Showing papers by "Terence Wales published in 1969"

Estimation of the linear expenditure system

Abstract: In this paper we estimate a complete system of demand equations making full use of the restrictions implied by economic theory. Our theoretical model is based on the Klein-Rubin linear expenditure system which was first estimated by Stone. We place primary emphasis on maximum likelihood estimates obtained using annual time series observations of prices and per capita consumption for the U.S. economy in the period 1948-1965. The plan of the paper is as follows: Section 1 begins with a discussion of the problems involved in making systematic use of economic theory to estimate demand functions; this is followed by a brief description of the linear expenditure system and discussion of the specification of its dynamic and stochastic structure. In Section 2 we describe three methods of estimating the linear expenditure system, including the maximum likelihood procedure which we believe is most appropriate. We report our results in Section 3 and our conclusions in Section 4. 1 A. INTRODUCTION The pure theory of consumer behavior is concerned with individual demand functions. An individual's preferences are assumed to be representable by a well behaved utility function, U(x1, .. . , x"), where xi denotes the rate of consumption of the ith good. He is supposed to maximize U subject to the budget constraint n (1) E PkXk =I k = 1

Impact of Investment Subsidies in a Neoclassical Growth Model

Abstract: SINCE 1953, Congress has enacted several changes in the income tax laws which provide subsidies to investment Depreciation rules were amended in 1954 to allow taxpayers to use various "accelerated" depreciation methods, such as sum of the years digits or double declining balance, as a substitute for straight line depreciation In 1962 the tax laws were changed to shorten the lives over which assets could be depreciated, and to provide a tax credit on investment in equipment The 1954 acceleration and the tax credit were suspended in 1966 and reimposed in 1967 Although these subsidies have been incorporated in many econometric and theoretical studies of investment behaviour, the latter have been concerned exclusively with the partial equilibrium impacts on investment and on the interaction between investment and income in a short-run Keynesian framework' Partial equilibrium effects are certainly of interest and the use of these subsidies for countercyclical purposes has been emphasized by recent policy decisions However it should be recalled that one of the major reasons for instituting these policies was to stimulate economic growth Consequently in this paper an attempt is made to analyse in a general equilibrium context the long-run steady state implications of investment subsidies in general, and of the tax credit and of a change in depreciation methods in particular Of course this method ignores all problems arising from cyclical fluctuations in aggregate demand