Economics Insights @ CBS

Evidence from the Boston condominium market of the early 1990's reveals that an owner's equity position determines his experience as a seller. An owner of a property with a high loan-to-value ratio sets a higher asking price, has a higher expected time on the market and, if he sells, receives a higher price than an owner with proportionately less debt. The down payment requirement for purchasers, but not incumbent owners, provides a simple explanation for this phenomenon among owner-occupants.

We document extreme bias and dispersion in the small-sample distributions of four standard regression-based tests of the expectations hypothesis of the term structure of interest rates. The biases arise because of the extreme persistence in short interest rates. We derive approximate analytic expressions for the biases under a simple first-order autoregressive data generating process for the short rate.

It is argued that, with respect to efficiency gains, the distinction between reform toward a broad-based income tax and reform toward a broad-based consumption tax is relatively minor. This is not to say that there are not important efficiency and distributional consequences of moving from the current tax system to a broad-based consumption tax. Most such consequences can be traced to reform of the income tax.