model is very elementary.

Paul D. McNelis, , Policy-Dependent Parameters in the Presence of Optimal Learning: An Application of Kalman Filtering to the Fair and Sargent Supply-Side Equations, The Review of Economics and Statistics, Vol. 64, No. 2 (May, 1982), pp. 296-306

IN an earlier study, Hodgson and Holmes (1977) provided empirical evidence on the structural stability of short-term capital flow using the case of U.S.-Canadian net bank claims for the period 1955-I to 1974-I.1 Their findings indicated that the short-term capital flow underwent a significant structural change, and that the instability in the short-term capital flow may have been due to changes in interest rate sensitivity over time. However, as Garbade (1977) shows, the test procedure used by Hodgson and Holmes, labeled the cusum of squares test, has limitations for detecting structural change in the coefficients. The primary purpose of this paper is to present additional empirical evidence on the stability of U.S.-Canadian capital flow, obtained not only from the cusum of squares test, but also from the variable parameter regression technique. The use of the latter test is well justified in that it is somewhat more powerful and has the advantage of being able to isolate instability in individual regression coefficients. In section I we develop an analytical framework for short-term capital flow based on the portfolio balance approach. Section II presents the regression results for the U.S.-Canadian short-term capital flow. In section III we present a brief and heuristic description of the two stability test procedures as well as the results of these tests. Major conclusions are presented in section IV.