Economic theory dating
The rational expectations version of the permanent income hypothesis has changed the way economists think about short-term stabilization policies (such as temporary tax cuts) designed to stimulate the economy.Keynesian economists once believed that tax cuts boost disposable income and thus cause people to consume more.The rational expectations version of the permanent income model has been extensively tested, with results that are quite encouraging.The evidence indicates that the model works well but imperfectly.), with economists attributing the correlation to errors people make in their forecasts of the price level.Before the advent of rational expectations, economists often proposed to “exploit” or “manipulate” the public’s forecasting errors in ways designed to generate better performance of the economy over the business cycle.This result encapsulates the consumption-smoothing aspect of the permanent income model and reflects people’s efforts to estimate their wealth and to allocate it over time.If consumption in each period is held at a level that is expected to leave wealth unchanged, it follows that wealth and consumption will each equal their values in the previous period plus an unforecastable or unforeseeable random shock—really a forecast error.
Tax policy influences a wide variety of personal behaviors, such as where to live and whether to make human capital investments.Because temporary tax cuts are bound to be reversed, they have little or no effect on wealth, and therefore have little or no effect on consumption.Thus, the permanent income model had the effect of diminishing the expenditure “multiplier” that economists ascribed to temporary tax cuts.Researchers apply a range of economic tools to the analysis of health care and health outcomes. and China, don't blame Donald Trump," Greg Ip, The Wall Street Journal's chief economics commentator, wrote recently. Even free traders and internationalists agree China's predatory trade practices - which include forcing U. business to transfer valuable technology to Chinese firms and restricting access to Chinese markets - are undermining both its partners and the trading system." The research: A leading voice in his story was Dartmouth College Professor and NBER Research Associate Douglas Irwin, author of the NBER book Clashing over Commerce: A History of U. So write the authors of a new working paper featured in the April edition of The NBER Digest.Practical and descriptive, this latest volume in the Studies in Income and Wealth series is full of insights relevant to health policy students and specialists alike. Also featured in this month's Digest are studies analyzing intergenerational impacts of disability insurance policy, assessing the effectiveness of an employee wellness program, exploring the financial ramifications of U. geopolitical leadership, gauging the effects of Fair Trade certification on coffee-growing communities, and probing the ways that entrepreneurs are guided by their fathers.