AN NBER PUBLICATION ISSUE: No. 2, February 1999

The Digest

A free monthly publication featuring non-technical summaries of research on topics of broad public interest
Large institutional investors have come to own an ever-larger percentage of the country's equities, and large institutional investors prefer to buy large-cap stocks. In the early 1980s, economists discovered that --over the long run-- small-cap stocks outperform large-cap stocks. Since then, however, the so-called small-cap premium has disappeared: from 1926 through 1979, the mean annualized return for small-cap stocks was 12.2 percent, compared with 8.2 percent...

Research Summaries

Article
Taxpayers offer less resistance to increases in flat tax rates than in rates of more onerous and less efficient forms of taxation. In addition to putting hours into record keeping and completing their tax returns, most people spend their incomes and assets in ways that would make little economic sense with a simpler tax structure. Complaints about the complexity and inefficiency of the federal tax code explain the support for a simpler, flatter, and broader tax, such...
Article
The cesarean delivery rate rises by 3.9 percent for each $100 increase in fees. Medicare expenditures have soared by 250 percent over the past decade to $203 billion in 1996. Medicaid has grown by 400 percent to $148 billion. These two giant programs accounted for nearly a third of the growth in the federal budget over that time span. No wonder policymakers feel an intense pressure to reign in costs, especially with the aging of the population. So far, efforts to...
Article
If a monetary rule is used to set policy, the rule chosen should dictate relatively aggressive adjustments of the short-term interest rate in response to changes in inflation and real output. The recent decline in inflation in major industrial countries has led to a general reassessment of just what constitutes effective monetary policy. Government officials around the world are asking: should central banks respond to events on a case by case basis, better known as...

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