nep-cmp New Economics Papers
on Computational Economics
Issue of 2010‒10‒16
24 papers chosen by
Stan Miles
Thompson Rivers University

  1. The Economics of the Nord Stream Pipeline System By Chyong, C.K.; Noël, P.; Reiner, D.M.
  2. COALMOD-World: A Model to Assess International Coal Markets until 2030 By Clemens Haftendorn; Franziska Holz; Christian von Hirschhausen
  3. A Note on a Rapid Grid Search Method for Solving Dynamic Programming Problems in Economics By Hui He; Hao Zhang
  4. A Macro Model of the Credit Channel in a Currency Union Member: The Case of Benin By Issouf Samaké
  5. Limits to Growth: Tourism and Regional Labor Migration By Denise Konan
  6. Positive natural resource shocks and domestic adjustments in a semi-industrialized economy: Argentina in the 2004-2007 period By Serino, L.A.
  7. Modelo de Equilibrio General Computado para la Argentina 2006 By Chisari, Omar; Ferro, Gustavo; González, Mariano; León, Sonia; Maquieryra, Javier; Mastronardi, Leonardo; Roitman, Mauricio; Romero, Carlos; Theller, Ricardo
  8. Return Simulations in the Private Pensions Industry in Peru By Jasmina Bjeletic; Carlos Herrera; David Tuesta; Javier Alonso
  9. Implementing the EU renewable target through green certificate markets By Finn Roar Aune, Hanne Marit Dalen and Cathrine Hagem
  10. A note on ‘good starting values’ in numerical optimisation By Manfred Gilli; Enrico Schumann
  11. Work histories and pension entitlements in Argentina, Chile and Uruguay By Forteza, Alvaro; Apella, Ignacio; Fajnzylber, Eduardo; Grushka, Carlos; Rossi, Ianina; Sanroman, Graciela
  12. On the interaction between railway scheduling and resource flow networks. By Tian, Wendi; Demeulemeester, Erik
  13. Optimal Asset Allocation Under Linear Loss Aversion By Fortin, Ines; Hlouskova, Jaroslava
  14. Truck scheduling in cross docking terminals with fixed outbound departures By Nils Boysen; D. Briskorn; M. Tschöke
  15. Ex-ante methods to assess the impact of social insurance policies on labor supply with an application to Brazil By Robalino, David A.; Zylberstajn, Eduardo; Zylberstajn, Helio; Afonso, Luis Eduardo
  16. Financial Distress and Industry Structure: An inter-industry approach to the "Lost Decade" in Japan By OGAWA Kazuo; Elmer STERKEN; TOKUTSU Ichiro
  17. On the Recovery Path during a Liquidity Trap: Do Financial Frictions Matter for Fiscal Multipliers? By Julio A. CARRILLO; Celine POILLY
  18. Optimal Redistributive Taxation with both Extensive and Intensive Responses By Laurence JACQUET; Etienne LEHMANN; Bruno VAN DER LINDEN
  19. Jury Discrimination in Criminal Trials By Shamena Anwar; Patrick Bayer; Randi Hjalmarsson
  20. Emigration and the quality of home country institutions By Frederic DOCQUIER; Elisabetta LODIGIANI; Hillel RAPOPORT; Maurice SCHIFF
  21. Unintended Consequences of Price Controls: An Application to Allowance Markets By Stocking, Andrew
  22. Tax Compliance by Firms and Audit Policy By Ralph-C Bayer; Frank Cowell
  23. Long-run Identification in a Fractionally Integrated System By Tschernig, Rolf; Weber, Enzo; Weigand, Roland
  24. Understanding the city size wage gap By Nathaniel Baum-Snow; Ronni Pavan

  1. By: Chyong, C.K.; Noël, P.; Reiner, D.M.
    Abstract: We calculate the total cost of building Nord Stream and compare its levelised unit transportation cost with the existing options to transport Russian gas to western Europe. We find that the unit cost of shipping through Nord Stream is clearly lower than using the Ukrainian route and is only slightly above shipping through the Yamal-Europe pipeline.<br><br> Using a large-scale gas simulation model we find a positive economic value for Nord Stream under various scenarios of demand for Russian gas in Europe. We disaggregate the value of Nord Stream into project economics (cost advantage), strategic value (impact on Ukraine’s transit fee) and security of supply value (insurance against disruption of the Ukrainian transit corridor). The economic fundamentals account for the bulk of Nord Stream’s positive value in all our scenarios.
    Keywords: Nord Stream, Russia, Europe, Ukraine, Natural gas, Pipeline, Gazprom
    JEL: L95 H43 C63
    Date: 2010–10–01
  2. By: Clemens Haftendorn; Franziska Holz; Christian von Hirschhausen
    Abstract: Coal continues to be an important fuel in many countries' energy mix and, despite the climate change concerns, it is likely to maintain this position for the next decades. In this paper a numerical model is developed to investigate the evolution of the international market for steam coal, the coal type used for electricity generation. The main focus is on future trade ows and investments in production and transport infrastructure until 2030. "COALMOD-World" is an equilibrium model, formulated in the complementarity format. It includes all major steam coal exporting and importing countries and represents the international trade as one globalized market. Some suppliers of coal are at the same time major consumers, such as the USA and China. Therefore, domestic markets are also included in the model to analyze their interaction with the international market. Because of the different qualities of steam coal, we include different heating values depending on the origin of the coal. At the same time we observe the mass-specific constraints on production, transport and export capacity. The time horizon of our analysis is until 2030, in 5-year steps. Production costs change endogenously over time. Moreover, endogenous investments are included based on a net present value optimization approach and and the shadow prices of capacities constraints. Investments can be carried out in production, inland freight capacities (rail in most countries), and export terminals. The paper finishes with an application of the model to a base case scenario and suggestions for alternative scenarios.
    Keywords: coal, energy, numerical modeling, investments, international trade
    JEL: L11 L72 C69
    Date: 2010
  3. By: Hui He (University of Hawaii at Manoa, Department of Economics); Hao Zhang (University of Hawaii at Manoa, Department of Economics)
    Abstract: We introduce a rapid grid search method in solving the dynamic programming problems in economics. Compared to mainstream grid search methods, by using local information of the Bellman equation, this method can significantly increase the efficiency in solving dynamic programming problems by reducing the grid points searched in the control space.
    Keywords: Dynamic Programming, Grid Search, Control Space
    JEL: C63 C61 C68
    Date: 2010–09–17
  4. By: Issouf Samaké
    Abstract: This paper applies and extends a theoretical model built by Agénor and Montiel (2007) by exploring the effectiveness of government bonds and monetary policy in a small, open, credit-based economy with a fixed exchange rate. The model is applied to Benin, a member of a currency union, using a general equilibrium model with stochastic simulation. Model calibration replicates the historical pattern for 1996–2009. Policy experiments simulated an increase in government securities in Benin’s regional market and a cut in the reserve requirement. Simulations produced mixed results. It appears that, among other factors, excess bank liquidity lowers the effectiveness of monetary policy instruments through the credit channel and that government bonds can help mop up excess bank liquidity.
    Keywords: Benin , Bonds , Central bank policy , Credit , Economic models , Excess liquidity , Financial sector , Monetary policy , Monetary transmission mechanism , Monetary unions , Reserves , Sovereign debt , West African Economic and Monetary Union ,
    Date: 2010–08–19
  5. By: Denise Konan (University of Hawaii at Manoa, Economics Department; Center for Sustainable Coastal Tourism; University of Hawaii Economic Research Organization (UHERO))
    Abstract: The paper provides a methodology for considering the carrying capacity and limits to growth of a labor-constrained mature tourism destination. A computable general equilibrium model is used to examine the impacts of visitor expenditure growth and labor migration on Hawai‘i’s economy. Impacts on regional income, welfare, prices, sector-level output, and gross state product are considered under alternative migration scenarios. Labor market constraints impose limits to growth in real visitor expenditures. Labor market growth with constrained visitor demand generates falling per capita household welfare.
    Keywords: Computable general equilibrium model, tourism, migration, Hawaii
    Date: 2010–06–01
  6. By: Serino, L.A.
    Abstract: This paper evaluates the domestic adjustment to recent positive external shocks in Argentina's natural resource sectors. Although there is no single, exclusive determinant of ArgentinaÂ’s fast economic growth in the period 2003-2007, the paper illustrates the favourable contribution of certain economic policies to this outcome. According to counterfactual simulations performed with a dynamic Computable General Equilibrium (CGE) model especially designed to capture structural features of the Argentine economy, export taxes on natural resource products and ArgentinaÂ’s competitive exchange rate policy have counteracted Dutch disease adjustments associated the positive terms of trade shock (which may be contractionary in the medium-term if no economic policies are implemented) contributing to productive and export diversification and to bring about output growth. The analysis also shows that in a context of strong demand impulses spending the income collected with export taxes may not be beneficial for the overall competitiveness of the economy, hence counteracting one of the purposes of the tax policy. This implies, first, that subsidies to producers of wage-goods may be ineffective to control overall price increases, and second, that optimizing the contribution of public investment in infrastructure to improve the competitiveness of the economy requires special attention to the timing of public investment.
    Keywords: terms of trade;Dutch disease;Argentina;exchange rate policy;productive diversification
    Date: 2009–11–01
  7. By: Chisari, Omar (Universidad Argntina de la Empresa); Ferro, Gustavo (Universidad Argntina de la Empresa); González, Mariano (Universidad Argntina de la Empresa); León, Sonia (Universidad Argntina de la Empresa); Maquieryra, Javier (Universidad Argntina de la Empresa); Mastronardi, Leonardo (Universidad Argntina de la Empresa); Roitman, Mauricio (Universidad Argntina de la Empresa); Romero, Carlos (Universidad Argntina de la Empresa); Theller, Ricardo (Universidad Argntina de la Empresa)
    Abstract: En este trabajo se presenta un modelo de equilibrio general computado dinámico recursivo de la economía argentina en 2006. Es un modelo de 29 sectores de la producción y diez consumidores domésticos, gobierno y resto del mundo. Se trata de un modelo de economía pequeña, preparado en GAMS/MPSGE. El trabajo incluye una descripción exhaustiva de la construcción de: 1) la Matriz de Contabilidad Social, 2) la Calibración al año base, 3) las Simulaciones y 4) los archivos de lectura de los resultados en términos de cuentas nacionales, niveles de bienestar y resultados para los sectores. Se incluyen simulaciones sobre shocks exógenos y de política económica. <p> A computable general equilibrium model, dynamic and recursive, for the economy of Argentina as of 2006 is presented in this document. It is a model of 29 sectors of production, ten consumers, government and rest of the world. It is a model of a small economy, in a GAMS/MPSGE environment. The document includes a thorough description of: 1) the Social Accounting Matrix, 2) the Calibration to the benchmark year, 3) the Simulations and 4) the output files in terms of national accounts, welfare levels and results for firms and sectors. Several simulations of exogenous and policy induced shocks are also presented.
    Keywords: Equilibrio General Computado; dinámico recursivo; GAMS/MPSGE; Simulaciones
    JEL: D58
    Date: 2010–09–17
  8. By: Jasmina Bjeletic; Carlos Herrera; David Tuesta; Javier Alonso
    Abstract: This document contains a series of simulation exercises aimed at modeling returns in the private pension funds industry in Peru over the next 50 years. The results support the argument that return losses registered in Pension Funds due to the global fi nancial crisis are part of a set of temporary phenomenon. In this way, a long-term approach offers a higher growth prospective for returns than other savings alternatives. Also, we conclude that returns vary according to the risk profi le of the fund chosen by the affi liates for their contributions, and that choosing the Type 3 Fund yields higher returns, albeit through more exposure to equities and thus greater volatility.
    Date: 2010–06
  9. By: Finn Roar Aune, Hanne Marit Dalen and Cathrine Hagem (Statistics Norway)
    Abstract: The EU Parliament has agreed on a target of a 20 % share of renewables in the EU’s total energy consumption by 2020. To achieve the target, the Council has adopted mandatory differentiated national targets for each of the Member States. In this paper we consider the potential for cost reductions by allowing for trade in green certificates across Member States. We show that differentiated national targets cannot ensure a cost effective implementation of the overall target for EU’s green energy consumption. Trade in green certificates can ensure a cost effective distribution of green energy production, but the national targets prevents a cost effective distribution of energy consumption. Nevertheless, our numerical model indicates that EU-wide trade in green certificates may cut the EU’s total cost of fulfilling the renewable target by as much as 70 % compared to a situation with no trade. However, the design of green certificate markets may have large impact on the distribution of costs across countries.
    Keywords: Energy policy; green certificate markets; renewable targets
    JEL: Q48 Q54 Q58
    Date: 2010–09
  10. By: Manfred Gilli; Enrico Schumann
    Abstract: Many optimisation problems in finance and economics have multiple local optima or discontinuities in their objective functions. In such cases it is stressed that ‘good starting points are important’. We look into a particular example: calibrating a yield curve model. We find that while ‘good starting values’ suggested in the literature produce parameters that are indeed ‘good’, a simple best-of-n–restarts strategy with random starting points gives results that are never worse, but better in many cases.
    Date: 2010–09–18
  11. By: Forteza, Alvaro; Apella, Ignacio; Fajnzylber, Eduardo; Grushka, Carlos; Rossi, Ianina; Sanroman, Graciela
    Abstract: The authors propose alternative methods to project pension rights and implement them in Chile and Uruguay and partially in Argentina. The authors use incomplete work histories databases from the social security administrations to project entire lifetime work histories. The authors first fit linear probability and duration models of the contribution status and dynamic linear models of the income level. The authors then run Monte Carlo simulations to project work histories and compute pension rights. According to results, significant swathes of the population would not access to fundamental pension benefits at age 65, if the current eligibility rules were strictly enforced.
    Keywords: Pensions&Retirement Systems,Labor Markets,Emerging Markets,Gender and Law,Debt Markets
    Date: 2009–12–01
  12. By: Tian, Wendi; Demeulemeester, Erik
    Abstract: In previous research (Tian & Demeulemeester, 2010), we have shown that in realistic situations railway scheduling improves both the stability and the expected project length over roadrunner scheduling. In this paper, we introduce the concept of resource flow networks in this analysis and determine what the impact is of the resulting combinations on the average project length, the standard deviation of the project length, the timely project completion probability and the stability cost. Extensive computational results will be presented on both small and larger projects and statistic analysis will be conducted by using SAS PROC GLM.
    Keywords: Railway scheduling; Roadrunner scheduling; Resource flow networks; DTRTP;
    Date: 2010–09
  13. By: Fortin, Ines (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria); Hlouskova, Jaroslava (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria, and School of Business and Economics, Thompson Rivers University, British Columbia, Canada)
    Abstract: Growing experimental evidence suggests that loss aversion plays an important role in asset allocation decisions. We study the asset allocation of a linear loss-averse (LA) investor and compare the optimal LA portfolio to the more traditional optimal mean-variance (MV) and conditional value-at-risk (CVaR) portfolios. First we derive conditions under which the LA problem is equivalent to the MV and CVaR problems. Then we analytically solve the twoasset problem, where one asset is risk-free, assuming binomial or normal asset returns. In addition we run simulation experiments to study LA investment under more realistic assumptions. In particular, we investigate the impact of different dependence structures, which can be of symmetric (Gaussian copula) or asymmetric (Clayton copula) type. Finally, using 13 EU and US assets, we implement the trading strategy of an LA investor assuming assets are reallocated on a monthly basis and find that LA portfolios clearly outperform MV and CVaR portfolios.
    Keywords: LOss aversion, portfolio optimization, MV and CVaR portfolios, copula, investment strategy
    JEL: G11 G15 G24
    Date: 2010–10
  14. By: Nils Boysen (School of Economics and Business Administration, Friedrich-Schiller-University Jena); D. Briskorn; M. Tschöke
    Abstract: At a cross docking terminal, inbound shipments are directly transshipped across the terminal to designated outbound trucks, so that delays and inventories are kept as low as possible. We consider an operational truck scheduling problem, where a dock door and a start time has to be assigned to each inbound truck. A set of outbound trucks is scheduled beforehand and, therefore, departure times are fixed. If a shipment is not unloaded, transshipped to the outbound gate and loaded onto the designated outbound truck before its departure we consider the shipments's value as lost profit. The objective is to minimize total lost profit. The paper at hand formalizes the resulting truck scheduling problem. We settle its computational complexity and develop heuristics in order to tackle the problem. We show the efficiency of these heuristics by means of a computational study. Last but not least, a case study is presented.
    Keywords: cross docking terminal, truck scheduling, due dates, heuristics
    Date: 2010–10–05
  15. By: Robalino, David A.; Zylberstajn, Eduardo; Zylberstajn, Helio; Afonso, Luis Eduardo
    Abstract: This paper solves and estimates a stochastic model of optimal inter-temporal behavior to assess how changes in the design of the unemployment benefits and pension systems in Brazil could affect savings rates, the share of time that individuals spend outside of the formal sector, and retirement decisions. Dynamics depend on five main parameters: preferences regarding consumption and leisure, preferences regarding formal versus informal work, attitudes towards risks, the rate of time preference, and the distribution of an exogenous shock that affects movements in and out of the social insurance system (given individual decisions). The yearly household survey is used to create a pseudo panel by age-cohorts and estimate the joint distribution of model parameters based on a generalized version of the Gibbs sampler. The model does a good job in replicating the distribution of the members of a given cohort across states (in or out of the social insurance / active or retired). Because the parameters are related to individual preferences or exogenous shocks, the joint distribution is unlikely to change when the social insurance system changes. Thus, the model is used to explore how alternative policy interventions could affect behaviors and through this channel, benefit levels and fiscal costs. The results from various simulations provide three main insights: (i) the Brazilian social insurance system today might generate unnecessary distortions (lower savings rates and less formal employment) that increase the costs of the system and can induce regressive redistribution; (ii) there are important interactions between the unemployment benefits and pension systems, which calls for joint policy analysis when considering reforms; and (iii) current distortions could be reduced by creating an actuarial link between contributions and benefits and then combining matching contributions and anti-poverty targeted transfers to cover individuals with limited or no savings capacity.
    Keywords: Pensions&Retirement Systems,Emerging Markets,Labor Policies,Labor Markets,Debt Markets
    Date: 2009–12–01
  16. By: OGAWA Kazuo; Elmer STERKEN; TOKUTSU Ichiro
    Abstract: This paper proposes a novel approach to investigating the propagation mechanism of balance sheet deterioration in financial institutions and firms, by extending the input-output analysis. First, we use input-output tables classified by firm size. Second, we link the input-output table with the balance sheet conditions of financial institutions and firms. Based on Japanese input-output tables, we find that the lending attitude of financial institutions affected firms' input decision in the late 1990s and the early 2000s. Simulation exercises are conducted to evaluate the effects of changes in the lending attitude toward small firms, as favorable as toward large firms, on sectoral allocations. We find that output was increased for small firms and reduced for large firms. The change in output was non-negligible, about 5.5% of the initial output of each sector. In particular it exceeded 20% in textile, iron and steel and fabricated metal products.
    Date: 2010–10
  17. By: Julio A. CARRILLO (Ghent University); Celine POILLY (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper investigates the effects of a fiscal stimulus when financial frictions and a liquidity trap are present. These two conditions make a government spending expansion and a reduction in capital income taxes more efficient in stimulating output. In contrast, a reduction in labor income taxes may aggravate the economic conditions. In addition, small implementation delays in government spending may result in big spending multipliers in the short run. All of these results rely partly on the dynamic interaction between inflation and the external finance premium. Lastly, simulations of the ARRA stimulus package predict that the output gains due to the presence of financial frictions may lie between 1.3 % and 2.5 % of GDP.
    Keywords: Zero Lower Bound, Financial Accelerator, Fiscal Policy
    JEL: E31 E44 E52 E58
    Date: 2010–09–02
  18. By: Laurence JACQUET (Norvegian School of Economics and Business Administration , CESifo, Hoover Chair and IRES - Université Catholique de Louvain); Etienne LEHMANN (CREST-INSEE, IRES - Université Catholique de Louvain, IZA and IDEP); Bruno VAN DER LINDEN (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))
    Abstract: We derive a general optimal income tax formula when individuals respond along both the intensive and extensive margins and when income effects can prevail. Individuals are heterogeneous across two dimensions: their skill and their disutility of participation. Preferences over consumption and work effort can differ with respect to the level of skill, with only the Spence-Mirrlees condition being imposed. Employing a new tax perturbation approach that integrates the nonlinearity of the tax function into the behavioral elasticities, we derive a fairly mild condition for optimal marginal tax rates to be nonnegative everywhere. Numerical simulations using U.S. data confirm the mildness of our conditions. The extensive margin strongly reduces the level of optimal marginal tax rates.
    Keywords: Optimal tax formula, Tax perturbation, Random participation
    JEL: H21 H23
    Date: 2010–09–02
  19. By: Shamena Anwar (Carnegie Mellon University); Patrick Bayer (Duke University); Randi Hjalmarsson (Queen Mary, University of London)
    Abstract: This paper examines the impact of jury racial composition on trial outcomes using a unique dataset of all felony trials in Sarasota County, Florida between 2004 and 2009. We utilize a research design that exploits day-to-day variation in the composition of the jury pool to isolate quasi-random variation in the composition of the seated jury. We find strong evidence that all-white juries acquit whites more often and are less favorable to black versus white defendants when compared to juries with at least one black member. Using the Anwar-Fang rank order test, we find strong statistical evidence of discrimination on the basis of defendant race. These results are consistent with racial prejudice on the part of white jurors, black jurors, or both. Using a simple model of jury selection and decision-making, we replicate the entire set of empirical regularities observed in the data, including the fact that blacks in the jury pool are just as likely as whites to be seated. Simulations of the model suggest that jurors of each race are heterogeneous in the standards of evidence that they require to convict and that both black and white defendants would prefer to face jurors of the same race.
    Keywords: Discrimination, Race, Jury, Felony trials, Verdicts
    JEL: K14 K4 J15
    Date: 2010–10
  20. By: Frederic DOCQUIER (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and FNRS); Elisabetta LODIGIANI (CREA, Université du Luxembourg and Centro Studi Luca dAgliano); Hillel RAPOPORT (CID, Harvard University, Bar-Ilan University and EQUIPPE); Maurice SCHIFF (World Bank, Development Economics Research Group)
    Abstract: Emigration affects institutions at home in a number of ways. While people may have fewer incentives to voice when they have exit options, emigrants can voice once abroad and contribute to the diffusion of democratic values and norms. We first document these channels and then consider dynamic-panel regressions to investigate the overall impact of emigration on institutions in the home country. We find that both openess to migration and human capital have a positive impact on institutions (as measured by standard democracy and economic freedom indices). This implies that unskilled migration has a positive effect on institutional quality while the effect of skilled migration (or brain drain) is ambiguous. Using the point estimates from our regressions, we simulate the marginal effect of skilled emigration on institutional quality. In general, the simulations confirm that the brain drain has an ambiguous impact on institutions, though a significant institutional gain obtains for a limited set of countries when incentive effects of the brain drain on human capital formation are taken into account.
    Keywords: Migration, brain drain, institutions, diaspora effects, democracy
    JEL: O1 F22
    Date: 2010–09–20
  21. By: Stocking, Andrew
    Abstract: Price controls established in an emissions allowance market to constrain allowance prices between a ceiling and a floor offer a mechanism to reduce cost uncertainty in a cap-and-trade program; however, they could provide opportunities for strategic actions by firms that would result in lower government revenue and greater emissions than in the absence of controls. In particular, when the ceiling price is supported by introducing new allowances into the market, firms could choose to buy allowances at the ceiling price, regardless of the prevailing market price, in order to lower the equilibrium price of all allowances. Those purchases could either be transacted by a group of firms intending to manipulate the market or be induced through the introduction of inaccurate information about the cost of emissions abatement that causes firms to purchase allowances at the ceiling. Theory and simulations using estimates of the elasticity of allowance demand for U.S. firms suggest that the manipulation could be profitable under the stylized setting and assumptions evaluated in the paper, although in practice many other conditions will determine its use.
    Keywords: cap-and-trade; climate change; price controls; price ceiling; manipulation; allowance market; carbon market
    JEL: D21 H41 Q54 D43
    Date: 2010–09
  22. By: Ralph-C Bayer (School of Economics, University of Adelaide); Frank Cowell
    Abstract: Firms are usually better informed than tax authorities about market conditions and the potential profits of competitors. They may try to exploit this situation by under-reporting their own taxable profits. The tax authority could offset firms' informational advantage by adopting "smarter" audit policies that take into account the relationship between a firm's reported profits and reports for the industry as a whole. Such an audit policy will create an externality for the decision makers in the industry and this externality can be expected to affect not only firms' reporting policies but also their market decisions. If public policy takes into account wider economic issues than just revenue raising what is the appropriate way for a tax authority to run such an audit policy? We develop some clear policy rules in a standard model of an industry and show the effect of these rules using simulations.
    Keywords: tax compliance, evasion, oligopoly
    JEL: H20 H21
    Date: 2010–10
  23. By: Tschernig, Rolf; Weber, Enzo; Weigand, Roland
    Abstract: We propose an extension of structural fractionally integrated vector autoregressive models that avoids certain undesirable effects for impulse responses if long-run identification restrictions are imposed. We derive its Granger representation, investigate the effects of long-run restrictions and clarify their relation to finite-horizon schemes. It is illustrated by asymptotic analysis and simulations that enforcing integer integration orders can have severe consequences for impulse responses. In a system of US real output and aggregate prices effects of structural shocks strongly depend on integration order specification. In the statistically preferred fractional model the long-run restricted shock has only very short-lasting influence on GDP.
    Keywords: Long memory; structural VAR; misspecification; GDP; price level
    JEL: C32 E3
    Date: 2010–09
  24. By: Nathaniel Baum-Snow (Brown University); Ronni Pavan (University of Rochester)
    Abstract: In 2000, wages of full time full year workers were more than 30 percent higher in metropolitan areas of over 1.5 million people than rural areas. The monotonic relationship between wages and city size is robust to controls for age, schooling and labor market experience. In this paper, we decompose the city size wage gap into various components. We propose an on-the-job search model that incorporates latent ability, search frictions, firm-worker match quality, human capital accumulation and endogenous migration between large, medium and small cities. Counterfactual simulations of the model indicate that variation in returns to experience and differences in wage intercepts across location type are the most important mechanisms contributing to the overall city size wage premium. Steeper returns to experience in larger cities is more important for college graduates while differences in wage intercepts is more important for high school graduates. Sorting on unobserved ability within education group and differences in labor market search frictions and distributions of firm-worker match quality contribute little or slightly negatively to observed city size wage premia in both samples.
    Keywords: Agglomeration, wage growth, urban wage premium
    JEL: J24 J31 R12 R23
    Date: 2010

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