nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒03‒11
twenty-six papers chosen by
Peren Arin
Massey University

  1. Environmental Investment and Policy with Distortionary Taxes and Endogenous Growth By Don Fullerton; Seung-Rae Kim
  2. "Time to Eat: Household Production Under Increasing Income Inequality" By Daniel S. Hamermesh
  3. Fiscal Policy Effects in the European Union By Andreas Thams
  4. Joint Taxation and the Labour Supply of Married Women: Evidence from the Canadian Tax Reform of 1988 By Thomas F. Crossley; Sung-Hee Jeon
  5. "THE FISCAL FACTS: Public and Private Debts and the Future of the American Economy" By James K. Galbraith
  6. Revisiting Recent Trends in Canadian After-Tax Income Inequality Using Census Data By Frenette, Marc; Green, David A.; Milligan, Kevin
  7. Effects of the Tax on Retail Sales of Some Fuels on a regional economy: a computable general equilibrium approach By Francisco Javier De Miguel; Manuel Alejandro Cardenete; Jesús Pérez
  8. "Government Effects on the Distribution of Income: An Overview" By Dimitri B. Papadimitriou
  9. Does Envy Destroy Social Fundamentals? The Impact of Relative Income Position on Social Capital By Justina A.V. Fischer; Benno Torgler
  10. Tax policy and European Union governance By Gareth D. MYLES
  11. The Interaction between Retirement and Job Search: A Global Approach to Older Workers Employment By Jean-Olivier Hairault; François Langot; Thepthida Sopraseuth
  12. Using Financial Market Information to Enhance Canadian Fiscal Policy By Huw Lloyd-Ellis; Xiaodong Zhu
  13. The economics and empirics of the allocation of public consumptio n expenditures By George TRIDIMAS
  14. DECENTRALIZATION AND EFFIENCY IN SPANISH LOCAL GOVERMENT By Emili Tortosa Ausina; Diego Prior; María Teresa Balaguer-Coll
  15. "Breaking out of the Deficit Trap: The Case Against the Fiscal Hawks " By James K. Galbraith
  16. What Ownership Society: Debating Housing and Social Security Reform in the United States By Daniel Béland
  17. Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections By Erik Snowberg; Justin Wolfers; Eric Zitzewitz
  18. Looking Beyond TRIA: A Clinical Examination of Potential Terrorism Loss Sharing By Howard Kunreuther; Erwann Michel-Kerjan
  19. A Simple Theory of Smart Growth and Sprawl By Matthew Allen Turner
  20. Manufacturing Growth, Technological Progress, and Military Expenditure By Paul Dunne; Duncan Watson
  21. Welfare State Retrenchment: The Partisan Effect Revisited By Bruno Amable; Donatella Gatti; Jan Schumacher
  22. Racial Segregation and the Black-White Test Score Gap By David Card; Jesse Rothstein
  23. Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply By Rolf Aaberge; Ugo Colombino; Tom Wennemo
  24. Does a change in the ownership of firms, from public to private, make a difference? By Elisabetta BERTERO
  26. The British privatisation programme: a long term perspective By Robert MILLWARD

  1. By: Don Fullerton; Seung-Rae Kim
    Abstract: Recent studies consider public R&D spending that affects abatement knowledge and endogenous growth, distortionary taxes that affect physical and human capital formation, pollution taxes that affect environmental degradation, and regeneration that restores natural capital. Our model combines all of those elements. We show how the combination affects results from each prior model, focusing on two parameters that represent the need for distorting taxes, and the productivity of abatement knowledge relative to pollution. First, either of these two extensions can reverse the prior finding that pollution tax revenue is more than enough to pay for public abatement R&D. Second, tax distortions and externalities substantially alter prior findings that the ratio of public to private capital is based only on output elasticities. Third, our dynamic model affects prior static findings about how other public spending "crowds out" provision of the environmental public good. Fourth, we show whether a greater need for public spending leads to greater increases in the distorting tax or pollution tax. Fifth, while prior research is optimistic that environmental regulation can boost economic growth, we show how it may increase or decrease the growth rate --even if it raises welfare.
    JEL: O41 Q20 H41 H23
    Date: 2006–03
  2. By: Daniel S. Hamermesh
    Abstract: Eating requires the raw food materials that make up meals and also the time devoted to buying food, preparing meals and eating them, and cleaning up afterwards. Using time-diary and expenditure data for the United States for 1985 and 2003, I examine how income and time prices affect both time and goods input into this household-produced commodity. By focusing on these two years, between which income and earnings inequality increased, I analyze how household production is affected by changing economic opportunities. The results demonstrate that inputs into eating increase with income, and higher time prices at a given level of income reduce time inputs. Over this period the relative goods intensity of producing this commodity increased, especially at the lower part of the income distribution, and the average time input dropped substantially. The results are consistent with goods-time substitution being relatively difficult for eating and with substitution becoming relatively more difficult as production expands.
    Date: 2006–01
  3. By: Andreas Thams
    Abstract: This paper analyzes empirically the impact of fiscal policy on the price level for the cases of Germany and Spain. We investigate whether the fiscal theory of the price level (FTPL) is able to deliver a reasonable explanation for the different performances of the price level in these two countries during recent years. We apply two different approaches. The first is a Bayesian VAR model using sign restrictions to assess the relation between surpluses and public debt. Afterwards, we use a Bayesian regime-switching model to uncover changes in monetary and fiscal policy behavior. The analysis basically shows that in each of the two countries fiscal shocks have a significant impact on the price level. Nonetheless, the FTPL does not deliver a reasonable explanation for the differences in the pattern of inflation between the two countries.
    Keywords: Fiscal theory, policy interaction, monetary policy, public debt, price level, Euro area
    JEL: E30 E31 E42 E62 E63
    Date: 2006–02
  4. By: Thomas F. Crossley; Sung-Hee Jeon
    Abstract: The Canadian federal tax reform of 1988 replaced a spousal tax exemption with a non-refundable tax credit. This reduced the "jointness" of the tax system: after the reform, secondary earners' effective "first dollar" marginal tax rates no longer depended on the marginal tax rates of their spouses. In practice, the effective "first dollar" marginal tax rates faced by women with high income husbands were particularly reduced. Using difference-in-difference estimators, we find a significant increase in labour force participation among women married to higher income husbands.
    Keywords: Labour supply, Canadian tax reform, Married women, Difference-in-difference
    JEL: J22 H24
    Date: 2006–02
  5. By: James K. Galbraith
    Abstract: TodayÕs federal budget deficits are a preoccupation of many American citizens and more than a few political leaders. Is the American government going bankrupt? Does our fiscal condition warrant radical surgery, as some now prescribe? Or, are we in such deep trouble that there is no plausible route of escape?
    Date: 2006–02
  6. By: Frenette, Marc; Green, David A.; Milligan, Kevin
    Abstract: We present new evidence on levels and trends in after-tax income inequality in Canada between 1980 and 2000. We argue that existing data sources may miss changes in the tails of the income distribution, and that much of the changes in the income distribution have been in the tails. Our data are constructed from Census files, which are augmented with predicted taxes based on information available from administrative tax data. After validating our approach in predicting taxes on the Census files, we document differences in the levels and trends in after-tax inequality between the newly constructed data source and the more commonly used survey data. We find that after-tax inequality levels are substantially higher based on the new data, primarily because income levels are lower at the bottom than in survey data. The new data show larger long-term increases in after-tax income inequality and far more variability over the economic cycle. This raises interesting questions about the role of the tax and transfer system in mitigating both trends and fluctuations in market income inequality.
    Keywords: Personal finance and household finance, Statistical methods, Income, Imputation
    Date: 2006–02–27
  7. By: Francisco Javier De Miguel (Department of Applied Economics, Universidad de Extremadura); Manuel Alejandro Cardenete (Department of Economics, Universidad Pablo de Olavide); Jesús Pérez (Department of Applied Economics, Universidad de Extremadura)
    Abstract: This paper simulates the effects on the economy of Extremadura that are produced by a new tax on retail sales of some fuels. A computable general equilibrium model involving various labour market scenarios is employed as a modelling framework. Model parameters are obtained by calibration, using a social accounting matrix for Extremadura updated to the year 2000. Further, we also include an additional simulation in which a hypothetical regional tax rate, to finance environmental policies, is considered. This second simulation assumes constant fiscal revenues. The results of the first simulation show that the effects of this tax are modest. The simulation shows household welfare losses, decreasing activity levels and generalised price reductions, except in production sectors more directly linked to the oil products sector. In addition, we also observe that this hypothetical additional regional fuel tax rate would reinforce the effects produced by the national tax rate.
    Keywords: Tax on retail sales of some fuels, computable general equilibrium models, social accounting matrices, fiscal policy.
    JEL: C68 D58 R13
    Date: 2006–03
  8. By: Dimitri B. Papadimitriou
    Abstract: This paper is the overview chapter of an edited volume on ÒThe Distributional Effects of Government Spending and Taxation.Ó The paper offers the authorÕs perspective on the governmentÕs role as a redistributive agent. Taxation and public spending programs are analyzed using the experiences of the United States and other OECD countries. The stark differences among the respective welfare systems are examined from an economic policy lens assessing the success and failure of the tested social policy programs. The measurement and distribution of well-being for special segments of the population, i.e., the elderly and women, are considered.
    Date: 2006–02
  9. By: Justina A.V. Fischer; Benno Torgler
    Abstract: Research evidence on the impact of relative income position on individual attitudes and behaviour is sorely lacking. Therefore, this paper assesses such positional impact on social capital by applying 14 different measurements to International Social Survey Programme data from 25 countries. We find support for a positional concern effect or ‘envy’ whose magnitude in several cases is quite substantial. The results indicate that such an effect is non-linear. In addition, we find an indication that absolute income level is also relevant. Lastly, changing the reference group (regional versus national) produces no significant differences in the results.
    JEL: Z13 H26 I31 D00 D60
    Date: 2006–01
  10. By: Gareth D. MYLES
    Abstract: The governance of tax policy is one of the key issues that must b e resolved by the new Constitution. Taxation is an area in which the tension between subsidiarity and coordination is acute. This paper reviews recent Union policy alongside an analysis of the un derlying economic issues. The provisions of the new Constitution are then assessed to determine whether they provide the powers th at the Union requires to ensure efficiency.
    Keywords: Tax policy, EU Governance, EU Constitution
  11. By: Jean-Olivier Hairault (EUREQUA, CEPREMAP, University of Paris I and IZA Bonn); François Langot (PSE-Jourdan, CEPREMAP and GAINS, University of Maine); Thepthida Sopraseuth (PSE-Jourdan, CEPREMAP and EPEE, University of Evry)
    Abstract: This paper presents a theoretical foundation and empirical evidence in favor of the view that the tax on continued activity not only decreases the participation rate by inducing early retirement, but also badly affects the employment rate of older workers just before early retirement age. Countries with an early retirement age at 60 also have lower employment rates for old workers aged 55-59. Based on the French Labor Force Survey, we show that the likelihood of employment is significantly affected by the distance from retirement, in addition to age and other relevant variables. We then extend McCall's (1970) job search model by explicitly integrating life-cycle features and retirement decisions. Using simulations, we show that the effective tax on continued activity caused by French social security system in conjunction with the generosity of unemployment benefits for older workers helps explain the low rate of employment just before the early retirement age. Decreasing this tax, thus bringing it closer to the actuarially-fair scheme, not only extends the retirement age, but also encourages a more intensive job-search by older unemployed workers.
    Keywords: retirement, old workers, search, actuarial fairness
    JEL: J22 J26 H31
    Date: 2006–02
  12. By: Huw Lloyd-Ellis (Queen's University); Xiaodong Zhu (University of Toronto)
    Abstract: In this article we argue that the evaluation and implementation of Canadian fiscal policy could be significantly improved through the systematic use of information provided by global financial markets. In particular, we show how the information contained in internationally traded asset returns can be used to (1) provide a more meaningful cyclical-adjustment of the budget deficit, (2) assess the sustainability of the public debt, and (3) reduce the risk of the debt becoming unsustainable without having to run excessively large surpluses.
    Keywords: Public debt, cyclically-adjusted deficit, sustainability, hedging
    JEL: G1 H6
    Date: 2004–08
  13. By: George TRIDIMAS
    Abstract: The paper investigates the allocation of public consumption expen ditures in the UK. After reviewing the empirical literature on th e demand for public services, which is based on applied consumer analysis, it discusses the budgetary making process in the UK. It proceeds by estimating a system of demand equations for general government consumption expenditures in the UK during the period 1 963-96. In addition to estimating the effects of relative prices, total expenditure and demographic variables, it finds that the c onstraints of homogeneity and symmetry cannot be rejected.
    Keywords: Allocation of public consumption expenditure, Consumer demand systems, UK General Government consumption expenditure.
  14. By: Emili Tortosa Ausina (Universitat Jaume I); Diego Prior (Universidad Autónoma de Barcelona); María Teresa Balaguer-Coll (Universitat Jaume I)
    Abstract: This study analyzes the links between efficiency and the decentralization of competencies among Spanish local governments for years 1995 and 2000. The aim is pursued by considering a two-stage activity analysis model in which the performance of eachmunicipality is first evaluated against other municipalities with a similar level of competencies and, in a second stage, it is compared with that of other municipalities for which decentralization remains at a more preliminary stage. The model also considers an index aimed at measuring whether tendencies towards higher (or lower) benefits from decentralization might exist over time. Results suggest that some municipalities could manage their resources more efficiently if bestowed on more competencies. Although this sort of decentralization economies do not emerge for all municipalities, their magnitude clearly overshadows the diseconomies found if downscaling of decision making went too far and least decentralized municipalities were conferred on more competencies. In addition, the likely efficiency gains from enhanceddecentralization increase over time. El objetivo de este trabajo es analizar los vínculos entre eficiencia y descentralización de competencias para los ayuntamientos españoles durante los años 1995 y 2000. Para ello, se considera un modelo de análisis de la actividad en dos etapas en el que, en primer lugar, la eficiencia de cada municipio se evalúa frente a la de otros municipios con un mismo nivel de competencias y, en una segunda etapa, se compara con el de aquellos municipios para los cuales la descentralización de competencias permanece en un nivel inferior. El modelo también considera un índice que mide si hay tendencias hacia mayor -o menor- beneficios de la descentralización a lo largo del tiempo. Los resultados indican que algunos municipios podrían gestionar sus recursos más eficientemente de tener un mayor nivel de competencias. Aunqueeste tipo de economías de descentralización no existen para todos los municipios, su magnitud es superior a la magnitud de las deseconomías que se dan para otros municipios. Asimismo, lasganancias de eficiencia obtenidas de una hipotética descentralización aumentan con el tiempo.
    Keywords: Análisis de la actividad, descentralización, eficiencia, gobierno local Activity analysis, decentralization, efficiency, local government
    JEL: D24 D60 H71 H72
    Date: 2006–02
  15. By: James K. Galbraith
    Abstract: From this paper's Preface, by Dr. Dimitri B. Papadimitriou, President: For some time, Levy Institute scholars have been engaged with issues related to the current account, government, and private sector balances. We have argued that the existing imbalances in these accounts are unsustainable and will ultimately present a serious challenge to the performance of the U.S. economy. Other scholars are also concerned, but for reasons that we do not share. They argue that the interest rate is determined by the supply and demand of saving.When the government reduces its saving, the total supply of saving falls, and the interest rate inevitably rises. The result, they say, is that interest-sensitive spending, and investment in particular, falls. Finally, these scholars say, less investment now necessarily implies less output in the future. In this new brief, Senior Scholar James K. Galbraith evaluates a recent article by William G. Gale and Peter R. Orszag, two economists who regard this view of deficits as plausible. He forwards an alternative, Keynesian view. This alternative suggests that deficits can increase overall output, possibly enabling the government to spend more money without increasing the ratio of the debt to GDP. He casts doubt on the notion that the interest rate is determined by the supply and demand of saving, arguing that monetary policy plays a much larger role than Gale and Orszag allow for. Moreover, he writes, strong demand for goods and services is more important than the supply of capital in determining the pace of technological advance and the rate of growth of output per worker. Though he is skeptical about Gale and OrszagÕs theoretical framework, Galbraith calls attention to some important econometric findings in their paper. Gale and Orszag calculate the effects of deficits on the interest rate. Consistent with GalbraithÕs view, monetary policy turns out to be a major determinant of long-term interest rates. When interest rates are measured as the current cost of funds, Gale and Orszag find that deficits have no significant impact on interest rates. GalbraithÕs theoretical view of interest rate determination, together with Gale and OrszagÕs empirical findings, constitutes a powerful rebuttal of the reflexively antideficit view. Recent economic history suggests that this rebuttal is plausible. The recent increase in the U.S. federal deficit has not yet resulted in high interest rates. Interest rates in Japan, where deficits have been very large, remain at rock-bottom levels. The Levy Institute continues to believe that, together, unsustainable economic imbalances amount to one of the nationÕs most pressing issues, as we believe our Strategic Analysis series has documented. As Galbraith demonstrates, however, some observers are placing an undue emphasis on government deficit reduction, as if the government were the source of all that ails the economy. A more balanced approach would take into account the pernicious effects of excessive private debt and the need to devalue the dollar. We believe that our readers, especially those who follow the Strategic Analysis series, will find this brief to be a helpful look at another facet of the complex and knotty deficits problem.
    Date: 2005–06
  16. By: Daniel Béland
    Abstract: This article explores President George W. Bush's "ownership society" blueprint in comparative and historical perspective. By taking the "ownership society" seriously, it is possible to understand how it is deeply rooted in the American cultural repertoire, and how it offers a coherent neo-liberal discourse aimed at constructing the "need to reform" existing social policy legacies in the sense of a greater reliance on private savings and ownership. Although grounded in the American repertoire, President Bush's "ownership society" is inspired by a foreign model: Thatcher's "popular capitalism," another neo-liberal blueprint that featured a similar celebration of personal ownership. Discussing Thatcherism briefly before analyzing the debate over President Bush's "ownership society" in the fields of housing and pensions, this article underlines the relationship between ideational processes and institutional legacies in policy-making.
    Keywords: housing, pensions, ideas, institutions, United States, Britain
    JEL: H55 I38
    Date: 2006–02
  17. By: Erik Snowberg (Stanford GSB); Justin Wolfers (Wharton, University of Pennsylvania, CEPR, NBER and IZA Bonn); Eric Zitzewitz (Stanford GSB)
    Abstract: Political economists interested in discerning the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections. We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during election day. Analyzing high frequency financial fluctuations on November 2 and 3 in 2004, we find that markets anticipated higher equity prices, interest rates and oil prices and a stronger dollar under a Bush presidency than under Kerry. A similar Republican-Democrat differential was also observed for the 2000 Bush-Gore contest. Prediction market based analyses of all Presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican President raises equity valuations by 2-3 percent, and that since Reagan, Republican Presidents have tended to raise bond yields.
    Keywords: elections, prediction markets, political economy, event study, partisan effects
    JEL: D72 E3 E6 G13 G14 H6
    Date: 2006–03
  18. By: Howard Kunreuther; Erwann Michel-Kerjan
    Abstract: The Terrorism Risk Insurance Act of 2002 (TRIA) established a public-private program to cover commercial enterprises against foreign terrorism on US soil. It was a temporary measure to increase the availability of risk coverage for terrorist acts by requiring insurers to provide coverage. Initially established to sunset on December 31, 2005, a two-year extension has been voted by Congress and signed by the President in December. This paper provides an extensive series of empirical analyses of loss sharing under this program in 2005, and a prospective analysis for 2006. Using data collected on the top 451 insurers operating in the United States, we examine the impact of TRIA on loss sharing between the key stakeholders: victims, insurers and their policyholders, and the taxpayers. By simulating the explosion of a 5-ton truck bomb in major cities in the United States, we conclude that taxpayers are likely not to pay anything for losses below $15 billion. For a $25 billion loss, insurers and policyholders would handle between 80 and 100 percent of the loss depending on the property take up rate. Only for terrorist attacks where insured losses were $100 billion would taxpayers have to pay 50 percent of the claims. Recent modifications of TRIA will transfer an even larger part of the risk to the private sector. We also show that if TRIA were made permanent in its current form some very large insurers could strategize by collecting large amount of premiums for terrorism insurance but only would be financially responsible for a small portion of the claims. Commercial policyholders from all insurers (whether or not covered against terrorism) and the federal government would absorb the residual insured losses, raising equity issues. The paper also reviews a set of possible long-term alternatives or complementary options to the current design of TRIA that could be important features of a more permanent program. We conclude that more than four years after 9/11, the question as to who should pay for the economic consequences of a terrorist attack on the US has not yet received the attention it deserves. Congress or the White House should consider establishing a national commission on terrorism risk coverage before permanent legislation is enacted.
    JEL: H56 G22 G28
    Date: 2006–03
  19. By: Matthew Allen Turner
    Abstract: This paper considers the simultaneous determination of residential density and the supply of local versus remote retail services. Possible equilibrium development patterns either correspond closely to what anti-sprawl activists describe as smart growth, or to its opposite. Equilibrium and optimal patterns of development do not always coincide, and when they diverge, optimal density is always than equilibrium density, and, equilibrium development is discretely rather than marginally different from the optimum. This occurs in the absence of congestion externalities, and is due to a free-rider problem and a coordination problem. The analysis indicates that a tax on large lots or a subsidy for small lots may be welfare improving under certain conditions.
    Keywords: Urban sprawl, Residential land use, Lot size,Retail location.
    JEL: R2 H0
  20. By: Paul Dunne (School of Economics, University of the West of England); Duncan Watson (University of Swansea)
    Abstract: During the Cold War a major justification of high levels of military spending was the ‘spin off’ of innovations to the civil sector, such as computers, which could then be exploited profitably and to the benefit of the economy and society. There is evidence that this has changed in more recent times, with the speed of consumer industry led technological change leading to ‘spin in’ to advanced weapons systems. If this is the case it has removed a major benefit of military spending. There is, however, little systematic evidence and little recent empirical work. This paper makes a contribution to the debate, analysing the impact of military spending on technological progress, and hence labour productivity and economic growth, for a number of major weapons producers. It uses data on the manufacturing sector, for the period 1966-2002 and estimates a CES production function in which military spending is assumed to effect growth through its impact on trend technological change.
    Date: 2005–11
  21. By: Bruno Amable (University of Paris X-Nanterre, PSE and CEPREMAP); Donatella Gatti (University of Lyon 2, PSE, CEPREMAP and IZA Bonn); Jan Schumacher (University of Mainz)
    Abstract: This paper aims to shed light on the role of the ’ideology’ of political parties in shaping the evolution of the welfare state in 18 developed democracies, by providing empirical findings on the determinants of social programs entitlements and social spending over the period 1981-1999. The paper shows that structural change is a major determinant of the extent of social protection. Our results suggest that overall spending is driven up by structural change. On the other hand, strong structural change has a negative influence on welfare entitlements measured by net replacement rates of sickness insurance or unemployment benefits. Partisan influence plays an important role in the dynamics of the welfare state. Left-wing governments strengthen the positive effect of shocks on aggregate social expenditure while right-wing governments undertake even stronger cutbacks in replacement rates as a reaction to structural change.
    Keywords: welfare state, ideology, structural change
    JEL: H5 I1 J8
    Date: 2006–03
  22. By: David Card; Jesse Rothstein
    Abstract: Racial segregation is often blamed for some of the achievement gap between blacks and whites. We study the effects of school and neighborhood segregation on the relative SAT scores of black students across different metropolitan areas, using large microdata samples for the 1998-2001 test cohorts. Our models include detailed controls for the family background of individual test-takers, school-level controls for selective participation in the test, and city-level controls for racial composition, income, and region. We find robust evidence that the black-white test score gap is higher in more segregated cities. Holding constant family background and other factors, a shift from a fully segregated to a completely integrated city closes about one-quarter of the raw black-white gap in SAT scores. Specifications that distinguish between school and neighborhood segregation suggest that neighborhood segregation has a consistently negative impact but that school segregation has no independent effect (though we cannot reject equality of the two effects). We find similar results using Census-based data on schooling outcomes for youth in different cities. Data on enrollment in honors courses suggest that within-school segregation increases when schools are more highly integrated, potentially offsetting the benefits of school desegregation and accounting for our findings.
    JEL: H73 I20 J18 J24 R20
    Date: 2006–03
  23. By: Rolf Aaberge (Statistics Norway, Oslo and IZA Bonn); Ugo Colombino (University of Turin); Tom Wennemo (Statistics Norway, Oslo)
    Abstract: During the last two decades, the discrete-choice modelling of labour supply decisions has become increasingly popular, starting with Aaberge et al. (1995) and van Soest (1995). Within the literature adopting this approach there are however two potentially important issues that are worthwhile analyzing in their implications and that so far have not been given the attention they might deserve. A first issue concerns the procedure by which the discrete alternatives are selected to enter the choice set. For example van Soest (1995) chooses (non-probabilistically) a set of fixed points identical for every individual. This is by far the most widely adopted method. By contrast, Aaberge et al. (1995) adopt a sampling procedure suggested by McFadden (1978) and also assume that the choice set may differ across the households. A second issue concerns the availability of the alternatives. Most authors assume all the values of hours-of-work within some range [0, H] are equally available. At the other extreme, some authors assume only two or three alternatives (e.g. non-participation, part-time and full-time) are available for everyone. Aaberge et al. (1995) assume instead that not all the hour opportunities are equally available to everyone; they specify a probability density function of opportunities for each individual and the discrete choice set used in the estimation is built by sampling from that individual-specific density function. In this paper we explore by simulation the implications of the procedure used to build the choice set (fixed alternatives vs. sampled alternatives) and of accounting or not accounting for a different availability of alternatives. The way the choice set is represented seems to have little impact on the fitting of observed values, but a more significant and important impact on the out-ofsample prediction performance.
    Keywords: labour supply, discrete-choice models, quantity constraints, prediction performance
    JEL: C51 C52 H31 J22
    Date: 2006–02
  24. By: Elisabetta BERTERO
    Abstract: The economic impact of privatisation is hard to assess. This pape r extends the analysis of Florio (2004) in four directions. It ar gues that a welfare assessment of privatisation must include an e valuation of the performance of public enterprises in light of th eir originally broad set of objectives including, for example, th e promotion of employment. It highlights the importance of financ ial pressure, independently of privatisation, in improving the pe rformance of public firms. It goes on to discuss the potential ro le of supranational institutions in bringing about this pressure, and identifies the relevance of the 1976 IMF intervention in the UK. International empirical evidence is then presented in suppor t of Florio’s argument that privatisation was not decisive in imp roving labour productivity. Finally, the paper argues that instit utional differences across countries make cross-country analyses of privatisation problematic.
    Keywords: Privatization, Great Britain, Public Ownership
  25. By: Christophe Muller (Universidad de Alicante); Sami Bibi (Faculté des Sciences Economiques et de Gestion de Tunis (FSEGT))
    Abstract: This paper introduces a new methodology to target direct transfers against poverty. Our method is based on observable correlates and on estimation methods that focus on the poor. Using data from Tunisia, we estimate ‘focused’ transfer schemes that improve anti-poverty targeting performances. Post-transfer poverty can be substantially reduced with the new estimation method. The impact of these schemes on the welfare of the poor is also much stronger than the current food subsidies system in Tunisia. Finally, the obtained levels of undercoverage of the poor is so low that ‘proxy-means’ focused transfer schemes becomes a realistic alternative to price subsidies, likely to avoid social unrest.
    Keywords: Poverty; Targeting; Transfers
    JEL: D12 D63 H53 I32 I38
    Date: 2006–02
  26. By: Robert MILLWARD
    Abstract: The British privatisations were concentrated on the infrastructur e industries of transport, communications and energy. It is impor tant to assess the efficiency impact in a long-term context. The Milan study goes some way towards this but even better is to comp are different countries of the Western world over the whole perio d since 1945. A distinction is made here between 1945-73 and the 1973-95 period, which followed the oil shocks and ushered in a ge neral phase of de-regulation and privatisation. It is suggested t hat factors like the reconstruction after the Second World War, t he process of catch-up and convergence in technologies and the re source endowments of different countries had much bigger effects on productivity levels and growth rates in the infrastructure ind ustries than the shift from nationalised to privatised regimes. T his article also, more briefly, critically evaluates two other el ements of the Milan study, the treatment of excess profits and of the move to more differentiated price structures.
    Keywords: Nationalization, Privatization, Great Britain

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