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To a labor economist or an industrial organization economist, a family looks like "a little factory. " To a bargaining theorist, a husband and wife are "two agents in a relation of bilateral monopoly. " To an urban economist or a public choice theorist, a family looks like "a little city", or perhaps " a little club". To a welfare economist, a family is an association of benevolently interrelated individuals. Each of these analogies suggests useful ways in which the standard tools of neoclassical economics can aid in understanding the workings of a family. The first section of this review draws on the analogies to a little factory and to a lit-tle city, in exploring the theory of household technology and the associated possibilities for distributiing utility among household members. The second section concerns decision theory within the household. This discussion draws on standard consumer decision the-ory, but also on the analogy of a family to a bilateral monopoly and to a little city in which certain public choices must be made. The third section of this paper deals with an equilbrium in which families are formed by persons voluntarily choosing mates. This theory is analogous to "Tiebout theory " in urban economics, where the objects of choice

The present paper re-examines the effectiveness of foreign aid theoretically and empirically. Using a standard OLG model we show that aid inflows will in general affect long-run pro-ductivity. The size and direction of the impact may depend on policies, ‘deep ’ structural characteristics and the size of the inflow. The empirical analysis investigates these possibi-lities. Overall we find that aid has been effective in spurring growth, but the magnitude of the effect depends on climate-related circumstances. Finally, we argue that the Collier-Dollar allocation rule should be seriously reconsidered by donor agencies if aid effectiveness is related to climate. The usefulness of foreign aid in promoting growth in developing countries has been an area of controversy ever since Rosenstein-Rodan in 1943 advocated for aid to Eastern and South-Eastern Europe. Browsing through successive editions of a leading textbook in development economics provides a telling illustration of how the confidence in aid effectiveness dwindled over the years. In the first edition of ‘Leading Issues in Economic Development’, Meier (1964) dedicated a full 18-page section to the issue of foreign aid. He started out asking: ‘How much aid?’. By the

The macroeconomic analysis of fiscal policy is usually based on one of two canonical models--the Barro-Ramsey model of infinitely-lived families or the Diamond-Samuelson model of overlapping generations. This paper argues that neither model is satisfactory and suggests an alternative. In the proposed model, some consumers plan ahead for themselves and their descendants, while others live paycheck to paycheck. This model is easier to reconcile with the essential facts about consumer behavior and wealth accumulation, and it yields some new and surprising conclusions about fiscal policy.

The purpose of this paper is to review some of the recent developments in endogenous growth models. Specifically, our focus is on the growth effects of productive government spending in dynamic general equilibrium models. We use a simple overlapping genera-tions model as our basic framework and illustrate the role of taxes and spending. We then examine several related issues: nonrivalry in publicly provided goods, existence and uniqueness of competitive equilibrium, endogenous public policy, ways of financing public expenditures, composition of publicly provided goods and services, and private alternatives. Finally, we review some empirical results related to output elasticity of public capital and educational expenditures.

To study the effects of "double taxation " of dividend income (first at the level of the corporation, then at the shareholder level) this paper analyzes a model with a tax on all corporate distributions to equity owners and no other taxes. Contrary to the common view, the tax is shown to have no substitution effect and, in particular, no effect on the corporate choice between debt and equity (via retained earnings) finance. The analysis opens to question certain arguments commonly used to support integration of corporation and individual income taxes via "dividend relief."

Maintaining price stability requires not only commitment to an appropriate monetary policy rule, but an appropriate fiscal policy rule as well. Ricardian equivalence does not imply that fiscal policy is irrelevant, except in the case of a certain class of policies ("Ricardian" policies). The role of fiscal developments in inflation determination under a non-Ricardian regime is illustrated through an analysis of the bond-price support regime of the 1940s. A monetary-fiscal regime with attractive properties would combine a "Taylor rule" for monetary policy with nominal-deficit targeting as a fiscal policy commitment. # O#cial text of the 2000 Money, Credit and Banking Lecture, presented at Ohio State University on May 1, 2000. I wish to thank Michael Bordo, Matt Canzoneri, Steve Cecchetti, Larry Christiano, John Cochrane, Paul Evans, Eduardo Loyo, Bennett McCallum, Helene Rey, Stephanie Schmitt-Grohe and Chris Sims for helpful discussions, Gauti Eggertsson for research assistance...

What is the relationship between markets and development'? It is argued that markets promote growth, and that growth in turn encourages the formation of markets. Two models with endogenous market formation are presented to analyze this issue. The first examines the role that financial markets banks and stock markets play in allocating funds to the highest valued use in the economic system. It is shown that intermediation will arise under weak conditions. The second focuses on the role that markets play in supporting specialization in economic activity. The consequences of perfect competition in market formation are highlighted.

In this paper, we present a quantitative analysis of international capital flows induced by differences in population aging processes across countries and by pension reforms. In the vast majority of countries, demographic change will continue well into the 21 st century. It is well known that within each country, demographic change alters the time path of aggregate savings, even more so in countries where fundamental pension reforms and shifts towards more pre-funding are implemented. While the patterns of population aging are similar in most countries, the timing differs substantially, in particular between industrialized and less developed countries. To the extent that capital is internationally mobile, population aging will therefore induce capital flows between countries. In order to quantify these effects, we develop a stylized multi-country overlapping generations model, and we use long-term demographic projections for several world regions to simulate international capital flows over a 50 year horizon. Our simulations suggest that capital flows from fast-aging industrial countries such as Germany to the rest of the world will be substantial. Closed-economy models of pension

The issue ot dyn.aic efficiency is central to analyses of capital accueulation and economic growth. iet tne question of what operating characteristics of an econoay subject to productivity shocks should be examirieo to deteraine whether or riot it is e+iicient has not been raoi ved. This paoor do a criterion based or ooservabies tor oeteraarirg whether or not an economy is dynamically e+ficent. The criterion involves a coniparisori of the casr flows generated oy capital with the volume of investeert. Its application to the United States economy arid the ecoroci cc of other oiaor OECD nations sugqests that they are dynamically efficient.