\documentstyle[12pt,fullpages]{article}
\begin{document}

\noindent
{\bf 14.31 -- Problem Set Three} \\ 
Fall 2000 \\
Due: Tuesday, October 17 \\ [8pt]

\noindent
1. The following equation represents the effects of tax revenue mix on
subsequent employment growth for the population of counties in the United
States:
\begin{eqnarray*}
\mbox{growth}=\beta_{1}+\beta_{2}S_{P}+\beta_{3}S_{I}+\beta_{4}S_{S}+\mbox{other factors}
\end{eqnarray*}
where growth is the percentage change in employment from 1980 to 1990, $S_{P}$
is the share of property taxes in total revenue, $S_{I}$ is the share of income
tax revenues, and $S_{S}$ is the share of sales tax revenue.  All of these
variables are measured in 1980.  The omitted share, $S_{F}$, includes fees and
miscellaneous taxes.  By definition, the four shares add up to one.  Other
factors would include expenditures on education, infrastructure, and so on
(all measured in 1980). \\ [4pt]
a) Why must we omit one of the tax share variables from the equation? \\
b) Give a careful interpretation of $\beta_{2}$. \\ [6pt]
2. Pindyck and Rubinfeld, 5.9 \\
3. Berndt, Chapter 3, Exercise 1. \\
4. Berndt, Chapter 3, Exercise 2. \\
5. Berndt, Chapter 3, Exercise 3. \\
6. Berndt, Chapter 2, Exercise 9. \\ [6pt]


\end{document}

