Capital Gains: Its Recent, Varied, and Growing (?) Impact on State Revenues

In this report, we analyze the impact of capital gains on the recent fall-off in state individual income tax revenues. Given the growing importance of the individual income tax, we analyze the impact of capital gains on state tax revenues since 1989 to determine whether capital gains have had more or less of an impact on state revenues over time

New Estimates of State and Local Government Tangible Capital and Net Investment

Measures of the state and local government capital stock and investment are necessary inputs into several areas of economic analysis, including the measurement of national wealth and its growth. We estimate net investment and depreciation of state and local government nonresidential capital. In aggregate, we estimate a net state and local nonresidential capital stock of $1.8 trillion in 1985, 17% larger than that estimated by the Bureau of Economic Analysis. Net state and local government investment has exceeded the state and local deficit annually for the last forty-five years. While the fraction of state and local purchase of goods and services devoted to net investment has fallen, it has exceeded federal government net capital formation except during defense buildups and has averaged more than 40% of private fixed nonresidential net investment since 1951. Similar comparisons reveal that the state and local government net capital stock substantially exceeds state and local debt, and is about twice the federal government capital stock.

Capital Accumulation and Habit Formation

This paper investigates the impact of habits on savings and steady state capital intensity. Within the framework of an OLG economy with productive capital, a rise in the strength of habits increases savings if the steady state is asymptotically stable. Consequently, the steady state capital intensity as implied by an OLG model with habits is higher compared to the case with time-separable utility. If, however the initial steady state is unstable, a rise in the strength of habits lowers savings.

The Role of Blue Sky Laws After NSMIA and the JOBS Act

State securities laws—in particular, state laws requiring that securities offered by issuers be registered with the states—have been an impediment to the efficient movement of capital to its highest and best use. The pernicious effects of these laws—generally referred to as “blue sky laws”—have been felt most acutely by small businesses, a vital component of our national economy. It has been difficult to remedy this problem. States and state regulators have been tenacious in protecting their registration authority from federal preemption. The Securities and Exchange Commission, on the other hand, has been reluctant to advocate for preemption and unwilling to exercise its delegated power to expand preemption by regulation. In recent years some progress has been made toward a more efficient regulation of capital formation, principally as a result of some congressional preemption of state registration authority. Nonetheless, state registration provisions continue to impede significantly businesses’—especially small businesses’—efficient access to external capital. Further gains in efficient regulation of capital formation can be achieved but require actions both by states and the federal government. States must allocate more resources and effort toward vigorous enforcement of their antifraud provisions. At the federal level, Congress must preempt completely state registration authority. This duty of preemption falls to Congress, because the Commission has shown a sustained unwillingness to exercise its broad, delegated power to preempt state registration authority

On the Golden Rule of capital accumulation under endogenous longevity

This note derives the Golden Rule of capital accumulation in a Chakraborty-type economy, i.e. a two-period OLG economy where longevity is endogenous. It is shown that the capital per worker maximizing steady-state consumption per head is inferior to the Golden Rule capital level prevailing under exogenous longevity. We characterize also the Lifetime Golden Rule, that is, the capital per worker maximizing steady-state expected lifetime consumption per head, and show that this tends to exceed the standard Golden Rule capital level.Golden Rule ; longevity ; OLG models

Dynamic optimal taxation with human capital.

This paper revisits the dynamic optimal taxation results of Jones, Manuelli, and Rossi (1993, 1997). They use a growth model with human capital and find that optimal taxes on both capital income and labor income converge to zero in steady state. For one of the models under consideration, I show that the representative household's problem does not have an interior solution. This raises concerns since these corners are inconsistent with aggregate data. Interiority is restored if preferences are modified so that human capital augments the value of leisure time. With this change, the optimal tax problem is analyzed and, reassuringly, the Jones, Manuelli, and Rossi results are confirmed: neither capital income nor labor income should be taxed in steady state

The Stolper-Samuelson Theorem Reconsidered: An Example of Ricardian Dynamic Trade Effects

Standard trade theory views the capital stock as an endowment. However, trade policy can affect a country's steady-state capital stock. By ignoring the endogeneity of capital, standard analysis is incomplete and can be misleading. For instance, when capital in endogenous, the Stolper-Samuelson theorem incorrectly predicts the long-run impact of a tariff n factor rewards in a 2-by-2 trade model. Moreover, the output effects of a trade policy can be greatly amplified by its indirect effect on the steady-state capital stock. Since this indirect effect may take a very long time to be fully realized, trade policy can have a long-lasting effect on growth. Ricardo first studied this link between trade and steady-state factor supplies.

CAPITAL-SKILL COMPLEMENTARITY AND STEADY-STATE GROWTH

We construct a general-equilibrium version of Krusell, Ohanian, Ríos-Rulland Violante’s (2000) model with capital-skill complementarity. To account forgrowth patterns observed in the data, we assume several sources of growthsimultaneously, specifically, exogenous growth of skilled and unskilled labor,equipment-specific technological progress, skilled and unskilled labor-augmentingtechnological progress and Hicks-neutral technological progress. We deriverestrictions that make our model consistent with steady-state growth. A calibratedversion of our model is able to account for the key growth patterns in the U.S. data,including those for capital equipment and structures, skilled and unskilled laborand output, but it fails to explain the long-run behavior of the skill premium.capital-skill complementarity, steady state growth, skill premium, growth model.

Socially excessive bankruptcy costs and the benefits of interest rate ceilings on loans

The authors study the capital accumulation and welfare implications of ceilings on loan interest rates in a dynamic general equilibrium model. Binding ceilings on loan rates reduce the probability of bankruptcy. Lower bankruptcy rates result in lower bankruptcy and liquidation costs. The authors state conditions under which the resources freed by this cost-saving result increase the steady state capital stock, reduce steady state credit rationing, and raise the steady state welfare of all agents. The authors also argue that the conditions stated are likely to be satisfied in practice. Finally, their results hold even if initially there is capital over-accumulation.Loans ; Interest rates ; Bankruptcy

Absorption in Human Capital and R&D Effects in an Endogenous Growth Model

Until now, in models of endogenous growth with physical capital, human capital and R&D such as in Arnold [Journal of Macroeconomics 20 (1998)] and followers, steady-state growth is independent of innovation activities. We introduce absorption in human capital accumulation and describe the steady-state and transition of the model. We show that this new feature provides an effect of R&D in growth, consumption and welfare. We compare the quantitative effects of R&D productivity with the quantitative effects of Human Capital productivity in wealth and welfare.