Extending the traditional treatment of the corporate tax to an economy with a progressive personal tax fundamentally changes the analysis. While the corporate tax system (CTS) does increase the total tax rate on corporate source income for some investors, the exclusion of retained earnings implies that the CTS lowers the tax rate for high-income investors. Analyzing such an economy requires replacing the traditional "equal-yield" equilibrium condition with a more general portfolio balance model. In this model, introducing a CTS can actually increase the corporate share of the capital stock even though the relative tax rate on corporate income rises.
This paper examines the apparent contradiction of diminishing returns to labor due to procyclical real wages and labor productivity. The paper shows how this problem arises using Cobb-Douglas production function estimates for the private business sector in the United States during the period 1948-73. The difficulty with this evidence is that it ignores the cyclical pattern is taken into account, the resulting estimates indicate diminishing returns to labor. More important, the results show that procyclical real wage and productivity are consistent with the theory when the cyclical behavior of factor employment is taken into account.
[In "The Inefficiency of Interest-bearing National Debt" (J.P.E. [April 1979]), we argued that private sector transaction costs are needed in order to explain interest on government debt. It follows that if the government's transaction costs do not depend on its portfolio, then, barring special circumstances, an open-market purchase is deflationary and welfare improving. In this paper we show that this result can survive a potentially relevant special circumstances: reserve requirements which limit the size of insured intermediaries.]
The manner in which information is accumulated in the firm offers an explanation for the firm's existence. Information is an asset to the firm, for it affects the production possibility set and is produced jointly with output. We call this asset of the firm its organization capital. The costs of adjusting the stock of organization capital induce the firm to constrain its growth rate, thus explaining certain facts about firm growth and size distribution. Adjustment costs arise endogenously rather than being assumed.
The strong relationship between commodity price changes and factor price changes that characterizes the standard Ricardo-Viner model does not extend to a model which includes interindustry flows. A change in relative commodity prices, induced, for example, by a tariff, may have an unambiguous effect on real wages--an effect that is free from index-number considerations involving labor's preferences. Labor may gain or lose more than any other group in the economy. Capital owners in the protected industry may be hurt by protection, or capital owners in the unprotected industry may benefit from protection. Employment may be shifted from the protected to the unprotected industry.
[Staggered wage contracts as short as 1 year are shown to be capable of generating the type of unemployment persistence which has been observed during postwar business cycles in the United States. A contract multiplier causes business cycles to persist beyond the length of the longest contract, and a diffusion of shocks across contracts causes the persistence to increase for several periods before diminishing. A persistence of inflation is also generated by the contracts. This persistence is represented as a reduced-form distributed-lag wage equation in which the lag coefficients have a pure-expectations component and an inertia component due to the overhang of outstanding contracts. Using rational expectations to separate these components suggests that aggregate demand may have a greater impact on inflation than the simple reduced-form estimates would indicate.]
[This paper analyzes U.S. time-series data in order to study the determinants of the choice between renting and homeownership. Special attention is focused upon changes in the relative prices of owning and renting induced by provisions of the federal personal income tax. The results suggest that about one-quarter of the growth in the proportion of homeowners in the post-World War II period is a consequence of the tax system's favorable treatment of owner-occupied housing.]
[This paper develops a simple theory of nominal income and interest determination under the assumption that the only relevant distinction between money and bonds lies in their holding periods. Individuals take full account of the government budget constraint and do not concern themselves with discounting future tax liabilities associated with the issue of government bonds. According to this theory, the price of bonds is analogous to the price level, and the nominal rate of interest is determined by the bond/money ratio and bears no close relationship to the rate of expansion of the price level.]