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AN NBER PUBLICATION ISSUE: No. 12, December 2004

The Digest

A free monthly publication featuring non-technical summaries of research on topics of broad public interest
A shift in net imports of 5 or 6 percent of GDP ... implies a massive change in the relative price of non-traded versus traded goods, with non-traded goods becoming relatively cheaper in the United States and more expensive abroad. Should policymakers be worried that the U.S. current account deficit is on track to set an all-time record in 2004, reaching a level near 6 percent of GDP? Though some believe that the issue is a relatively minor one, NBER Research...

Research Summaries

Article
Fears that ending affirmative action would cause a diversion of highly qualified minority students away from the elite colleges and universities appear to be unfounded. Some supporters of affirmative action have argued that eliminating racial preferences would harm highly qualified minority students by discouraging them from applying to elite colleges and universities. This concern rests on the assumption that minority students are uncomfortable attending schools...
Article
Higher tax rates on labor income and consumption expenditures lead to less work time in the legal market sector, more time working in the household sector, a larger underground economy, and smaller shares of national output and employment in industries that rely heavily on low-wage, low-skill labor inputs. Taxes on labor income and consumption spending encourage households to shift away from work in the legal market sector and toward untaxed uses of time such as...
Article
The evidence indicates that as managers prepare for acquisitions and for exercising their options, they have an increased incentive to produce higher earnings and share prices -- and increase their assumed rates of return in order to do so. In Earnings Manipulation and Managerial Investment Decisions: Evidence from Sponsored Pension Plans (NBER Working Paper No. 10543), co-authors Daniel Bergstresser, Mihir Desai, and Joshua Rauh identify a simple way to manipulate...
Article
In 40 countries that had removed restrictions on foreign portfolio investment or 'liberalized,' 26 experienced a decrease in growth volatility after liberalization while 14 recorded an increase. Many countries worry that opening domestic stock markets and other financial markets to foreign investors exposes them to the potentially volatile mood swings of the global economy, with riches rushing in one day, ushering in new wealth, only to suddenly rush out on another...
Article
The economic success of postwar East Asia has been a consequence of good-for-growth dictators, not of institutions constraining them. The notion that democratic political institutions help foster economic growth has gained much attention in recent years. Indeed, the relationship seems intuitive: democracy, checks on government, and strong individual property rights should create a hospitable environment for investments in human and physical capital, and growth should...

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