Knowledge that Transforms

The effects of various regulations on hospital costs are estimated using a two decade long panel data set which spans the initiation, and in some instances the repeal, of various forms of hospital regulation. The long panel fosters two improvements over previous research. First, as state hospital cost levels may affect states' incentive to regulate, fixed effect estimators alleviate omitted variable bias derived from the states' regulatory discretion. Second, the long panel permits the estimation of many different regulatory program effects, but also facilitates the analysis of potential regulatory program interaction. The empirical results suggest that previous studies have exaggerated regulatory cost savings: although some interaction effects are indicated, hospital costs appear unresponsive to most regulatory programs. Copyright 1995 by MIT Press.

The relationship between state-imposed advertising restrictions and state-level market concentration in the malt beverage industry is examined. The authors find that the presence of proscriptions on price advertising significantly increases market concentration at the state level, both absolutely and relative to a measure of national concentration. The evidence also indicates that banning local nonprice advertising in addition to price advertising yields no marginal significant change in either measure of state-level concentration. Analysis of individual brewers' market shares suggests that large national brewers gain at the expense of smaller brewers when price advertising is restricted. Copyright 1995 by MIT Press.

The authors use the comparative behavior of real output growth and inflation behavior of members and nonmembers of the exchange rate mechanism (ERM) to analyze the importance of ERM membership on macroeconomic performance. An econometric procedure for identifying temporary and permanent shocks to output is proposed and executed. The results confirm that the ERM has acted as a vehicle for macropolicy coordination between members. The authors also investigate several issues relating to the hypothesis of global economic 'tri-polarity' between the United States, Germany, and Japan. Copyright 1995 by MIT Press.

This paper develops a simple time series model of emigration and applies it to data for emigration from the UK, 1870-1913. The model is derived from a microeconomic analysis of the migration decision and provides a specific functional form and dynamic structure. It encompasses and explains many of the empirical findings of earlier research on the determinants of emigration over this historical period. The results support the model strongly in most respects. Both wage rates and employment rates in the sending and in the receiving countries influenced fluctuations in emigration. The short-run fluctuations were driven largely by variations in employment rates while the long-run level of emigration was determined largely by the relative wage. -Author

The aim of this paper is to develop an intersectoral price model in a social accounting matrix. Traditionally, the emphasis of the social accounting methodology has been on quantity oriented models and their income effects. In contrast, the authors use the social accounting matrix to develop a price model that captures the interdependence among activities, households, and factors and provides a complete set of accounting prices. Furthermore, they use decomposition techniques to trace underlying general equilibrium effects. Copyright 1995 by MIT Press.

As an important initial step in the annual budget process, the President presents to Congress each January his budget with details of federal spending activity and priorities. Our paper is a statistical assessment of the merit of the budget figures submitted to Congress. We investigate the overall budget as well as several important specific accounts. An important aspect of our paper is the introduction of a nonparametric methodology which incorporates exact tests for assessing the unbiasedness, and the internal and external consistency of forecasts. The empirical evidence shows that the nonparametric results confirm the presence of bias in forecasts on the outlay side suggested by regression results, but tends to find fewer series exhibiting bias on the revenue side. On the other hand the nonparametric approach lends greater support to the conclusion that the government's budget projections do not fully exploit available information. Copyright 1995 by MIT Press.

In this paper we construct measures of tax incidence over the life-cycle and compare these measures to traditional measures based on annual data. We show that annual measures of the incidence of taxes on consumption goods may differ from life-cycle measures for three reasons. First, annual measures of income reflect transitory components which should have smaller effects on consumption than permanent changes in income. Second, income measured in a single period differs from lifetime income due to age-related differences in earnings. Third, consumption of certain items follows life-cycle patterns independent of changes in income. Surprisingly, we find that these effects cause almost no change in the assessment of the incidence of taxes applying to the consumption of cigarettes. For alcohol, however, we find that a tax on its consumption is slightly less regressive when measured with respect to lifetime income than when measured with respect to annual income.

According to the Fisher hypothesis, an increase (decrease) in the spread between the long-term, or multiperiod, interest rate and the one-period inflation rate signals an increase (decrease) in future one-period inflation. This implication is tested on data from thirteen OECD countries for the period 1962-93. Integration and cointegration techniques are applied to examine the time-series properties of interest rates and inflation rates, and the VAR methodology developed by John Y. Campbell and Robert J. Shiller (1987) is applied to examine the predictive power of the spread as well as in testing the Fisher hypothesis under rational expectations and constant ex ante real rates. Copyright 1995 by MIT Press.

The hypothesis that a variable is independent of past information, such as its own past and past realizations of other observable variables, is a frequent implication of economic theory. Yet standard regression-based tests of orthogonality may not have the correct level if there is feedback from innovations to future values of the regressors. In this paper we develop nonparametric tests of orthogonality based on signs and signed ranks which are proved to reject at their nominal levels over a wide class of models admitting feedback. The tests are robust to problems of non-normality and heteroskedasticity. Further, in simulation studies of two specifications of feedback-a rational expectations model considered by Mankiw and Shapiro, and the random walk model-we find that the nonparametric tests display remarkable power. The paper concludes with an application which assesses the efficiency of survey data on interest rate expectations previously studied by Friedman. Copyright 1995 by MIT Press.

A nonparametric test of demand theory, determining the consistency of price-expenditure data with the generalized axiom of revealed preference, is applied to household macroeconomic data for the first time. The fraction of consumption bundle comparisons that violate the generalized axiom of revealed preference is proposed as a summary statistic to indicate the consistency of a data set with revealed preference axioms. This violation rate is calculated among consumption pairs with similar expenditures to increase the power of the test. The results suggest that similar households' consumption choices and budget constraints are generally consistent with the joint hypotheses of optimizing behavior and common preferences. Copyright 1995 by MIT Press.