Effective marginal tax rates on labor income for the "representative" Swede have increased from roughly 50 percent in 1959 to 80 percent today. The effects of this increase in the level of taxation are examined using a two-sector model parameterized to correspond to the Swedish economy. The model contains a single household which allocates labor to either taxed (essentially market) or untaxed (largely household) uses. The estimated long-run effects are sufficient to explain up to 75 percent of the recent decline in the measured growth rate of the Swedish GNP. Calculations of total tax revenues are also derived from the model. These peak when the tax rate is approximately 70 percent, indicating that Sweden is presently on the downward-sloping portion of its "Laffer Curve."

We develop a method for measuring the foresight agents have. We first dichotomize an agent’s information at current date t into knowledge up to date t 1 f and expectations after t 1 f. We then form a residual-based test statistic that allows us to compare prediction errors for econometric models based on different values of f. We illustrate the method, examining investment around tax reforms to measure the foresight firms have about tax policy. In this illustration, current investment appears to reflect currently available information but little foresight other than foresight of enacted policy changes.

We develop a method for measuring the foresight agents have. We first dichotomize an agent's information at current date t into knowledge up to date t 1 f and expectations after t 1 f. We then form a residual-based test statistic that allows us to compare prediction errors for econometric models based on different values of f. We illustrate the method, examining investment around tax reforms to measure the foresight firms have about tax policy. In this illustration, current investment appears to reflect currently available information but little foresight other than foresight of enacted policy changes.

The authors study natural selection of preferences using a golden-age model with endogenous population. In equilibrium, all agents have preferences with maximum biological fitness, given resource constraints, and total population is the maximum the environment can sustain. Naturally selected agents follow the golden rule, acting as if they maximize the undiscounted sum of per-capita felicities of current and future generations. Selected preferences and, hence, work, saving, consumption, and population density vary predictably with environmental differences. Copyright 1990 by American Economic Association.

The authors study social security legislated endogenously by altruistic, overlapping generations. Starting from a steady-state equilibrium without social security, both generations living in a period can gain from legislation that mandates transfers from young to old in that and all subsequent periods. The social security allocation is Pareto optimal. Later living pairs of generations may lose, but do not amend the law. Copyright 1989 by American Economic Association.

In a closed economy with interest taxes at rate τ and with a constant real et rate of interest, the nominal rate of interest should rise by 1/(1 - τ) points for every point rise in the expected rate of inflation. However, a large body of empirical work examines the determinants of nominal interest rates and generally finds that the coefficient of expected inflation is close to or less than one. We model the determination of interest rates in an open economy with taxes. Under plausible conditions, increases in inflation cause the nominal interest rate to rise roughly point for point. This suggests that open-capital-market considerations are central for understanding aggregate economic behavior. The analysis also suggests that inflation is not neutral with respect to the real net interest rate earned by domestic savers or paid by domestic borrowers.

Recent debate has focused on the desirability of imposing an oil import fee or some broader tax on oil consumption in order to finance tax reform or for some other purposes. Optimal taxation requires that the government raise revenue using the tax instrument with the lowest efficiency cost per dollar of additional revenue. A highly stylized but conventional general-equilibrium model is used to evaluate the magnitude of this marginal efficiency cost for taxes on oil imports, oil consumption, and, as a reference for comparison, labor income.