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This paper presents a simple coherent general equilibrium example in which optimal provision of a public good implies counter-cyclical government expenditure.

This paper describes trends in average weekly hours of market work per person and per family in the United States between 1950 and 2005. We disaggregate married couple households by skill level to determine if there is a pattern in the hours of work by wives and husbands conditional on either husband’s wages or husband’s educational attainment. The wage measure of skill allows us to compare our findings to those of Juhn and Murphy (1997), who report on trends in family labor using a different data set. The educational measure of skill allows us to construct a longer time series. We find several interesting patterns. The married women with the largest increase in market hours are those with high-skilled husbands. When we compare households with different skill mixes, we also find dramatic differences in the time paths, with higher skill households having the largest increase in average hours over time.

We show that in a dynamic Heckscher-Ohlin model the timing of a country’s development relative to the rest of the world affects the path of the country’s development. A country that begins the development process later than most of the rest of the world—a late-bloomer—ends up with a permanently lower level of income than the early-blooming countries that developed earlier. This is true even though the late-bloomer has the same preferences, technology, and initial capital stock that the early-bloomers had when they started the process of development. This result stands in stark contrast to that of the standard one-sector growth model in which identical countries converge to a unique steady state, regardless of when they start to develop.

We assess the economic value of screening testing programs as a policy response to the ongoing COVID-19 pandemic. We find that the fiscal, macroeconomic, and health benefits of rapid SARS-CoV-2 screening testing programs far exceed their costs, with the ratio of economic benefits to costs typically in the range of 2-15 (depending on program details), not counting the monetized value of lives saved. Unless the screening test is highly specific, however, the signal value of the screening test alone is low, leading to concerns about adherence. Confirmatory testing increases the net economic benefits of screening tests by reducing the number of healthy workers in quarantine and by increasing adherence to quarantine measures. The analysis is undertaken using a behavioral SIR model for the United States with 5 age groups, 66 economic sectors, screening and diagnostic testing, and partial adherence to instructions to quarantine or to isolate.

With a monetary union in place, many European countries are now debating if and how to coordinate their tax policies. Of particular interest to EU ministers is taxation of mobile factors like capital. Mendoza and Tesar (MT) use a game-theoretic approach to address the question, What is the outcome of tax competition and tax coordination when countries choose the tax on capital income and adjust other tax rates to keep revenues constant? MT predict very large welfare gains (losses) to tax competition for European countries that had high (low) tax rates prior to financial integration. In particular they predict a large gain for the United Kingdom and a large loss for countries in continental Europe. A second finding is that the welfare gains of tax coordination relative to that of tax competition are small. I discuss these findings in light of current policy debates and possible future extensions of this work.

Mehra and Prescott (1985) found the difference between average equity and debt returns puzzling because it was too large to be a premium for bearing nondiversifiable aggregate risk. Here, we re-examine this puzzle, taking into account some factors ignored by Mehra and Prescott—taxes, regulatory constraints, and diversification costs—and focusing on long-term rather than short-term savings instruments. Accounting for these factors, we find the difference between average equity and debt returns during peacetime in the last century is less than 1 percent, with the average real equity return somewhat under 5 percent, and the average real debt return almost 4 percent. As theory predicts, the real return on debt has been close to the 4 percent average after-tax real return on capital. Similarly, as theory predicts, the real return on equity is equal to the after-tax real return on capital plus a modest premium for bearing nondiversifiable aggregate risk.

Banks' ratio of the market value to book value of their equity was close to 1 until the 1990s, then more than doubled during the 1996-2007 period, and fell again to values close to 1 after the 2008 financial crisis. Sarin and Summers (2016) and Chousakos and Gorton (2017) argue that the drop in banks' market-to-book ratio since the crisis is due to a loss in bank franchise value or profitability. In this paper we argue that banks' market-to-book ratio is the sum of two components: franchise value and the value of government guarantees. We empirically decompose the ratio between these two components and find that a large portion of the variation in this ratio over time is due to changes in the value of government guarantees.

We investigate, by Monte Carlo methods, the finite sample properties of GMM procedures for conducting inference about statistics that are of interest in the business cycle literature. These statistics include the second moments of data filtered using the first difference and Hodrick-Prescott filters, and they include statistics for evaluating model fit. Our results indicate that, for the procedures considered, the existing asymptotic theory is not a good guide in a sample the size of quarterly postwar U.S. data.