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At empirically reasonable labor supply elasticities, equilibrium models of public finance predict that greater taxes in a country should lead to lower aggregate labor. We examine data from a cross-section of 22 OECD economies for such a relationship. The approach is to

This paper extends traditional comparative statics analysis by providing a theory for the adjustment between stationary states for a competitive industry that faces upward sloping supply curves for durable and nondurable inputs given rational expectations. It is shown that capital adjustment is e specially slow for an industry with long-lived capital, an inelastic supply of investment goods, and a low elasticity of substitution between durable and nondurable inputs. A numerical analysis reveals that it takes 6.4 to 50.5 years to close half of the gap between actual and stationary state capital for depreciation rates of 0.01 to 0.05. Copyright 1986 by The Review of Economic Studies Limited.

Progressive taxation with a balanced government budget functions as social insurance since individuals with low realized incomes receive a net subsidy from the public sector. We calculate the level of taxes that optimally trades off benefits due to such insurance with costs arising from distorted labor-supply incentives. Given the best available evidence on parameter values, this optimal rate is roughly 15 percentage points less than the aggregate marginal rate on earned income in Sweden as of 1979. We also assess the median-voter hypothesis by calculating the rate preferred by the median voter; this rate turns out to be about 50 percentage points lower than the actual rate. Progressive taxation which redistributes income-that is, a negative income tax-can function as insurance since individuals who are unlucky and have low realized incomes are compensated via a net redistribution from the public sector. Given risk aversion, this "social" insurance is valuable. At the same time, the provision of insurance generates moral hazard in the form of distorted factor-supply incentives. Thus, an optimal pattern of taxation should balance the insurance effects and distortions caused by greater tax progressivity. This paper is concerned with the magnitudes of tax rates and progressivity implied by this optimal-taxation tradeoff. The topic is of particular interest in view of the high tax rates in a number of northern European countries. One wonders whether these actual rates may be close to or perhaps even beyond the rates that would optimally balance social-insur

In order to estimate the effects of price controls on the rate of inflation, a model is required which simulates the rate of inflation in the absence of price controls. For this purpose, a quarterly model for determining the rate of change in the consumer price index is estimated. The model is used to simulate the rate of inflation in the absence of price controls. The difference between the actual and simulated rates of inflation provides an estimate of the effects of price controls. II. The Model The main concern of this paper is to estimate the effect of price controls and not to test a specific theory of inflation. Therefore, the model includes a number of variables that are suggested by different theories of inflation. The empirical results discriminate between the variables considered and determine the variables which are included in the preferred form of the model. Estimation of the effects of price controls is based on a simulation of the inflation rates which would have occurred in the absence of such controls. If simulated inflation were based on actual development of variables which measure labor cost and money, the impact of price controls would be estimated excluding the effects that may arise through these variables. This is obviously not desirable. Therefore, the simulation equation should not include labor cost and money variables. Instead, this equation is written in a reduced form, where labor cost and money variables in principle are replaced by structural equations, expressing these variables as linear functions of variables included in the simulation equation. However, simulated inflation is based on actual capacity utilization during periods with price controls. This means that the effects of price controls are estimated excluding the effect transmitted through changes in capacity utilization.'