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There is now considerable evidence that business cycle variation in output and employment in the U.S. di¤ers in expansions and contractions. We present nonparametric evidence that asymmetries are strongest in durable goods manufacturing. In a Markov switching framework, we find two leading indicators, consumer expectations and the term spread, act as important driving forces behind asymmetry. Cross sectional analysis, using firm level data, shows that plant and equipment expenditures, raw materials inventory holdings, and bankruptcy score increase the likelihood ratio index for asymmetry by more than 65%.

The paper examines the processes underlying economic fluctuations by investigating the volatility moderation of U.S. economy in the early 1980's. We decompose the volatility decline using a dynamic factor framework into a common stochastic trend, common transitory component and idiosyncratic components. We find that the moderation of business cycle was a result of the moderation in transitory and idiosyncratic components. Our results suggest that important part of stochastic process that drives economy is transitory. The paper investigates the role of oil prices, monetary and financial market factors. Proposed economic factors do not have a significant relationship to either transitory or permanent components. In addition, we find that transitory shocks are as common during the 80's and 90's as they were during the 60's and 70's.

We extend the literature on the effects of managerial entrenchment to consider how safety-net subsidies and financial distress costs interact with managerial incentives to influence capital structure in U.S. commercial banking. Using cross-sectional data on publicly traded, highest-level U.S. bank holding companies, we find empirical evidence of Marcus? proposition (1984) that there are dichotomous strategies for value maximization?one involving relatively higher financial leverage and the other, lower financial leverage. We find that a less levered capital structure is associated with higher charter value and vice versa. Moreover, differences in charter value result in dichotomous strategies for managerial entrenchment: under-performing, less levered firms hold too little capital while under-performing, more levered firms hold too much.

We analyze the trading activity in an Internet chat room with approximately 1,300 participants. Traders make posts in real time about their activities. We find these traders are more skilled than retail investors analyzed in other studies. 55% make profits after transaction costs, and they earn $153 per trade. Traders hold their winners 25% longer than their losers. They have statistically significant alphas of 0.41% per day after controlling for the Fama-French factors and momentum. 38% of profits persist in the next year. Traders improve their skill over time, earning an extra $189 per month for each year of trading experience. They also gain expertise in trading particular stocks. Traders who raise their Herfindahl index by 0.1 raise their profitability by $46 per trade. 42% trade both long and short, with equal success rates, and almost double the profit per trade when short.

We use information from the tax returns of U.S. multinational corporations to address three questions related to tax competition. First, does tax competition or company tax planning behavior better explain recent decreases in the local effective tax rates faced by U.S. multinationals investing abroad? Second, have countries become more aggressive in their use of tax concessions to attract particular types of foreign capital? And finally, has the role of taxes in the location decisions of U.S. manufacturers increased in recent years? Between 1992 and 2000, the average effective tax rate faced by U.S. manufacturers on income earned abroad fell from 25 percent to 21 percent. Our results suggest that the evolution of country effective tax rates between 1992 and 1998 seems to be driven by tax competition. Countries that lost shares of U.S. manufacturing real capital prior to 1992 cut their rates the most over this period. However, the most recent data suggests that companies may not need tax competition to lower effective tax burdens abroad. The evolution of country effective rates between 1998 and 2000 seems to be driven by company rather than country behavior. This is consistent with the introduction of the ?check the box? regulations in 1997 which made it easier for corporations to use ?self-help? to lower tax burdens. Interestingly, we find that countries were rewarding more mobile companies and those that were perceived to be more beneficial to the local economy with tax concessions as far back as 1984. Finally, although not conclusive, our empirical work suggests that U.S. manufacturers may have become more sensitive to differences in local tax rates across countries in recent years.

The U.S. economy had experienced the "jobless recovering" after the 1990-1991 and 2001 recessions, which has been constantly puzzling the economists, market analysts, and policymakers. This paper uses a simple hiring game in an efficiency wage model framework to resolve that puzzle. Our efficiency wage model emphasizes the importance of the local unemployment rate, which is endogenously determined by firms' hiring decision at a symmetric Nash equilibrium. Our model has a new feature such that nonzero steady involuntary unemployment at equilibrium may coexist with an efficiency wage that stays below the market-clearing wage. Moreover, we show how it is possible to use our model to study income inequality as a result of skill-biased technical change, inter-industry wage differentials, and skill wage premiums. We also demonstrate how it is possible to derive the wage curve (Blanch ower and Oswald (1994)) as an equilibrium locus of our model.

One of the fundamental problems of the positive theory of income taxation is explaining why the statutory income tax schedules in all industrialized democracies are marginal-rate progressive. While it is commonly believed that this is but a simple consequence of the fact that the number of relatively poor voters exceeds that of richer voters in such societies, putting this contention in a voting equilibrium context proves to be a nontrivial task. We study the Downsian model in the context of nonlinear taxation and inquire about the possibility of providing a formal argument in support of the aforementioned intuition. We first show existence of mixed strategy equilibria and then ask qualitative questions about the nature of these equilibria. Our positive results show that there are cases where marginal-rate progressive taxes are chosen with probability one by the political parties. Our negative results show that, if the tax policy space is not artificially constrained, equilibria exist whose support does not lie within the set of all marginal-rate progressive taxes.

In this paper we examine the extent to which fluctuations in a number of macroeconomic variables impact on the volume of federal litigation cases. In particular, the impact of aggregate U.S. GDP, consumption, inflation, unemployment, and interest rates on the volume of antitrust, bankruptcy, contract, personal injury, and product liability cases between the years 1960 and 2000 is examined using Granger causal analysis and vector autoregression models (see e.g. Granger (1988)). Our empirical findings suggest that there are several linkages between macroeconomic variables and the volume of litigation cases, in broad agreement with the findings of Siegelman and Donohue (1995), who find that unemployment is an important determinant of the (number and) quality of employment cases filed. Most noteworthy, we find that there is a causal linkage from output, consumption and inflation to the total volume of federal litigation, so that predictions of future litigation volume can be improved by using information contained in current macroeconomic aggregates. Causation in the other direction (i.e. from the volume of litigation to macroeconomic activity) is not found in the data, however. Based on impulse response analysis, it is seen that shocks to income, consumption and inflation immediately lead to an increase in the volume of litigation, with shocks to inflation having the largest impact, and shocks to consumption having a rather moderate impact. In addition, the long run impact that shocks to each of these variables has on the volume of litigation is positive, regardless of whether the VAR or VEC model is used. Here, again, the impact of consumption is quite moderate, though. Additionally, similar results arise when examining the relation between various individual measures of federal litigation volume and the macroeconomy. Thus, the volume of federal litigation does not appear to be immune to the business cycle, a finding which is in broad agreement with the findings of Siegelman and Donohue.

This paper explores policy options for reducing lead in municipal solid waste. It focuses on policies that rely on economic incentives, such as taxes, deposit-refunds, and recycled content standards. The paper addresses the relative cost effectiveness of these approaches and also considers the overall desirability of government intervention to reduce lead disposal.

This paper argues that the banking crises in the United States in the early 1930s were similar to the ?twin crises? -- banking and balance of payments crises -- which have occurred in developing countries in recent years. The downturn that began in 1929 undermined banks that had made risky loans in the twenties. The deflation that followed further weakened the banks, especially in rural areas where deflation in prices and incomes was the greatest. Depositors in those areas began transferring their deposits to banks they regarded as safer, or purchasing bonds. These ?silent runs,? essentially a capital flight, have been neglected in many accounts of the banking crises. But evidence from the Gold Settlement Fund (which recorded interregional gold movements) and from regional deposit movements suggests that silent runs were important, especially in the crucial year 1930. When the crisis worsened, state and local authorities began declaring ?bank holidays,? which limited the right of depositors to make withdrawals, a movement that culminated in the declaration of a national bank holiday by President Roosevelt. In retrospect the policy advocated periodically by the Federal Reserve Bank of New York, the purchase of government bonds on the open market, was right for the country as a whole. But a majority of the Governors of the other Federal Reserve Banks were opposed. Some opponents of open market purchases thought they would benefit the stock market without contributing significantly to the revival of business in the interior. The result was a minimalist policy that led to an unprecedented financial and economic collapse.

Many states in the US impose taxes on hazardous waste. This paper conducts an empirical evaluation of the determinants of these taxes and reviews earlier research on their effects on hazardous waste. Earlier studies have shown that the taxes affect waste management, but my results and other evidence suggest that the tax-induced changes may not have improved welfare. Taxes on industrial hazardous waste are one of the most extensive uses of pollution taxes in the United States. The federal government and many states governments have implemented such taxes. The diversity of hazardous waste taxes makes them an interesting example of pollution taxes because we can compare the responses of polluters to different tax regimes. In this paper, I discuss the existing state and federal hazardous waste taxes and issues in their design and implementation. The paper then presents an empirical analysis of the tax rates adopted by states. In particular, the question is: do these taxes reflect the environmental costs of waste as opposed to other government objectives? Although an earlier study (Levinson, 2003) examines determinants of tax rates, the analysis here expands the hypothesized sources of variation and emphasizes the role of external costs. The results provide some evidence that taxes vary with environmental costs – making it possible that they improve welfare – but also point to non-environmental determinants and much unexplained variation. I then review the literature on the empirical effects of these taxes on pollution and economic behavior. Studies have found only small effects of the state taxes, but these effects indicate that waste generators and managers do respond to the incentives created by taxes. The following section evaluates the advantages and disadvantages of existing taxes on hazardous waste and proposes some alternatives. A final section briefly concludes with an assessment of the U.S. experience with these taxes.

Various inflation forecasting models are compared using a simulated out-of-sample forecasting framework. We focus on the question of whether monetary aggregates are useful for forecasting inflation, but unlike previous work we examine a wide range of forecast horizons and allow for estimated as well as theoretically specified cointegrating relationships in some of our models. Our findings indicate that there are forecasting gains from allowing monetary aggregates to enter into prediction models via cointegrating restrictions among money, prices, and output derived from a simple version of the quantity theory, but only when the cointegrating relations are specified a priori based on economic theory. When estimated cointegrating relations are used in a vector error correction (VEC) model, a vector autoregression (VAR) model in differences predicts better. These results hold, even during the 1990s, and evidence is presented suggesting that previous findings of a breakdown in the cointegrating relationship among prices, money, and output is the result of a failure of M2 as a measure of the money stock, and is not due to money demand instabilities. Two Monte Carlo experiments that lend credence to our findings are also reported on. The first shows that cointegration vector parameter estimation error is crucial when using VEC models for forecasting, and helps to explain previous findings of the failure of VEC models to forecast better than VAR models. The second shows that random walk and other atheoretical models routinely forecast better than correctly specified alternative models, due to parameter estimation error, indicating that caution needs to be exercised when interpreting the results of such comparisons, particularly when making statements concerning the usefulness of empirical models for use in policy-setting.

I investigate the linkage between liquidity provision by Nasdaq market makers and analysts in the same firm. Using three measures of market activity, I find that Nasdaq firms are more likely to provide buy side liquidity in anticipation of upgrades in the period 1999-2000. ECN activity supports this pattern. Firm level evidence shows that 15 of 42 market makers studied engage in significant pre-recommendation activity. I estimate cumulative abnormal returns of more than 75% and profits of almost $600 million in a sample of 47 large capitalization stocks.

We compare male and female upward labor income mobility in Germany and the United States using the GSOEP-PSID Cross-National Equivalent File. Our main interest is to test whether a glass ceiling exists for women. Conventional thinking about the glass ceiling highlights the belief that the playing field is level for women and men in the labor market up to a certain point, after which there is an effective limit on advancement for women. We examine the glass ceiling hypothesis by looking at the income dynamics ? the movement of women and men through the distribution of income over time. We find that there is considerable evidence in favor of a glass ceiling both in Germany and the United States with men having approximately a 30% premium in their upward income mobility compared to women in the upper income classes. We also find significant, but smaller, differences at middle and low income levels for both countries.

Governments do not have perfect information regarding the priorities and the needs of different groups in the economy. This lack of knowledge opens the door for different groups to lobby the government in order to receive the government?s support. We set up a model of hierarchical contests and compare the implications of a centralized allocation process with a decentralized allocation process. We show the potential existence of a poverty trap as a result of fiscal federalism.