Vol. 1, No. 2

Stephen Pudney:
Estimating engel curves: a generalisation of the P-Tobit model (pp. 129–147)


Cross-section demand relationships are usually estimated using data from short-duration expenditure surveys. The interpretation of such observations is not straightforward, since a zero recorded expenditure may understate true demand and a positive expenditure overstates demand. Deaton and Irish have recently proposed and applied the P- Tobit technique to deal with this problem, but with little success. The present paper specifies a generalisation of their model and applies alternative estimators to two different sets of UK survey data.

Pekka T. Hietala:
Super premiums in the Finnish stock market: evidence on international asset pricing (pp. 148–171)


In this paper we analyze international asset pricing in a market selling where different investors have different investment opportunity sets depending on their nationality. In this kind ofmarket selling different investors may require different required rate of returns on their investments. This occurs, e.g. if the riskless interest rates and the market risk premiums are the same for all investors but investors perceive the undiversifiable risk of a stock differently depending on their investment opportunity sets. In the paper we derive the equilibrium required rate of returns for different investors in this kind of selling which perfectly occurs in Finland and furthermore test several hypotheses of this equilibrium model in the Finnish stock market. Empirical results are consistent with the hypotheses derived from the equilibrium model.

Paavo Peisa and Heikki Solttila:
Output, wages and the demand for labour: evidence from panel data (pp. 174–183)


Using a sample of small and medium sized firms, we investigate the relationship between wages and employment. Our data reveal a stable cross-section correlation between wages and productivity, consistent with the neoclassical demand for labour theory in general and the Cobb-Douglas assumptions in particular. These results do not indicate anything about the direction of causation. A positive correlation between wages and productivity can arise from capital-labour substitution as wages change but other explanations are also plausible. Intervening variables are for example a particular concern in the analysis of panel data.

In this paper, the neoclassical theory is tested in the generalized random effects framework put forward by Chamberlain. A series of exogeneity tests gives some support to the neoclassical notion that at the micro level, wages affect employment and productivity but not vice versa. The evidence presented is rather weak, however, and our data do flot reject a restriction to a purely static relationship. In this specification. parameter estimates are not neoclassical. The wage-elasticity estimates obtained from the neoclassical cost-minimization model are of order 0.2-0.4, which is quite reasonable. Our results give support to the hypothesis that measurement errors have biased some of the earlier elasticity estimates from panel data towards 1.

Matti Tuomala and  Jouko Vilmunen:
On the trends over time in the degree of concentration of wealth in Finland (pp. 184–190)


The aim of this paper is to illuminate the forces that may reasonably be assumed to underlie the variation observed across different wealth shares in Finland. The estimated equations, which provide a reasonable fit to the data, support, at least in a proximate manner, the views present in a simple »Meade process». The forces for equality (»popular wealth») and inequality (profits) in wealth distribution come out clearly in the empirical results.

Jari Kuuluvainen, Lauri Hetemäki, Pekka Ollonqvist, Ville Ovaskainen, Heikki Pajuoja, Jorma Salo, Heikki Seppälä and Mikko Tervo:
The Finnish roundwood market: an econometric analysis (pp. 191–204)


The present study investigates the determination of the aggregate supply of and demand for saw logs and pulpwood in Finland using annual data from 1965 to 1985. Raw material is purchased in competitive markets from private nonindustrial forest owners. The equilibrium assumptions seem to work rather well in both markets, in spite of the fact that, particularly in the pulpwood trade, recommended stumpage price agreements have been concluded for most of the years. Both supply and demand react to prices, and cross elasticities of supply between saw logs and pulpwood are positive or zero. When only pulpwood originating from thinning stands is used as the dependent variable in the pulpwood trade, supply and demand elasticities for pulpwood increase and cross elasticity of pulpwood supply with respect to the price of saw logs becomes negative.

Mikael Ingberg:
A note on cost of capital formulas (pp. 205–215)


The purpose of the paper is to analyze the effects of the proposed reform of the Finnish capital income tax code on the user cost of capital. The analysis focuses on the proposed switch from a dividend deduction to an imputation system to eliminate the double taxation of dividends. The novelty of the paper is its focus on some details in the tax code. Thus the effects of a »leaking» co/porate tax system is analyzed as well as the effects of the minimum tax proposed to guarantee that dividends are taxed at least once.

Carl G. Uhr:
The development of economics in Finland until 1918 (pp. 216–224)

Finnish Economic Papers 2/1988