Michael T. Belongia, R. W. Hafer, Richard G. Sheehan, On the Temporal Stability of the Interest Rate-Weekly Money Relationship, The Review of Economics and Statistics, Vol. 70, No. 3 (Aug., 1988), pp. 516-520

This paper analyzes the strategic and intertemporal interaction between two economic agents who have "overlapping" concerns, such as altruistic concerns for each other's welfare. The agents may be two individuals, a social bureau and a client, or two units in an organization. We show how the presence of such common concerns may lead to socially inefficient outcomes, in which one economic agent "free rides" on the other's concern. We also briefly how this inefficiency and free-riding, in the context of interaction between individuals, might be mitigated by compulsory social security systems. As another example we interpret the inefficiency in terms of Kornai's "soft budget constraints" within organizations.

In the presence of aggregate demand spillovers, an imperfectly competitive form's profit is positively related to aggregate income, which in turn rises with profits of all firms in the economy. This pecuniary externality makes a dollar of a firm's profit raise aggregate income by more than a dollar since other firms' profits also rise, and in this way gives rise to a "multiplier." Since such multipliers are ignored by firms making investment decisions, privately optimal investment decisions under uncertainty will not in general be socially optimal. Under reasonable conditions, investment is too low.

[This paper incorporates the foreign interest in the determination of a country's international trade policy into a model of political competition between candidates contesting elective office. We envisage foreign and domestic producer interests as expressing political support for a candidate via campaign contributions, and candidates as making trade policy pronouncements to maximize political support from producer interests. Tariffs are divisive, but VERs are consistent with conciliatory policy positions yielding mutual gain to foreign and domestic interests. No candidate has an interest in formulating a trade policy position using a tariff if a VER is a policy option.]

Reviews the book "Harmonization of Accounting Standards."

This paper shows that the sharp narrowing with maturity of the spread between taxable and tax‐exempt yields leaves room for tax arbitrage. At times, tax‐exempt forward rates have exceeded taxable forward rates. At such times, only expectations of higher taxes on Treasury than on municipal bonds would eliminate profit opportunities. The authors develop the idea of forward tax rates and compute forward tax rates for 1955 through 1984. They also outline tax‐arbitrage mechanisms involving private forward sale of long municipal bonds or the use of the Municipal Bond Futures Contract and show the potential profits.

This paper provides an analysis of the effect of corporate and personal taxes on the firm's optimal investment and financing decisions under uncertainty. It extends the DeAngelo and Masulis capital structure model by endogenizing the firm's investment decision. The authors' results indicate that, when investment is allowed to adjust optimally, the existing predictions about the relationship between investment-related and debt-related tax shields must be modified. In particular, the authors show that increases in investment-related tax shields due to changes in the corporate tax code are not necessarily associated with reductions in leverage at the individual firm level. In cross-sectional analysis, firms with higher investment-related tax shields (normalized by expected earnings) need not have lower debt-related tax shields (normalized by expected earnings) unless all firms utilize the same production technology. Differences in production technologies across firms may thus explain why the empirical results of recent cross-sectional studies have not conformed to the predictions of DeAngelo and Masulis.