John J. Seater

New tests of the life cycle and tax discounting hypotheses

Abstract We first test a version of the permanent income consumption function recently suggested by Barro. The results support the theory except that consumption expenditures show sensitivity to transitory income. Next we use the consumption model to test the tax discounting hypothesis, which is strongly supported. This support for tax discounting disagrees with results from some earlier studies using more traditional specifications of the consumption function. However, we show that when certain obviously inadequate estimation procedures are corrected, the traditional models also support tax discounting. This uniform support for tax discounting suggests that the sensitivity of consumption to transitory income is not due to liquidity constraints.

Temporal Aggregation and Economic Time Series

The authors examine the effects of temporal aggregation on the estimated time-series properties of economic data. Theory predicts temporal aggregation loses information about the underlying data processes. The authors find those losses to be substantial. Monthly and quarterly data are governed by complex time-series processes with much low-frequency cyclical variation, whereas annual data are governed by extremely simple processes with virtually no cyclical variation. Cycles of much more than a years duration in the monthly data disappear when the data are aggregated to annual observations. Also, the aggregated data show more long-run persistence than the underlying disaggregated data.

The permanent income hypothesis:: Evidence from the consumer expenditure survey

Consumption Euler relations are estimated with data from the 1986—1991 US Consumer Expenditure Survey without creating a synthetic panel. The stochastic implications of the permanent income hypothesis generally are not rejected, and there is little evidence of liquidity-constrained or rule-of-thumb behavior. The results are robust with respect to consumption category, changes in sample, and choice of instruments. ( 1999 Elsevier Science B.V. All rights reserved.

Alternative monies and the demand for media of exchange

A new value transfer system using alternative monies is emerging as a result of innovations such as prepaid cards, smart cards and the so-called electronic purse. This paper begins with a review of the changes in the value transfer system that are occurring in the economy. It then proceeds to analyze consumer reaction to this trend. It investigates the effect of variations in the number and type of monies on consumer transactions demand. We investigate the behavior of a representative agent faced with a choice of money with which to transact and ask how variations in their characteristics will affect the consumers choice of transactions vehicle, transaction frequency and average balances in various media. Interestingly, the results are not transparent. Copyright 1996 by Ohio State University Press.

On the construction of marginal federal personal and social security tax rates in the U.S

Abstract In this article, I correct and extend my earlier series on marginal federal personal income tax rates. I also construct a measure of the marginal Social Security tax rate and add this to the income tax rate to obtain a measure of the effective marginal tax rate on income due to federal taxes. Finally, I compare my series on marginal income tax rates and its method of construction with those of Barro and Sahasakul.

Are Future Taxes Discounted

IN THIS PAPER, I examine empirically the question of whether or not the public recognizes the future taxes implied by current deficitfinanced expenditures, as discussed by Barro [1]. It seems that such recognition does not occur but that, by a new hypothesis presented here, the aggregate economy behaves much as if it did. This alternative hypothesis relies on the widely accepted efficient markets and permanent income hypotheses, and it requires considerably less sophistication and information on the part of the average economic agent than does Barros hypothesis.

Marginal federal personal and corporate income tax rates in the U.S., 1909–1975

Abstract In this article, I first report and describe the construction of two new statistical series on the marginal Federal income tax rates for corporations and private individuals in the United States since the inception of those taxes and then analyze the behavior of these series over time. Several results on the determination of tax rates are derived; these generally are not consistent with Barros theory of deficit finance.

The market value of outstanding government debt, 1919-1975

Abstract Several new series on the market value of outstanding government debt are reported and their methods of construction described. The new series on Federal debt are compared with other existing estimates and are shown to be markedly superior to them.

Economic Information versus Quality Variation in Cross-Country Data

Data quality in the Penn World Tables varies systematically across countries that have different growth rates and are at different stages of economic development, thus introducing measurement error correlated with variables of economic interest. We explore this problem with three examples from the literature, showing that the problem appears to be minor in growth convergence regressions but serious in estimating the effect of income volatility on growth and in a cross-country test of the Permanent Income Hypothesis. The results suggest, at the least, a need for performing appropriate sensitivity tests before drawing conclusions from analyses based on these data.

Aggregation, Unit Roots and the Time Series Structure on Manufacturing Real Wages

The effects of both temporal and cross-sectional aggregation on the estimated time-series characteristics of manufacturing real wage data are examined. The effects, especially of temporal aggregation, are found to be quite large and in accord with statistical theory. The well-known results of J. Altonji and O. Ashenfelter (1980), that real wages are a random walk, and of C. R. Nelson and C. I. Plosser (1982), that real wages are an IMA(1, 1) process, both seem to be entirely artifacts of temporal aggregation, with the true models following processes that are much more complex and that display substantial cyclical behavior. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.