Focuses on the issue of how foreign tax rates have changed in response to the tax changes introduced by the 1986 U.S. reform. Argues that foreign government responses must be considered as endogenous in any model of the international effects of tax reform.

A "blowup factor" is defined for the measurement of the effect on forecast error variance of two types of misspecification which may be implicit in the choice of a particular adaptive forecasting scheme: (1) misspecification of the number of non-zero parameters of the stationary linear...