Copyright (c) 2013 University of Massachusetts - Amherst All rights reserved. http://scholarworks.umass.edu/econ_workingpaper Recent documents in Economics Department Working Paper Series en-us Fri, 15 Feb 2013 01:44:52 PST 3600 http://scholarworks.umass.edu/econ_workingpaper/151 http://scholarworks.umass.edu/econ_workingpaper/151 Wed, 13 Feb 2013 14:46:13 PST This paper examines the role of fiscal policy in the long run. We show that (i) dynamic inefficiency may be empirically relevant in a modified Diamond OLG model with imperfect competition, (ii) fiscal policy may be needed to avoid inefficiency (if investment adjusts passively to saving) and maintain full employment (if investment and saving decisions are taken separately), (iii) a simple and distributionally neutral tax scheme can maintain full employment in the face of variations in 'household confidence', and (iv) the debt ratio is inversely related to both the growth rate and government consumption.

]]> Skott, Peter et al. http://scholarworks.umass.edu/econ_workingpaper/150 http://scholarworks.umass.edu/econ_workingpaper/150 Wed, 13 Feb 2013 14:46:10 PST This paper explains the BEA methodology for computing historical cost and replacement cost measures of the net stock of capital in the U.S. economy. It is demonstrated that there exists a threshold rate of inflation in the price of capital goods that keeps the percentage difference between the two capital stock measures constant. Hence, over periods when average inflation in the price index for capital goods is equal to the threshold value, historical cost and replacement cost profit rates would show equal percentage changes; an example of such a period for the U.S. economy is the whole postwar period 1946–2010. Moreover, trends in both replacement cost and historical cost profit rates display very similar movements over long periods, making the choice of capital stock valuation irrelevant for empirical analysis of profitability trends.

]]> Basu, Deepankar