Knowledge that Transforms

Applied tax incidence studies have concluded that the burden of the entire tax system is approximately proportional to income, a conclusion that depends critically on the assumption that sales and excise taxes are regressive. This paper shows that sales and excise taxes are progressive elements in the tax system when analyzed in a general-equilibrium model where government transfers are an important source of income. Consequently, the entire tax system is highly progressive under competitive assumptions about tax incidence. Moreover, the degree of progressivity is virtually unaffected when noncompetitive assumptions about tax incidence are employed.

This paper deals with a class of models of the demand for money that includes the Baumol-Tobin and other inventory-theoretic models as special cases. Among other things, the analysis shows that many supposedly robust comparative-statics propositions derived by earlier writers do not survive even modest generalization. More generally, the results of the paper strongly reinforce other recent research in indicating the need for a wholesale reconstruction of the microfoundations of contemporary monetary theory.

Taxation of capital gains at realization may distort individuals' decisions regarding holding or selling during an asset's lifetime. This creates the problem of designing a tax structure for capital gains so as to induce efficient patterns of holding an selling. Several tax structures are explored in this paper. Linear taxation, at rates which rise with the holding period, can achieve the first best, even under the conditions of limited information that we postulate. The form of the optimal tax is independent of the stochastic structure of rates of return. We also derive the optimal nonlinear tax under the constraint that it be independent of the holding period. Second-best tax rules are examined. Results in a two-period model are contrasted with those in a continuous time framework. Also treated is the case in which the returns to the asset under consideration depend on the aggregate quantity invested

This paper applies a model of the demand for public goods to explain cross-sectional differences in public allocations to agricultural research in the United States. The model postulates that demanders of agricultural research on the state level--primarily farmers and firms producing agricultural inputs--contribute voluntarily to lobbying activity either by voting or by making campaign contributions in order to induce research allocations. A "concentration effect" is derived, in which political participation by the relatively large demanders increases relative to participation by the relatively small demanders, as group size becomes large. The implications of the model are found to be consistent with American data on agricultural research allocations in 1969.

This is a review article based on W. O. Henderson's two-volume Life of Friedrich Engels. After a brief biographical summary, Engels's contributions to political economy are examined, and it is suggested that these are much more important than has so far been recognized (e.g., by Schumpeter). In particular, Engels's paper "Outlines of a Critique of Political Economy" announced several of the basic and least invalid themes of Marxist political economy. Later Engels, when criticizing Utopian socialism, contributed a very remarkable account of the essential functions of the competitive price mechanism.

The earnings of foreign-born adult white men, as reported in the 1970 Census of Population, are analyzed through comparisons with the native born and among the foreign born by country of origin, years in the United States, and citizenship. Differences in the effects of schooling and postschool training are explored. Although immigrants initially earn less than the native born, their earnings rise more rapidly with U.S. labor market experience, and after 10 to 15 years their earnings equal, and then exceed, that of the native born. Earnings are unrelated to whether the foreign born are U.S. citizens.

The paper addresses the problem of deriving shadow prices for use in project evaluation when the existing allocation is characterized by ad valorem trade distortions. The analysis is used to clarify and resolve the long-standing debate among effective-rate-of-protection and domestic-resource-cost proponents as to the respective merits of their measures as methods of project evaluation. The derivation of shadow factor prices is then extended to three major factor market imperfections familiar from extensive trade-theoretic analysis.