This study, "Essays on the Inflation Tax," is three related, but independent papers. They are united by the central theme that inflation is a tax on the purchasing power of money. As a tax, inflation should be analyzed for its efficiency and equity. The former is the sole topic of this study. The contribution to economic theory is essentially one of synthesis. The thesis endeavors to integrate hypotheses and concepts from monetary theory, the economics of information and uncertainty, capital market theory, welfare economics and public finance, especially tax incidence theory, regarding market behavior and inflation. The core issue in this synthesis is whether the inflation tax is a neutral tax. The inflation tax is efficient, or neutral, if no product substitutions arise from its imposition. It is shown that the inflation tax is not neutral. The tax is inefficient because even in an idealized economy, real resources will be consumed in attempts to avoid or shift the burden of the tax. There are four primary determinants to the magnitude of the inefficiency of the tax: (1)the size of the direct burden of the tax, (2)the accuracy and pervasiveness of expectations, (3)the uncertainty about future inflation, and (4)institutional rigidities and market imperfections associated with economic behavior which is restricted to responses to nominal prices. The incidence of the tax can be identified only when all market responses caused by an exogenous change in the tax are analyzed and measured simultaneously. The global burden of the inflationary tax is equal to its direct burden if and only if the cost of the tax in any single market is strictly independent of the cost of the tax in all other markets. This condition also describes tax neutrality. The concept of "neutral money" has a long standing place in economic theory. It has recently received renewed attention because of its close association with the concept of rational expectations. Simply stated, changes in the money supply which are anticipated "rationally" cause no real effects. Now, if inflation is assumed to be caused solely by changes in the money supply, it follows that rationally anticipated inflation has no real (substitution) effects. But the inflation tax is not neutral. Herein lies a serious conceptual conflict. This text is a study and resolution of this conflict. If the inflation tax is endogenous, the expected inflation rate and real market quantities are jointly and simultaneously determined. An endogenous inflation tax is "neutral" in that it has no causal connection with real behavior. This is the interpretation of the Fisherian Hypothesis, which states that the nominal rate of interest is equal to the real rate of interest plus the expected future inflation rate. However, an endogenous inflation tax may have caused a loss in social welfare greater than the inflation tax revenues, i.e., excess burden which implies non-neutrality. Hence, the inflation tax can at one moment be non-neutral (exogenous), and yet at a later moment it can be neutral, or more accurately "endogenous". The three essays which comprise this work examine this issue of the neutrality-endogeneity of the inflation tax by critically evaluating existing theories and hypotheses about the costs and effects of inflation. In general, it is shown that most of these are either seriously flawed or simply erroneous.

This dissertation is an application of recent innovations in analytical economic history to the field of development. It applies the modern economic theory of property rights and North's recently advanced theory of the state to the development of Kenyan and Tanzanian agriculture since the 1950s. The dissertation explores the forces which constrained the choice of a property rights system in each case, but the main emphasis is on institutional development and on its implications for efficiency, growth and income distribution. In Kenya, African lands were consolidated and registered, barriers on African cash crop production were removed, and private land rights were fostered in the European areas. This system constituted a relatively efficient property rights structure, which contributed to rapid growth of small farm output, but at the expense of increasing income inequalities. This result is consistent with theoretical expectations. Nevertheless, in areas characterized by marginal land and scarce capital, or by absentee ownership, the efficiency of property rights was not a binding constraint, and the change in property rights had little effect. Political constraints prevented the generalization of efficient property rights, as in the case of intertribal land transfers which are still barred. The resulting loss in efficiency, compounded by the related growth in landlessness, constitutes one of the country's most pressing problems today. The aim of Tanzania's leaders was to reorganize agricultural production on a cooperative basis. The realization of this goal was handicapped by a number of factors, including inadequate material and administrative resources, unrealistic planning and implementation, and consequent failure to mobilize peasant support for the envisaged transformation. Individual land ownership persisted and inequalities increased--though on a lesser scale than in Kenya--in spite of the official collectivist and egalitarian ideologies. Increasing dirigisme, relying on an ineffectual bureaucracy, resulted in low productivity and retarded growth, contributing to low levels of food production in the 1970s. The dissertation explains the nature of the organizational choices faced by developing countries and relates these choices to their performance and structural consequences.

Most less developed countries are dependent on external borrowing to achieve high sustained economic growth. However, external borrowing requires fixed payments independent of the actual return on the invested funds. If a country either invests the money inefficiently or is subject to unexpected difficulties, it may not be able to meet contracted service payments. Potential debt servicing problems have existed for many years, and recently, the actual occurrence of service interruptions has become much more frequent. Despite the difficulty of servicing debt, it is optimal, in an economic sense, for less developed countries to borrow abroad. Foreign capital goods are usually scarce in less developed countries so their productivity is relatively high. Foreign borrowing allows more imports of capital without forcing down consumption. As long as the productivity of the capital exceeds its cost, debt servicing problems should not arise. A study of Honduras indicates that real GDP growth can be increased through foreign borrowing. However, the higher level of debt raises the likelihood of debt servicing difficulties. Even when the use of debt is efficient, a heavier debt burden makes Honduras more susceptible to unexpected shocks. But if GDP growth is not overly ambitious, the debt servicing burden stabilizes and may eventually begin to decline. The greatest danger arises when future debt servicing requirements are ignored. A sharp increase in external debt may allow high GDP growth in the short run but eventually the resulting debt service will become unsustainable.

A price endogenous, spatial equilibrium mathematical programming model (USMP) is formulated and applied to address contemporary issues in U.S. agriculture sector policy. The historical and theoretical development of this type of model is reviewed with particular emphasis upon the incorporation of agricultural producer risk in a mean, variance framework. USMP is solved for equilibrium price, production and utilization levels of all major U.S. crop and livestock commodities. Production is specified at the region and state level with detailed production activities; utilization is specified in domestic consumption, commercial stock and export demand markets. USMP is used for comparative static analysis by adjusting its policy or market variables, and observing the resulting impacts on equilibrium values of performance indicators such as commodity and factor prices, production, and detailed regional income and expenditure accounts. USMP is formulated and solved nonlinearly. In contrast to the linear approximation and optimization procedures used in most previous models of this type, this formulation facilitates proper representation of inherently nonlinear relationships and keeps the model compact and computationally efficient. Its powerful formulation and general efficiency make USMP useful for short-turnaround work in a real policy analysis environment. The effects of changing levels and interannual variability in agricultural commodity export demand are analyzed and found to affect key target variables differently. Agricultural production falls when export variability rises. Consumers face generally higher food prices when either variability or demand increase. Suppliers of agricultural production inputs can expect to benefit from increased export demand and lose when export uncertainty rises. Crop producer income increases under both scenarios; livestock producer income changes little with more variability and declines when exports increase. Although both increasing export demand levels and variability lead to increased net farm income, increased demand is preferred. Two topical policy issues are investigated: an export promotion program and a general reduction in agricultural price and income stabilization programs. The impacts of a fifty cent per bushel wheat export subsidy are found to be minimal. Stabilization program changes which double the variability of net returns in crop production lead to reduced crop output, higher crop prices and higher farm income.

This dissertation evaluates the importance of small-scale industries in providing employment and income in the economies of African countries. Data on small enterprises in Ethiopia is used to explore questions related to the structure of production and the composition of the small-scale industry sector. The focus of the study is more on efficiency of production and employment, sources of demand, and constraints on the development of the sector. According to the analysis of this study, the artisan and small-scale industrial sector is an important component of the Ethiopian economy in terms of providing income and employment. The empirical evidence on factor intensity and productivity also indicates that many small enterprises are "efficient" in utilizing scarce resources such as capital and foreign exchange. Small-scale industries also have reasonable demand for their products, but strengthening the linkage between small-scale industries and the agricultural sector appears to be necessary. The study also examines the socioeconomic environment (including government policies) within which the A&SSI operates and attempts to relate some of these factors to the performance of the latter. The result suggests that institutional, social, and economic constraints impede the development of the sector.

The effects of taxes on the behavior of a profit maximizing firm which explores and produces an exhaustible resource, are analyzed in an optimal control framework. Specifically, a severance tax, a royalty, a profit tax and various partial expensing provisions are considered for competitive and monopolistic market structures. The producer's response to these taxes is studied and the dead-weight losses from the taxes are calculated. The case of extraction from a fixed reserve base and a variable reserve base are taken separately but the study concentrates on the simultaneous nature of the extraction and exploration decisions. Time paths of exploratory effort, extraction and prices are computed. Two formulations are developed. The first is based on a model of Pindyck. The second formulation assumes a Cobb-Douglas production function for exploration and the current extraction decisions. It is shown that, in this dynamic partial equilibrium process, severance taxes and royalties induce the producer to reduce production and exploration and cause a shift in the time path for prices, similar to the static results. This shift in price, quantity and exploration paths is more pronounced in the competitive case. The profit tax, with complete expensing of costs, is neutral. The deadweight losses associated with the taxes under consideration are very low, especially for low tax rates, in competitive market structures. Higher deadweight losses for monopoly are shown to result from sharper reductions in producer profits rather than higher consumer losses.

Economic theory predicts that money is an important determinant of macroeconomic variables but fails to clearly define which assets should be considered money. Benjamin Friedman (1984) rejected the hypothesis that the major monetary aggregates move closely together over substantial periods of time. Thus, the central bank cannot simply pick one monetary aggregate, target it appropriately, and ignore mixed signals. Separability of preferences provides an explicit criteria for determining which assets should be considered as money. An aggregate based on separability will satisfy two properties. First, the total amount of the aggregate desired can be determined independent of the size of the aggregate's individual components. Second, changes in the relative size of the aggregate's components which leave the aggregate's total unchanged will not affect the choice of other assets and commodities. These properties indicate that an aggregate based on separability will have a more stable relationship with GNP than any other aggregate. Barnett (1980) first argued this proposition. Separability imposes structure on the Hessian matrix. Imagine a partition of the n goods of the choice set into m groups. If preferences are separable in this partition, the marginal rate of substitution between any pair of goods in the same group is independent of the level of consumption of any good which is not an element of that group. The result is two-level Hessian matrix corresponding to the partition. Theil translates this Hessian matrix into a two-level Rotterdam demand model. This model first allocates total expenditure among groups of goods. Next, each group allocation is allocated among the group's individual components. This two-level demand model permits the testing of alternate hypotheses regarding separable partitions of the choice set. Three separate partitions of choice set were tested. Each was rejected. Thus, the data do not support using separability to define a monetary aggregate for policy purposes.

The phenomenon of multiple-output production has several explanations. Jointness, cost complementarities and risk avoidance, or a combination thereof, are the most likely. Jointness and cost complementarities are closely related concepts, both resting on the existence of an underlying fixed factor of production which is shared by more than one product. Risk avoidance can be another cause of jointness, in an economic sense, and an alternative explanation for product diversification. In this dissertation, the relationship between risk avoidance behavior and economic jointness is formally analyzed in the context of a multi-output technology. The implications in terms of the revenue function are examined and point to its subadditivity. We call this property "revenue complementarities", analogous to economies of scope of the cost function. The implications of both of these concepts for a new flexible form, the Constant Elasticity of Substitution, Constant Elasticity of Transformation, Generalized Leontief (CES-CET-GL), are laid out. A restricted CES-CET-GL profit function used to investigate a panel of agricultural production units in the Semi-Arid Tropics of rural India reveals the existence of cost complementarities as well as a considerable effect of risk aversion on profit maximizing behavior. The size and magnitude of the elasticities, estimated from a nonlinear system of output supply and input demand equations with fixed effects, show that farmers are responsive to price incentives, as predicted by neoclassical theory. Results indicate, among other things, that there is an overutilization of the quasi-fixed factor land, while the calculation of the shadow price of risk shows that risk averse behavior reduces the level of profits.

In recent years a number of alternative methods have been proposed with which to measure technical efficiency. But we know little of their comparative performance in efficiency measurement. In this study we examine the relative strengths of two different methods--stochastic frontier models using three flexible forms and Data Envelopment Analysis (DEA) in the estimation of firm-specific technical efficiency. To address the limitations of previous studies we utilize Monte Carlo techniques which allow us to control the structure of an underlying technology and two stochastic components. Most stochastic frontier models have focused on estimating average technical efficiency across all firms. The failure to estimate firm-specific technical efficiency has been regarded as a major limitation of previous stochastic frontier models. To overcome this limitation we estimate firm-specific technical efficiency using panel data. We also examine the performance of stochastic frontier models using panel data for three estimators--MLE, GLS and the Within estimator. Our results indicate that for simple underlying technologies the relative superiority of the stochastic frontier models to DEA depends on the choice of functional forms. That is, if the employed form is close to the given underlying technology, it is obvious that stochastic frontier models dominate DEA. If the misspecification of the employed form is serious, DEA is better than stochastic frontier models. For complex underlying technologies the performance of DEA deteriorates markedly. Furthermore, because of an intrinsic problem of DEA, we may not expect that DEA can be used as an efficiency measure for complex underlying technologies. In the application of stochastic frontier models the Within estimator is similar to the other estimators. The similarity may be regarded as a potential solution for two common problems of previous stochastic frontier models--the uncorrelatedness of input levels and technical inefficiency and the dependence of stochastic frontier models on distributional assumptions made on the technical inefficiency. It is hoped that the results of this study will be of use in selecting the appropriate method with which to measure firm-specific technical efficiency in future applied studies.

The manner in which an individual chooses to distribute his or her wealth upon death is a very important avenue for economic analysis. Intergenerational model builders place a great deal of importance upon bequeathing patterns to children. Primogeniture results in a much more unequal distribution of income and wealth, over the generations than equal sharing. Also, economists claim that a greater degree of wealth-splitting of larger estates is an equalizing factor (in the long run) on the distribution of wealth. Charitable bequests bring much-needed dollars into the coffers of charitable organizations. Educational and social welfare institutions are particularly with testators. Empirical research has been conducted into whether the unlimited charitable deduction has much of an effect on the amount of these bequests. This dissertation is an empirical study of the patterns of both charitable and non-charitable bequests and how these patterns are influenced by taxation, estate size and other explanatory variables, and finally the implications these patterns have for the distribution of wealth in the economy and the amount of tax revenues collected. The data base comes from probate records for 618 Harris County, Texas estates from the 1970s and the 1980s. The influence of inheritance and estate taxation on these bequests is particularly emphasized in this study. A model of testator choice is presented which shows how progressive inheritance taxation affects the bequest decision. Regression analysis is used to demonstrate that the degree of intrafamily inequality is significantly influenced by taxation. Evidence is also presented demonstrating other behavioral responses induced by "death" taxation, such as trust-forming behavior and tax avoidance practices. Price and wealth elasticities for charitable bequests are calculated using a Tobit regression procedure. The estate tax with its unlimited charitable deduction is shown to be an "efficient" way to encourage philanthropy, in the sense that, the gain to charity is greater than the loss to the treasury.