In the United States, local government expenditures are heavily sub- sidized through a variety of sources. This paper explores theoretically and then simulates empirically the effects of eliminating either of two federal subsidies encouraging local government expenditures: (1) income tax deductibility of local tax payments, and (2) the tax exempt status of interest on municipal bonds.

This paper compares the properties of dividend announcements and management earnings forecasts as predictors of earnings and firm value. First, the two predictors are compared on the basis of their ability to predict earnings. Then the information they convey about firm value is assessed by comparison of the performance of investment strategies based on values of the two predictors. Finally, the effects of dividend announcements on stock prices are considered.

We have constructed a simple two‐sector model of the demand for housing and corporate capital. Economic growth and an increase in the inflation rate were then simulated with a number of model variants. The model and simulation experiments illustrate both the tax bias in favor of housing and the manner in which the increase in inflation between 1965 and 1978 magnified it. The existence of capital‐market constraints offsets the bias against corporate capital, but it introduces a sharp, inefficient reallocation of housing from less wealthy, constrained households to wealthy households who do not have gains on mortgages and are not financially constrained.

We have constructed a simple two-sector model of the demand for housing and corporate capital. An increase in the inflation rate, with and with- out an increase in the risk premium on equities, was then simulated with a number of model variants. The model and simulation experiments illustrate both the tax bias in favor of housing (its initial average real user cost was 3 percentage points less than that for corporate capital) and the manner in which inflation magnifies it (the difference rises to 5 percentage points without an exogenous increase in real house prices and 4 percentage points with an exogenous increase). The existence of a capital-market constraint offsets the increase in the bias against corporate capital, but it introduces a sharp, inefficient reallocation of housing from less wealthy, constrained households to wealthy households who do not have gains on mortgages and are not financially const rained. Widespread usage of innovative housing finance instruments would overcome this reallocation but at the expense of corporate capital. Only a reduction in inflation or in the taxation of income from business capital will solve the problem of inefficient allocation of capital. The simulation results are also able to provide an explanation for the failure of nominal interest rates to rise by a multiple of an increase in the inflation rate in a world with taxes. When the inflation rate alone was increased, the ratio of the increases in the risk-free and inflation rates was 1.32. An increase in the risk premium on equities, in conjunction with the increase in inflation, lowered the simulated ratio to 1.10, introduction of a supply price elasticity of 4 and an exogenous increase in the real house price reduced the ratio to 1.03, and incorporation of the credit-market. constraint reduced the ratio to 0.95.