nep-cmp New Economics Papers
on Computational Economics
Issue of 2007‒07‒07
three papers chosen by
Stan Miles
Thompson Rivers University

  1. Monte Carlo Simulation of Macroeconomic Risk with a Continuum Agents : The General Case By Hammond, Peter J.; Sun, Yeneng
  2. Age-Dependent Skill Formation and Returns to Education: Simulation Based Evidence By Friedhelm Pfeiffer; Karsten Reuß
  3. A model to estimate informal economy at regional level: Theoretical and empirical investigation By Albu, Lucian-Liviu

  1. By: Hammond, Peter J. (Department of Economics, University of Warwick); Sun, Yeneng (Department of Economics, National University of Singapore)
    Abstract: In large random economies with heterogeneous agents, a standard stochastic framework presumes a random macro state, combined with idiosyncratic micro shocks. This can be formally represented by a ran-dom process consisting of a continuum of random variables that are conditionally independent given the macro state. However, this process satisfies a standard joint measurability condition only if there is essentially no idiosyncratic risk at all. Based on iteratively complete product measure spaces, we characterize the validity of the standard stochastic framework via Monte Carlo simulation as well as event-wise measurable conditional probabilities. These general characterizations also allow us to strengthen some earlier results related to exchangeability and independence.
    Date: 2007
  2. By: Friedhelm Pfeiffer (ZEW Mannheim, University of Mannheim and IZA); Karsten Reuß (ZEW Mannheim)
    Abstract: This study integrates findings from neurobiology and psychology on early childhood development and self-regulation to assess returns to education. Our framework for evaluating the distribution of age-specific returns to investments in cognitive and noncognitive skills is a lifecycle simulation model based on the technology of skill formation (Cunha and Heckman (2007)). Our findings illustrate the cumulative and synergetic nature of skill formation, the skill multiplier, and the shaping role early childhood has for human capital formation, growth and inequality.
    Keywords: intelligence, self-regulation, human capital, returns to education, life span
    JEL: J21 J24 J31
    Date: 2007–06
  3. By: Albu, Lucian-Liviu
    Abstract: Many problems emerge since it is widely believed that high tax rates and ineffective tax collection by government are the main causes contributing to the rise of the informal economy. Already the economists have established a relationship between tax rates and tax evasion or size of the informal economy. The higher is the level of taxation, the greater incentive is to participate in informal economic activities and escape taxes. At the macroeconomic level, there is a number of so-called indirect methods used to estimate the size and dynamics of informal economy, reported in literature as “Monetary Approach”, “Implicit Labour Supply Method”, “National Accountancy”, “Energy Consumption Method”, etc. Unfortunately, many times there are huge differences among the estimated shares of informal or underground economy obtained by various methods. For instance, in case of Romania the figures are between about 20% of GDP, obtained on the base of the energy consumption method and more than 45% computed by using the monetary approach. Also, the figures reported by the National Institute for Statistics (NIS), based on national accounts methodology, increased (mainly due to changes in methodology) from about 5% in 1992, to 18% in 1997 and to 20-22% after 2000. Adding to these figures about 7% of GDP, representing the estimated level for self-consumption in case of a rural household, legal non-registered but informal, resulted that last years the informal economy is responsible of 27-29% of national economy. In this article, coming from certain general accepted finding of the theory in matter of modelling underground economy, we concentrate on evaluating analytically the limit-values of certain important parameters involved in models used to estimate the size of underground economy and to explain the mechanisms of its dynamics. Then we shall simulate some exercises on available data. The second goal of the paper is to report some conclusions of our investigation based on data supplied by special surveys organised in Romania. Also, in order to see since certain hypotheses (referring to the complex transmission mechanism from the tax policy decisions to the effective implication of agents into informal economy) are statistically verified and to extend the study from the aggregate level to a deep research inside the population set in regions, we used data supplied by this special large survey, which already were processed and are available in our database.
    Keywords: informal economy; invisible sector; tax rate; probability of detection; risk-aversion; computer assistance
    JEL: C13 H31 O17 D31 E62
    Date: 2007

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