The Cross-country Relationship between Interest Rates and Inflation over Three Decades

This paper looks at the relationship between inflation and interest rates across a number of industrialised countries over the past three decades. The paper is in three parts. It begins by splitting the whole period up into a number of smaller periods and looking at the inflation/interest rate relationship across countries within these periods. The most interesting conclusion of this section is that while there was a negative relationship between inflation and real short-term interest rates in the 1970s (i.e. high inflation countries had lower real short-term interest rates), in the 1980s there was a positive relationship between real short-term interest rates and inflation. The paper then discusses some explanations for this observation – why might we expect to see higher real interest rates in high inflation countries and why has this only occurred in the 1980s. Finally the paper uses a simple test to attempt to distinguish between competing explanations of the positive inflation/real interest rate relationship. Unfortunately, the test cannot distinguish conclusively between the competing hypotheses.

A History of Revenue Forecasts

Feenberg et al. (1989) apply a simple regression-based method to test the rationality of state revenue forecasts. Using the same regression-based methodology, we test the rationality of federal revenue forecasts for fiscal year 1802 through 2001. We find that Treasury forecasts of federal revenues satisfy the conditions of weak rationality

External Debt and Liabilities of Industrial Countries

This paper attempts to overcome the lack of comparable data on the external indebtedness of the industrial countries by constructing consistent time series of data on external debt and the overall international investment position of these countries. As well as classifying external assets and liabilities by type of instrument (debt and equity), this paper presents them by function (direct and portfolio investment) and by sector (official and non-official). Australia is shown to be one of nine industrial countries with net external debt in the range of 30 to 60 per cent of GDP. Within this group, Australia is currently positioned in the lower half.

Tax policy design in the presence of social preferences: some experimental evidence

This paper reports the results of experiments designed to examine whether a taste for fairness affects people’s preferred tax structure. Building on the Fehr and Schmidt (1999) model, we devise a simple test for the presence of social preferences in voting for alternative tax structures. The experimental results show that individuals demonstrate concern for their own payoff and inequality aversion in choosing among alternative tax structures. However, concern for redistribution decreases when it leads to increasing deadweight losses. Our findings have important implications for the design of optimal tax theory.

Cooperating to Resist Coercion: An Experimental Study

This study sheds light on the difficulties people face in cooperating to resist coercion. We adapt a threshold public goods game to investigate whether people are able to cooperate to resist coercion despite individual incentives to free-ride. Behavior in this resistance game is similar to that observed in multi-period public goods games. Specifically, we observe "out-of-equilibrium" outcomes and a decrease in successful resistance in later periods of a session compared to earlier ones. Nevertheless, cooperation remains relatively high even in the later periods. Finally, we find that increasing the resistance threshold has a substantial negative effect on the probability of successful resistance.

TAX INCIDENCE: DO INSTITUTIONS MATTER? AN EXPERIMENTAL STUDY

According to economic theory, the incidence of a unit tax is independent of the statutory assignment of the liability to pay the tax. However, the theory is silent on the possible effects of market institutions on tax incidence. We report data from an experiment designed to address two questions. Is tax incidence independent of the assignment of the liability to pay tax to sellers or to buyers? Is tax incidence independent of market institutions? We conduct laboratory experiments with double auction and posted offer markets. Based on the results of nonparametric and parametric tests of prices generated by laboratory markets, we conclude that the answer to both questions is “no”. We report that observed differences from liability side equivalence are statistically significant and economically meaningful. We also report that the incidence of the same tax differs between double auction and posted offer markets with the same demand and supply schedules