nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2006‒08‒26
six papers chosen by
Maximo Rossi
Universidad de la Republica

  1. Does Tax Evasion Affect Unemployment and Educational Choice? By Kolm, Ann-Sofie; Larsen, Birthe
  2. Mind the Gap? Estimating the Effects of Postponing Higher Education By Holmlund, Bertil; Liu, Qian; Nordström Skans, Oskar
  3. Introducing Family Tax Splitting in Germany: How Would It Affect the Income Distribution and Work Incentives? By Viktor Steiner; Katharina Wrohlich
  4. Equity and Equality By Jean-Yves Duclos
  5. Stature and Status: Height, Ability, and Labor Market Outcomes By Anne Case; Christina Paxson
  6. Reliving the '50s: The Big Push, Poverty Traps, and Takeoffs in Economic Development By William Easterly

  1. By: Kolm, Ann-Sofie (Department of Economics, Copenhagen Business School); Larsen, Birthe (Department of Economics, Copenhagen Business School)
    Abstract: While examining the macroeconomic effects of government tax and punishment policies, this paper develops a three-sector general equilibrium model featuring matching frictions and worker-firm wage bargaining. Workers are assumed to differ in ability, and the choice of education is determined endogenously. Job opportunities in an informal sector are available only to workers who choose not to acquire higher education. We find that increased punishment of informal activities increases the number of educated workers and reduces the number of unemployed workers. Considering welfare, we show it is optimal to choose punishment rates so to more than fully counteract the distortion created by the government’s inability to tax the informal sector.
    Keywords: Tax evasion; underground economy; education; matching; unemployment.
    JEL: H26 I21 J64
    Date: 2006–11–12
    URL: http://d.repec.org/n?u=RePEc:hhs:cbsnow:2003_012&r=ltv
  2. By: Holmlund, Bertil (Department of Economics); Liu, Qian (Department of Economics); Nordström Skans, Oskar (Institute for Labour Market Policy Evaluation (IFAU))
    Abstract: This paper estimates the effects on earnings of “gap years” between high school and university enrollment. The effect is estimated by means of standard earnings functions augmented to account for gap years and a rich set of control variables using administrative Swedish data. We find that postponement of higher education is associated with a persistent and non-trivial earnings penalty. The main source of the persistent penalty appears to be the loss of work experience after studies. The reduction of lifetime earnings associated with two years postponement of higher education amounts to 40-50 percent of annual earnings at age 40.
    Keywords: timing of education; schooling interruptions; returns to work experience
    JEL: I23 J24 J31
    Date: 2006–08–15
    URL: http://d.repec.org/n?u=RePEc:hhs:uunewp:2006_017&r=ltv
  3. By: Viktor Steiner (DIW Berlin, Free University of Berlin and IZA Bonn); Katharina Wrohlich (DIW Berlin and IZA Bonn)
    Abstract: We analyze the effects of three alternative proposals to reform the taxation of families relative to the current German system of joint taxation of couples and child allowances: a French-type family splitting and two full family splitting proposals. The empirical analysis of the effects of these proposals on the income distribution and on work incentives is based on a behavioral micro-simulation model which integrates an empirical household labor supply model into a detailed tax-benefit model based on the German Socio Economic Panel. Our simulation results show that under each reform the lion’s share of the reduction in taxes would accrue to families with children in the upper part of the income distribution, and that expected labor supply effects are small for all analyzed family tax splitting reforms, both in absolute terms and relative to the implied fiscal costs.
    Keywords: household taxation, income distribution, work incentives, microsimulation
    JEL: H24 H31 J22
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp2245&r=ltv
  4. By: Jean-Yves Duclos
    Abstract: Is horizontal equity (HE) the "most widely accepted principle of equity"? Or does it stand in "opposition to the advancement of human welfare"? This paper argues that the case for the HE principle is not as straightforward as is usually thought and that it requires advanced notions of justice and well-being. The most likely ethical basis HE appears to combine a Rawlsian maximin principle and a view of well-being that allows for relative local comparison effects. The paper also explores some of the dimensions of equality and well-being along which the HE principle can be applied and presents a number of examples showing how HE considerations can provide an important input into policy analysis.
    Keywords: Horizontal equity, vertical equity, redistribution, equality, social justice
    JEL: D31 D60 D63 I30
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:lvl:lacicr:0629&r=ltv
  5. By: Anne Case; Christina Paxson
    Abstract: It has long been recognized that taller adults hold jobs of higher status and, on average, earn more than other workers. A large number of hypotheses have been put forward to explain the association between height and earnings. In developed countries, researchers have emphasized factors such as self esteem, social dominance, and discrimination. In this paper, we offer a simpler explanation: On average, taller people earn more because they are smarter. As early as age 3 — before schooling has had a chance to play a role — and throughout childhood, taller children perform significantly better on cognitive tests. The correlation between height in childhood and adulthood is approximately 0.7 for both men and women, so that tall children are much more likely to become tall adults. As adults, taller individuals are more likely to select into higher paying occupations that require more advanced verbal and numerical skills and greater intelligence, for which they earn handsome returns. Using four data sets from the US and the UK, we find that the height premium in adult earnings can be explained by childhood scores on cognitive tests. Furthermore, we show that taller adults select into occupations that have higher cognitive skill requirements and lower physical skill demands.
    JEL: I1 J3
    Date: 2006–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:12466&r=ltv
  6. By: William Easterly
    Abstract: The classic narrative of economic development -- poor countries are caught in poverty traps, out of which they need a Big Push involving increased aid and investment, leading to a takeoff in per capita income -- has been very influential in development economics since the 1950s. This was the original justification for foreign aid. The narrative lost credibility for a while but has made a big comeback in the new millennium. Once again it is invoked as a rationale for large foreign aid programs. This paper applies very simple tests to the various elements of the narrative. Evidence to support the narrative is scarce. Poverty traps in the sense of zero growth for low income countries are rejected by the data in most time periods. There is evidence of divergence between rich and poor nations in the long run, but this does not imply zero growth for the poor countries. Moreover, this divergence is more associated with institutions rather than the disadvantages of initial income. The idea of the takeoff does not garner much support in the data. Takeoffs are rare in the data, most plausibly limited to the Asian success stories. Even then, the takeoffs are not associated with aid and investment as the standard narrative would imply.
    Keywords: economic development, poverty trap, foreign aid
    JEL: O1 O4 F33 F34 F35
    URL: http://d.repec.org/n?u=RePEc:cgd:wpaper:65&r=ltv

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