Industry officials and government policymakers have for some time decried the lack of a framework for establishing and defending Research and Development (R&D) policies. Effective policy requires an understanding of the underlying economics. This book offers models and analysis of the economic elements that drive technology-based growth with emphasis on their implications for policy analysis. It also compares existing U.S. policies with those used in Europe and Japan. The results of these models and analysis is a framework for matching various forms of underinvestment with efficient strategic and policy responses. This market-failure based approach enables industry and government R&D initiatives to be developed, analyzed, and implemented with greater success than previously attained. The first part of the book analyzes economic trends to show how they are affected by technological change and the evolving nature of foreign competition. R&D spending patterns are studied to identify and characterize market failures that prevent adequate private-sector investments in technology. A model is presented for a typical technology-based industry. The second part looks at specific technologies and policies that impact R&D investment and that have been the subject of intense policy debate.

The authors propose four economic principles for use in deciding taxing responsibilities for various levels of government. These are: 1) efficiency of the internal common market - for efficiency in internal common market, taxes on mobile factors and tradable goods should either be assigned to the national government or coordinated among subnational governments; 2) national equity - progressive redistributive taxes ought to be assigned to the level of government having responsibility for redistribution, usually the national government. Subnational governments could levy supplementary flat rates on the federal tax base; 3) administrative costs - to minimize collection, administration, and compliance costs, a tax should be assigned to the level likely to be best informed about its base. This suggests assigning real property taxation to local governments and corporate income taxation to the national government; and 4) fiscal need - to ensure accountability, revenue means should be matched as closely as possible to revenue needs. Thus tax instruments intended to further specific policy objectives should be assigned to the level of government having the responsibility for such a service. Thus progressive redistributive taxes, stabilization instruments, and resource rent taxes would be suitable for assignment to national government; while tolls on intermunicipal roads are suitably assigned to state governments. Some resource taxes, such as royalties and fees and severance taxes on production and/or output, are designed to cover costs of local service provision and could be assigned to subnational governments. In addition, subnational governments could also impose taxes to discourage local environmental degradation. In countries with a federal level VAT, it may be too cumbersome to have subnational sales taxes. In such circumstances, the fiscal need criterion would suggest allowing subnational governments access to taxes which are traditionally regarded as suitable for national administration, such as personal income taxes. The authors also stress the importance of tax harmonization and coordination in preserving internal common market, reducing collection and compliance costs and helping to achieve national equity objectives and suggest methods of achieving such coordination vertically (between the federal and subnational governments) and horizontally (among subnational governments).

Publisher Description

When the 12 District Banks of the Federal Reserve System opened their doors for business on November 16, 1914, few observers could have foreseen the Fed's present role as a major, if not dominant, player in U. S. and world economic policymaking. After all, two previous attempts to create a central bank in this country had ended in failure. Moreover, much of the economic theory and institutional structure that have given rise to monetary policy's influence in recent years were not yet in place. Indeed, it would take the Fed more than 20 years to learn (by accident!) the power of open market operations. Clearly, the modern Federal Reserve System has found itself with powers and responsibilities that were not envisioned by its founders. These proceedings from a conference held at the Federal Reserve Bank of St. Louis on October 19-20, 1989, examine U. S. monetary policy from a variety of perspectives: a historical review of how it has affected aggregate economic performance; a positive analysis of why the Federal Reserve has chosen particular policy strategies; a review of normative arguments about what the Fed should pursue as its policy objective; a critique of how the Fed's "output"-the flow of monetary services in the U. S. economy-is measured; and, finally, a debate over the Fed's ability to influence real economic activity by changing the nominal quantity of money in circulation.