nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒04‒22
58 papers chosen by
Peren Arin
Massey University

  1. Why Does Democracy Need Education? By Edward Glaeser; Giacomo Ponzetto; Andrei Shleifer
  2. Optimal Inflation Targeting under Alternative Fiscal Regimes By Pierpaolo Benigno; Michael Woodford
  3. Population Aging By David N. Weil
  4. How Far Are We From The Slippery Slope? The Laffer Curve Revisited By Mathias Trabandt; Harald Uhlig
  5. Labour and Product Market Reforms in the Economy with Distortionary Taxation By Nikola Bokan; Andrew Hughes Hallett
  6. Does Neoclassical Theory Account for the Effects of Big Fiscal Shocks? Evidence From World War II By Ellen R. McGrattan; Lee E. Ohanian
  7. Savings Accounts and the Life-Cycle Approach to Social Insurance By Peter Birch Sørensen; Martin Ino Hansen; A. Lans Bovenberg
  8. Sickness absence and health care in an economic federation By Granlund, David
  9. Economic Shocks, Progressiveness of Taxation, and Indexation of Taxes and Public Expenditure in EMU By Markku Kotilainen
  10. Environmental Policy and Optimal Taxation in a Decentralized Economic Federation By Aronsson, Thomas; Jonsson, Thomas; Sjögren, Tomas
  11. Tax Competition and Information Sharing in Europe: A Signaling Game By Thierry Warin; André Fourçans
  12. Can Tax Competition Lead to a Race to the Bottom in Europe? A Skeptical View By Thierry Warin; André Fourçans
  13. Grassroots Democracy and Local Governance: Evidence from Rural China By Shuna Wang; Yang Yao
  14. Investment Taxes and Equity Returns By Clemens Sialm
  15. Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax By Yoshiyasu Ono; Akihisa Shibata
  16. Political Budget Cycles and Fiscal Decentralization By Paula González; Jean Hindriks; Ben Lockwood; Nicolás Porteiro
  17. Production and Abatement Distortions under Noisy Green Taxes By Hongli Feng; David A. Hennessy
  18. Job Security and Work Avbsence: Evidence form a Natural Experiment By Lindbeck, Assar; Palme, Mårten; Persson, Mats
  19. California's School Finance Reform: An Experiment in Fiscal Federalism By Eric J. Brunner; Jon Sonstelie
  20. Tax Increment Financing Growth in Iowa By Swenson, David A.; Eathington, Liesl
  21. Starving the Beast? Intra-Generational Conflict and Balanced Budget Rules By Dirk Niepelt
  22. Public Debt around the World: A New Dataset of Central Government Debt By Dany Jaimovich; Ugo Panizza
  23. Optimal Accumulation in an Endogenous Growth Setting with Human Capital By Frédéric Docquier; Oliver Paddison; Pierre Pestieau
  24. Pareto Improving Taxation in Incomplete Markets By Sergio Turner
  25. Public Good Menus and Feature Complementarity By Christian Roessler
  26. Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers By Campbell Leith and Leopold von Thadden
  27. Central Bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy By Andreas Schabert
  28. Optimal Income Taxation and Social Norms in the Labor Market By Aronsson, Thomas; Sjögren, Tomas
  29. The Targeted Negative Income Tax (TNIT) in Germany: Evidence from a Quasi Experiment By Alexander Spermann; Harald Strotmann
  30. Brüssel, Frankfurt oder Basel - Wo muss das Problem steigender Staatsschulden in der Europäischen Währungsunion gelöst werden? By Philipp Paulus
  31. Discrete Investment and Tax Competition when Firms shift Profits By Sven Stöwhase
  32. Dissecting dividend decisions: some clues about the effects of dividend taxation from recent UK reforms By Steve Bond; Michael Devereux; Alexander Klemm
  33. Reinventing the welfare state By Ruud de Mooij
  34. Voting over informal risk-sharing rules By Ambec, S.
  35. Conceptual issues in assessing the welfare impact of the British privatisation programme By Jonathan LEAPE
  36. A Political Economy Theory of the Soft Budget Constraint By James A. Robinson; Ragnar Torvik
  37. Political Risk Versus Market Risk in Social Security By John B. Shoven; Sita N. Slavov
  38. Effects of Family Policy Reforms in Norway. Results from a Joint Labor Supply and Child Care Choice Microsimulation Analysis By Tom Kornstad and Thor Olav Thoresen
  39. The Dynamics of the Age Structure, Dependency, and Consumption By Heinrich Hock; David N. Weil
  40. On the characteristics of a mixed system of provision of a privat e good. An application to health care By Simona GRASSI
  41. The Capital Structure of Multinational Companies Under Tax Competition By Paolo Panteghini
  42. Job changes, hours changes and the path of labour supply adjustment By Richard Blundell; Mike Brewer; Marco Francesconi
  43. What explains the Variation in Estimates of Labour Supply Elasticities? By Michiel Evers; Ruud A. de Mooij; Daniel J. van Vuuren
  44. The effects of taxes and bans on passive smoking By Jerome Adda; Francesca Corniglia
  45. The Impact of Fiscal Restraint on Budgetary Allocations for Women's Programs By Rosario G. Manasan; Eden C. Villanueva
  46. A Demand System with Social Interactions: Evidence from CEX By Giacomo Pasini
  47. Réduction linéaire de cotisations patronales à la sécurité sociale et financement alternatif By Philippe Jeanfils; Philippe Delhez; Luc Van Meensel; Koen Burggraeve; Kristel Buysse; Philip Du Caju; Yves Saks; Kris Van Cauter
  48. Tuition fees and admission standards: how do public and private universities really compete for students? By Tania Oliveira
  49. Behavioral Incentives, Equilibrium Endemic Disease, and Health Management Policy for Farmed Animals By David A. Hennessy
  50. Biosecurity and Infectious Animal Disease By David A. Hennessy
  51. Evaluating Alternative Representations of the Choice Sets in Models of Labour Supply By Rolf Aaberge, Ugo Colombino and Tom Wennemo
  52. Economic and Environmental Effectiveness of a Technology-based Climate Protocol By Carlo Carraro; Barbara Buchner
  53. Discounting and relative prices in assessing future environmental damages By Hoel, Michael; Sterner, Thomas
  54. The dynamics of carbon and energy intensity in a model of endogenous technical change By Carlo Carraro; Valentina Bosetti; Marzio Galeotti
  55. The Importance of Emotions for the Effectiveness of Social Punishment By Astrid Hopfensitz; Ernesto Reuben
  56. Comprehensive Education or Vocational Training for the Unemployed? By Stenberg, Anders
  57. The effect of pre-primary education on primary school performance By Samuel Berlinski; Sebastian Galiani; Paul Gertler
  58. EU Legitimacy and Social Affiliation: A study of Engineers in Europe By Jan Gunnarsson

  1. By: Edward Glaeser; Giacomo Ponzetto; Andrei Shleifer
    Abstract: Across countries, education and democracy are highly correlated. We motivate empirically and then model a causal mechanism explaining this correlation. In our model, schooling teaches people to interact with others and raises the benefits of civic participation, including voting and organizing. In the battle between democracy and dictatorship, democracy has a wide potential base of support but offers weak incentives to its defenders. Dictatorship provides stronger incentives to a narrower base. As education raises the benefits of civic participation, it raises the support for more democratic regimes relative to dictatorships. This increases the likelihood of democratic revolutions against dictatorships, and reduces that of successful anti-democratic coups.
    JEL: D72 D74 H11
    Date: 2006–04
  2. By: Pierpaolo Benigno; Michael Woodford
    Abstract: Standard discussions of flexible inflation targeting as an optimal monetary policy abstract completely from the consequences of monetary policy for the government budget. But at least some of the countries now adopting inflation targeting have substantial difficulty in controlling fiscal imbalances, so that the additional strains resulting from strict control of inflation are of substantial concern, and some (notably Sims 2005) have argued that inflation targeting can even be counterproductive under some fiscal regimes. Here, therefore, we analyze welfare-maximizing monetary policy taking explicit account of the consequences of monetary policy for the government budget, and under a variety of assumptions about the nature of the fiscal regime. The paper contrasts the optimal monetary policies under three alternative assumptions about fiscal policy: (i) the case in which little distortion is required to raise additional government revenue, and the fiscal authority can be relied upon to ensure intertemporal government solvency [the implicit assumption in standard analyses]; (ii) the case in which only distorting sources of revenue exist, but distorting taxes are adjusted optimally; and (iii) the case in which tax rates cannot be expected to change in response to a change in monetary policy [the problematic case emphasized by Sims]. In both of cases (ii) and (iii), it is optimal for monetary policy to allow the inflation rate to respond to fiscal developments (and the optimal responses to other shocks are somewhat different than in the classic analysis, which assumes case (I)). Nonetheless, optimal monetary policy can still be implemented through a form of flexible inflation targeting, and it remains critical, even in the most pessimistic case (case (iii)), that inflation expectations (beyond some very short horizon) not be allowed to vary in response to shocks.
    JEL: E52 E63
    Date: 2006–04
  3. By: David N. Weil
    Abstract: Population aging is primarily the result of past declines in fertility, which produced a decades long period in which the ratio of dependents to working age adults was reduced. Rising old-age dependency in many countries represents the inevitable passing of this “demographic dividend.” Societies use three methods to transfer resources to people in dependent age groups: government, family, and personal saving. In developed countries, families are predominant in supporting children, while government is the main source of support for the elderly. The most important means by which aging will affect aggregate output is the distortion from taxes to fund PAYGO pensions.
    JEL: J10 J11 H55
    Date: 2006–04
  4. By: Mathias Trabandt; Harald Uhlig
    Abstract: The goal of this paper is to examine the shape of the Laffer curve quantitatively in a simple neoclassical growth model calibrated to the US as well as to the EU-15 economy. We show that the US and the EU-15 area are located on the left side of their labor and capital tax Laffer curves, but the EU-15 economy being much closer to the slippery slopes than the US. Our results indicate that since 1975 the EU-15 area has moved considerably closer to the peaks of their Laffer curves. We find that the slope of the Laffer curve in the EU-15 economy is much flatter than in the US which documents a much higher degree of distortions in the EU-15 area. A dynamic scoring analysis shows that more than one half of a labor tax cut and more than four fifth of a capital tax cut are self-financing in the EU-15 economy.
    Keywords: Laffer curve, US and EU-15 economy
    JEL: E0 E60 H0
    Date: 2006–04
  5. By: Nikola Bokan; Andrew Hughes Hallett
    Abstract: It is widely accepted that in order to improve the economic position of the EU relative to the USA certain structural reforms need to be undertaken, mainly in the labour market. However few EU countries have undertaken such reforms. The reason lies in the fact that those reforms are going to be costly in terms of economic performance, unemployment and hence the cost of financing them - at least in the short term. Blanchard and Giavazzi (2003) develop a model based on imperfect competition in both product and labour markets in order to show the impact of deregulation on the economy. However they do not consider the question of how to finance such reforms or overcome the short run costs, a key consideration if the short run costs are large relative to the long run gains. We extend their model by including the effects of another inevitable source of imperfections: distortionary taxation - not only the most likely candidate for reform, but also the most likely instrument for financing the restructuring process. By extending the model in this way we can establish formally that reforms imply significant short run costs as well as long run gains; that (political opposition apart) the financing of such reforms will be the main stumbling block. We come to a number of conclusions which reverse the Blanchard and Giavazzi results; and find that, in addition, the composition of the reform package matters, as does the distribution of the tax burden. This model therefore supplies new results on the design and sequencing of reforms.
    Keywords: Structural Reform, Wage Bargains, Short vs Long Run Sustainability.
    JEL: E42 E43 E50
    Date: 2006–01
  6. By: Ellen R. McGrattan; Lee E. Ohanian
    Abstract: There is much debate about the usefulness of the neoclassical growth model for assessing the macro- economic impact of fiscal shocks. We test the theory using data from World War II, which is by far the largest fiscal shock in the history of the United States. We take observed changes in fiscal policy during the war as inputs into a parameterized, dynamic general equilibrium model and compare the values of all variables in the model to the actual values of these variables in the data. Our main finding is that the theory quantitatively accounts for macroeconomic activity during this big fiscal shock.
    JEL: E0 E6
    Date: 2006–04
  7. By: Peter Birch Sørensen (Department of Economics, University of Copenhagen); Martin Ino Hansen (Statistics Denmark); A. Lans Bovenberg (Tilburg University)
    Abstract: Using Danish data, we find that about three fourths of the taxes levied to finance public transfers actually finance benefits that do not redistribute between people but redistribute income over the life cycle of individual taxpayers. This provides a rationale for financing part of social insurance via mandatory individual savings accounts. An account system that offers liquidity insurance and a lifetime income guarantee helps to alleviate the dilemma between insurance and incentives. To illustrate this, we analyse a specific proposal for reform of the Danish system of social insurance, involving the use of individual accounts. We estimate how the reform would affect the distribution of lifetime incomes, the public budget, and economic efficiency. Our analysis suggests that, even with conservative assumptions regarding labor supply elasticities, the proposed reform would generate a Pareto improvement and would imply only a minor increase in the inequality of lifetime income distribution.
    Keywords: social insurance; individual accounts; lifetime income distribution
    JEL: H53 H55
    Date: 2006–03
  8. By: Granlund, David (Department of Economics, Umeå University)
    Abstract: This paper concerns vertical fiscal externalities in a model where the state governments provide health care and the federal government provides a sickness benefit. Both levels of government tax labor income and policy decisions affect labor income as well as participation in the labor market. The results show that the vertical externality affecting the state governments’ <p> policy decisions can be either positive or negative depending on, among other things, the wage elasticity of labor supply and the marginal product of expenditures on health care. Moreover, it is proved that the vertical fiscal externality will not vanish by assigning all powers of taxation to the states.
    Keywords: economic federation; moral hazard; vertical fiscal externalities; sickness absence; sickness benefits
    JEL: H21 H42 H77
    Date: 2005–10–03
  9. By: Markku Kotilainen
    Keywords: Economic and monetary union, EMU, taxation, public expenditure, progressiveness of taxation, indexation
    JEL: E32 E62 E63 E64 F33 F41 F42
    Date: 2006–04–03
  10. By: Aronsson, Thomas (Department of Economics, Umeå University); Jonsson, Thomas (Department of Economics, Umeå University); Sjögren, Tomas (Department of Economics, Umeå University)
    Abstract: This paper deals with environmental policy in an economic federation, where each national government faces a mixed tax problem. We assume that the federal government sets emission targets, which are implemented at the national level. We also assume that the economic federation is decentralized, meaning that the national governments are first movers vis-a-vis the federal government. Our results show that each country uses it policy instruments, at least in part, to influence the emission target. This has several implications; first, the commodity taxes do not satisfy the so called additivity property often emphasized in earlier literature and, second, it provides an argument for using distortionary labor income taxation.
    Keywords: Income and commodity taxation; economic federation; environmental policy
    JEL: D62 H21 H70
    Date: 2006–01–13
  11. By: Thierry Warin; André Fourçans
    Abstract: This paper provides a challenging view to the tax harmonization issue. The literature often proposes tax harmonization to avoid free-riding behaviors in free-trade areas, and more particularly in monetary unions. Countries may decrease their tax rates in order to develop tax competitive advantage and attract capital. Without tax harmonization, tax autonomy may lead to a “race to the bottom.” The model proposed here uses a game-theoretical approach to analyze this question. It shows that tax competition may lead to stability. The mechanism leading to this outcome rests upon the impact of the signal given by both players. If a country gives the signal that “friendly” taxation behavior is not its priority, the result can be a “race to the bottom”. Conversely, if both countries signal their ability to conduct such a war, this war will not occur, and the stability of the system will be ensured.
    Keywords: Monetary union, Economic integration, Tax competition, Tax harmonization, Fiscal competition
    JEL: H20 H21 H77
    Date: 2006–05
  12. By: Thierry Warin; André Fourçans
    Abstract: This paper addresses the question of the likelihood of a race to the bottom in a monetary union, like the Euro-zone, that could result from tax competition between countries. This fear of a race to the bottom is used both in the economic literature and the political arena to promote tax harmonization. Using a game theoretical approach with the costs of changing tax policies to analyze the conditions of a race to the bottom, this paper shows that countries may not choose such an extreme strategy. In other words, the extreme case scenario of a race to the bottom is unlikely, and proponents of tax harmonization should base their reasoning upon other assumptions.
    Keywords: Monetary union, Economic integration, Tax competition, Tax harmonization, Fiscal competition
    JEL: H20 H26 H77 H87
    Date: 2006–04
  13. By: Shuna Wang (Department of Economics, University of Virginia); Yang Yao (China Center for economic Research, Peking University)
    Abstract: This paper studies the impacts of village election on the accountability of the elected village committee, local fiscal sharing, and state taxation in rural China using panel data of 48 villages during the period of 1986-2002. Election is found to substantially increase the share of public expenditures in the village budget and reduce the shares of administrative costs and income handed to the township government. This shows that election enhances the accountability of the village committee, but weakens local fiscal sharing, and thus, may hurt public goods provision beyond the village boundary. In addition, election also reduces the amount of tax paid by each person in the village, which means that election does lessen the state's grip on the grassroots society. Finally, no significant evidence is found to support the claim that the role of a more competitive election is different from that of a closed election.
    Keywords: Multinational model, East Asian interdependency, exchange rates, asymmetric shocks
    JEL: C52 F15 F17 F42
    Date: 2006–02
  14. By: Clemens Sialm
    Abstract: This paper investigates whether investors are compensated for the tax burden of equity securities. Effective tax rates on equity securities vary due to frequent tax reforms and due to persistent differences in propensities to pay dividends. The paper finds an economically and statistically significant relationship between risk-adjusted stock returns and effective personal tax rates using a new data set covering tax burdens on a cross-section of equity securities between 1927 and 2004. Consistent with tax capitalization, stocks facing higher effective tax rates tend to compensate taxable investors by generating higher before-tax returns.
    JEL: G12 H20 E44
    Date: 2006–04
  15. By: Yoshiyasu Ono (Institute of Social and Economic Research, Osaka University); Akihisa Shibata (Institute of Economic Research, Kyoto University)
    Abstract: Unless free international lending/borrowing is allowed, domestic saving equals domestic investment and hence saving and investment taxes have the identical effect, as is the case in a closed-economy context. However, if it is allowed, households can accumulate foreign assets besides domestic capital and hence saving and investment are separated, causing the two taxes to have different effects. Using a two-sector growth model, we show that the two taxes generate completely different effects on industrial structure. The investment tax always shrinks the capital-intensive sector whereas the saving tax may well expand it.
    Keywords: saving tax, investment tax, two-sector growth model, industrial structure, financial asset trade
    JEL: F41 E62
    Date: 2006–03
  16. By: Paula González (Department of Economics, Universidad Pablo de Olavide); Jean Hindriks (Université Catholique de Louvain, CORE.); Ben Lockwood (University of Warwick.); Nicolás Porteiro (Department of Economics, Universidad Pablo de Olavide)
    Abstract: In this paper, we study a model à la Rogoff (1990) where politicians distort fiscal policy to signal their competency, but where fiscal policy can be centralized or decentralized. Our main focus is on how the equilibrium probability that fiscal policy is distorted in any region (the political budget cycle, PBC) differs across fiscal regimes. With centralization, there are generally two effects that change the incentive for pooling behavior and thus the probability of a PBC. One is the possibility of selective distortion: the incumbent can be re-elected with the support of just a majority of regions. The other is a cost distribution effect, which is present unless the random cost of producing the public goods is perfectly correlated across regions. Both these effects work in the same direction, with the general result that overall, the PBC probability is larger under centralization (decentralization) when the rents to office are low (high). Voter welfare under the two regimes is also compared: voters tend to be better off when the PBC probability is lower, so voters may either gain or lose from centralization. Our results are robust to a number of changes in the specification of the model.
    Keywords: Political Agency Models, decentralization, incentives, selection, fiscal distortion.
    JEL: D72 H11 P16
    Date: 2006–04
  17. By: Hongli Feng (Center for Agricultural and Rural Development (CARD)); David A. Hennessy (Center for Agricultural and Rural Development (CARD))
    Abstract: Pigouvian taxes are typically imposed in situations where there is imperfect knowledge on the extent of damage caused by a producing firm. A regulator imposing imperfectly informed Pigouvian taxes may cause the firms that should (should not) produce to shut down (produce). In this paper we use a Bayesian information framework to identify optimal signal-conditioned taxes in the presence of such losses. The tax system involves reducing (increasing) taxes on firms identified as causing high (low) damage. Unfortunately, when an abatement decision has to be made, the tax system that minimizes production distortions also dampens the incentive to abate. In the absence of wrong-firm concerns, a regulator can solve the problem by not adjusting taxes for signal noise. When wrong-firm losses are a concern, the regulator has to trade off losses from distorted production incentives with losses from distorted abatement incentives. The most appropriate policy may involve a combination of instruments.
    Keywords: conditioning; heterogeneity; informativeness; Pigouvian tax; signaling
    JEL: D62 H20
    Date: 2005–10
  18. By: Lindbeck, Assar (Institute for International Economic Studies, Stockholm University); Palme, Mårten (Department of Economics); Persson, Mats (Institute for International Economic Studies, Stockholm University)
    Abstract: We analyze the consequences for sickness absence of a selective softening of job security legislation for small firms in Sweden in 2001. According to our differences-in-difference estimates, aggregate absence in these firms fell by 0.2-0.3 days per year. This aggregate net figure hides important effects on different groups of employees. Workers remaining in the reform firms after the reform reduced their absence by about one day. People with a high absence record tended to leave reform firms, but these firms also became less reluctant to hire people with a record of high absence.
    Keywords: Seniority rules; sick pay insurance; firing costs; moral hazard
    JEL: H53 I38 J22 J50 M51
    Date: 2006–02–01
  19. By: Eric J. Brunner (Quinnipiac University and University of Connecticut); Jon Sonstelie (University of California, Santa Barbara)
    Abstract: The 1971 ruling of the California Supreme Court in the case of Serrano v. Priest initiated a chain of events that abruptly ended local financing of public schools in California. In seven short years, California transformed its school finance system from a decentralized one in which local communities chose how much to spend on their schools to a centralized one in which the state legislature determines the expenditures of every school district. This paper begins by describing California's school finance system before Serrano and the transformation from local to state finance. It then delineates some consequences of that transformation and draws lessons from California's experience with school finance reform.
    Keywords: School Finance Reform, Centralization, Fiscal Federalism
    JEL: H1 H2 I2
    Date: 2006–04
  20. By: Swenson, David A.; Eathington, Liesl
    Abstract: Tax increment financing (TIF) is a mechanism authorized by Iowa law allowing local governments, primarily cities, to capture the taxes collected on property valuation growth in a specified district. The use of TIF authority among Iowa's cities is extremely popular. In fiscal 1991, there were 746 different TIF districts or projects in Iowa. By fiscal 1997 that number had increased to 1,014, and by fiscal 2006, it had increased to 2,358, a 133 percent increase in a nine year period. More cities are using TIF authority, there are many more TIF projects than there were a decade ago, and the amount of statewide property taxable valuation that is sequestered within TIF districts and therefore not available to the general funds of all local governments has also grown strongly over the years. This report analyzes a decade of changes in TIF usage in Iowa.
    Date: 2006–04–10
  21. By: Dirk Niepelt (Study Center Gerzensee)
    Abstract: A balanced budget requirement does not only prevent fiscal policy makers from smoothing tax distortions but also affects their preferred choice of government spending. The paper analyzes the conditions under which groups opposed to government spending might want to implement a balanced budget requirement in order to induce the government to spend less. It shows that relaxing a balanced budget requirement need not be associated with higher government spending.
    Date: 2005–10
  22. By: Dany Jaimovich (InterAmerican Development Bank); Ugo Panizza (InterAmerican Development Bank)
    Abstract: Commonly used datasets on the level of public debt provide incomplete country and period coverage. This paper presents a new dataset that includes complete series of central government debt for 89 countries over the 1991-2005 period and for seven other countries for the 1993-2005 period.
    Keywords: Public Debt; Debt Management; Fiscal Sustainability
    JEL: H63 F34 E63
    Date: 2006–03
  23. By: Frédéric Docquier (FNRS, IRES, Catholic University of Louvain and IZA Bonn); Oliver Paddison (ECLAC, United Nations Economic Commission for Latin America and the Caribbean); Pierre Pestieau (CREPP, University of Liège, CORE, PSE and CEPR)
    Abstract: This paper considers a three-overlapping-generations model of endogenous growth wherein human capital is the engine of growth. It first contrasts the laissez-faire and the optimal solutions. Three possible accumulation regimes are distinguished. Then it discusses a standard set of tax-transfer instruments that allow for decentralization of the social optimum. Within the limits of our model, the rationale for the standard pattern of intergenerational transfers (the working-aged financing the education of the young and the pension of the old) is seriously questioned. On pure efficiency grounds, the case for generous public pensions is rather weak.
    Keywords: endogenous growth, human capital, intergenerational transfers
    JEL: D90 H21 H52
    Date: 2006–04
  24. By: Sergio Turner
    Date: 2006
  25. By: Christian Roessler
    Abstract: The distance metric on the location space for multidimensional public good varieties represents complementarity between the goods features. "Euclidean" feature complementarity has atypical strong properties that lead to a failure of intuition about the optimal-menu design problem. If the population is heterogeneous, increasing the distance between two varieties is welfare-improving in Euclidean space, but not generally. A basic optimal-direction principle always applies: "anticonvex" menu changes increase participation and surplus. A menu replacement is anticonvex if it moves the varieties apart in the common line space. The result extends to some impure public goods with break-even pricing and variety-specic costs. A sufficient condition for menus to be Pareto-optimal is that "personal price" (nominal price plus perceived distance from a variety) is linear in the norm that induces the distance metric.
    Keywords: Public Good Menus; complementarity
    JEL: H41 D78 D71 R13 R12
    Date: 2006
  26. By: Campbell Leith and Leopold von Thadden
    Abstract: This paper develops a small New Keynesian model with capital accumulation and government debt dynamics. The paper discusses the design of simple monetary and fiscal policy rules consistent with determinate equilibrium dynamics in the absence of Ricardian equivalence. Under this assumption, government debt turns into a relevant state variable which needs to be accounted for in the analysis of equilibrium dynamics. The key analytical finding is that without explicit reference to the level of government debt it is not possible to infer how strongly the monetary and fiscal instruments should be used to ensure determinate equilibrium dynamics. Specifically, we identify in our model discontinuities associated with threshold values of steady-state debt, leading to qualitative changes in the local determinacy requirements. These features extend the logic of Leeper (1991) to an environment in which fiscal policy is non-neutral and requires us to pay equal attention to to monetary and fiscal policy in designing policy rules consistent with determinate dynamics.
    JEL: E52 E63
  27. By: Andreas Schabert (Universiteit van Amsterdam)
    Abstract: This paper examines the role of the monetary instrument choice for local equilibrium determinacy under sticky prices and different fiscal policy regimes. Corresponding to Benhabib et al.'s (2001) results for interest rate feedback rules, the money growth rate should not rise by more than one for one with inflation when the primary surplus is raised with public debt. Under an exogenous primary surplus, money supply should be accommodating -- such that real balances grow with inflation -- to ensure local equilibrium determinacy. When the central bank links the supply of money to government bonds by controlling the bond-to-money ratio, an inflation stabilizing policy can be implemented for both fiscal policy regimes. Local determinacy is then ensured when the bond-to-money ratio is not extremely sensitive to inflation, or when interest payments on public debt are entirely tax financed, i.e., the budget is balanced.
    Keywords: Fiscal-Monetary Policy Interaction; Money Growth; Bond-to-Money Ratio; Local Equilibrium Determinancy
    JEL: E52 E63 E32
    Date: 2006–03–08
  28. By: Aronsson, Thomas (Department of Economics, Umeå University); Sjögren, Tomas (Department of Economics, Umeå University)
    Abstract: This paper concerns optimal income taxation in a two-type model extended to allow for social interaction and social norms in the labor market. One type of norm relates to the hours of work among the employed, and we assume that there is a cost associated with deviating from 'normal behavior' (defined in terms of the average hours of work). Another type of norm refers to the pressure of earning one's living by working, where social interaction means that the perceived cost of being out of employment depends on the share of nonworkers in the population. The results show how, and why, the existence of social norms may modify results derived in earlier literature. Under reasonable assumptions, the norm referring to normal behavior in term of work hours provides an incentive for the government to increase the hours of work supplied by the high-ability type relative to the hours of work supplied by the low-ability type, whereas the norm of 'earning one's living by working' strengthens the employment-motive behind tax policy.
    Keywords: Optimal Taxation; Social Interaction; Norms
    JEL: D60 H21 H53
    Date: 2006–03–13
  29. By: Alexander Spermann (ZEW Mannheim, University of Freiburg and IZA Bonn); Harald Strotmann (IAW Tübingen)
    Abstract: We report empirical evidence from the first field experiments to be conducted in Germany with program and control groups between 1999 and 2002. The evaluated program called "Targeted Negative Income Tax (TNIT)" is a time-restricted employee subsidy for meanstested welfare recipients. We focus on a unique data set on welfare recipients in Mannheim and estimate the treatment effect of TNIT on participation probability. The average treatment effect is significant and lies between 6.6 and 6.8 percentage points. Since January 1st, 2005, TNIT can be offered to all means-tested long-term unemployed people in Germany by public case managers.
    Keywords: field experiments, labor market reform, negative income tax, employee subsidy, long-term unemployment
    JEL: C93 I38 J22
    Date: 2006–03
  30. By: Philipp Paulus
    Abstract: This paper shows that in addition to fiscal rules in the European Monetary Union (EMU), some support can be found from financial markets to keep rising public debt in check. EMU likely has an overall positive impact on the ability of both markets and market participants for EMU government bonds to price such securities correctly, which would in turn discipline profligate EMU governments. However, apart from fiscal rules like the Stability and Growth Pact, some regulatory issues will still have to be addressed to ascertain the functioning of markets for EMU government bonds. It is concluded that regulatory efforts should concentrate on competition policy by the EU Commission in Brussels for EMU financial markets and banks, as well as on an EMU-wide authority for the ECB in Frankfurt to monitor and combat systemic risk. However, the Basel accords on capital requirements for banks should not be made legally binding, since leaving risk-taking and risk measurement to banks individually likely helps overcome competitive distortions in a larger EMU capital market.
    Keywords: monetary union, fiscal stability, banking system, banking regulation
    JEL: F33 G28 H63
    Date: 2006–03
  31. By: Sven Stöwhase
    Abstract: In this paper, we model the tax setting game between two revenue maximizing countries which compete for the location of a single production plant owned by a multinational firm. We introduce the possibility that the multinational can shift a fraction of its profits out of the country where the production plant is located. In this framework, it is investigated how a change in the costs of profit shifting affects equilibrium tax rates. We show that in most cases, equilibrium tax rates of the two countries will be higher under profit shifting than without. Unless profit shifting does not become too easy, the strategic adjustment of profit tax rates will typically harm the multinational firm.
    Keywords: tax competition, profit shifting, multinational enterprises, discrete investment
    JEL: F23 H25 H32
    Date: 2006–04–12
  32. By: Steve Bond (Institute for Fiscal Studies and Nuffield College, Oxford); Michael Devereux (Institute for Fiscal Studies and University of Warwick); Alexander Klemm (Institute for Fiscal Studies)
    Abstract: We present empirical evidence which suggests that a big increase in dividend taxation for UK pension funds in July 1997 affected the form in which some UK companies chose to make dividend payments, but otherwise had limited effects on both the level of dividend payments and the level of investment. These findings are consistent with a version of the 'new view' of dividend taxation. We also identify a group of firms whose dividend choices are difficult to reconcile with (stock market) value maximisation.
    Date: 2005–08
  33. By: Ruud de Mooij
    Abstract: The Dutch welfare state is under pressure. Future trends of ageing and globalisation render public finances unsustainable and worsen the position of low-skilled workers on the labour market. At the same time, welfare state institutions seem insufficiently adapted to changed socio-cultural circumstances. Moreover, they cause inactivity among elderly workers, women and social benefit recipients. To prepare for the future, the Dutch government aims to raise labour supply and improve human capital. This study explores how welfare state reform can contribute to these goals. Thereby, we take into account the key social and economic functions that the welfare state fulfils in our society. We analyse a number of reforms in Dutch institutions from a broad welfare perspective and quantify their effects on the labour market and the income distribution. The study also develops three comprehensive prototype welfare state reforms for the Netherlands in the future. We explore how robust these different prototypes are for immigration, economic integration and technological change.
    Keywords: Welfare state; Labour market; Inequality; the Netherlands; Policy simulations
    JEL: D3 D5 D6 H2 H53 I3 J2 J3 J6
    Date: 2006–03
  34. By: Ambec, S.
    Abstract: People vote over risk-sharing rules to cope with random revenues. Risk-sharing rules are enforced through peer pressure : those who comply exert a negative externality on those who do not. People are differently affected by this externality. The author determines the elected risk-sharing rules and the level of compliance. It turns out that full risk-sharing is achieved only if everybody complies. Partial risk-sharing is more often achieved with, sometime, some level of non-compliance. In many cases, a majority of people votes over and complies with the risk-sharing rule that maximizes their own expected payoff.
    JEL: H21 O15 O17
    Date: 2005
  35. By: Jonathan LEAPE
    Abstract: Assessing the welfare impact of a policy on the scale of the Brit ish privatisation programme is a daunting task. Four sets of issu es raised in the impressive study by Florio et al of the British privatisation programme merit further discussion. One such set of issues relates to the different dimensions of underpricing in th e privatisation programme. A second set relates to the welfare im pact of one particular aspect of the privatisation programme: the sale of housing by local authorities. A third set of issues rela tes to taxation. It is argued here that there is evidence to sugg est important interactions between the privatisation programme an d tax policy over the period, with implications for the ultimate welfare impact of privatisation. A final set of issues relates to the role of the privatisation programme in redefining the broade r debate over the delivery of public services and, in particular, the appropriate role of asset ownership
    Keywords: Privatization, UK, Welfare Impact
  36. By: James A. Robinson; Ragnar Torvik
    Abstract: Why do soft budget constraints exist and persist? In this paper we argue that the prevalence of soft budget constraints can be best explained by the political desirability of softness. We develop a political economy model where politicians cannot commit to policies that are not ex post optimal. We show that because of the dynamic commitment problem inherent in the soft budget constraint, politicians can in essence commit to make transfers to entrepreneurs which otherwise they would not be able to do. This encourages such entrepreneurs to vote for them. Though the soft budget constraint may induce economic inefficiency, it may be politically rational because it influences the outcomes of elections. In consequence, even when information is complete, politicians may fund bad projects which they anticipate they will have to bail out in the future.
    JEL: H20 H50 O20
    Date: 2006–04
  37. By: John B. Shoven; Sita N. Slavov
    Abstract: Pay-as-you-go Social Security is typically characterized as a universal defined benefit pension program. Implicit in this characterization is a sense that the participant’s investment in future benefits is somehow guaranteed, or safe from risk. This study develops the concept of “political risk” as the possibility that some future legislature will be forced to change the tax and benefit provisions of pay-as-you-go social security programs, when there are changes in the demographic and macroeconomic variables that support it. Thus there is a “political risk” to participants that might be compared to the “market risk” in a personal accounts retirement scheme. In this paper, we carry out a detailed quantitative analysis of political risk in the U.S. Social Security system, as well as an overview of policy reforms in several European countries that demonstrate political risk more broadly across social security systems. For the U.S., we compute the internal rates of return (IRRs) from Social Security for various age groups and income levels, using the existing law in effect each year since 1939. We find considerable variation in IRRs through time for any birth cohort. Participants experienced significant declines in IRRs as a result of adjustments made to restore the system’s solvency in 1983 and 1994. If the system were brought into actuarial balance in 2005, younger cohorts would experience another significant decline in their lifetime IRR. Our review of other countries demonstrates political risk in other social security systems as well. Law changes necessitated by actuarial imbalances pass demographic risk on to participants. The debate over personal accounts, therefore, is not one of “safe” versus “risky” benefits, but one of portfolio choice.
    Date: 2006–04
  38. By: Tom Kornstad and Thor Olav Thoresen (Statistics Norway)
    Abstract: Mothers of preschool children represent one part of the population that might be able to increase its labor supply. We discuss effects of family policy changes that encourage the labor supply of these mothers, as child care fee reductions and increased availability of center-based care. Effects of policy changes are described by employing a joint labor supply and child care choice decision model. Detailed empirical results are provided with respect to mothers’ labor supply, families' child care choices, public expenditures, and distributions of income and money metric utility.
    Keywords: : female labor supply; child care; family policy; discrete choice; microsimulation; compensating variation
    JEL: D12 D31 J22 H23
    Date: 2006–03
  39. By: Heinrich Hock; David N. Weil
    Abstract: We examine the dynamic interaction of the population age structure, economic dependency, and fertility, paying particular attention to the role of intergenerational transfers. In the short run, a reduction in fertility produces a “demographic dividend” that allows for higher consumption. In the long run, however, higher old-age dependency can more than offset this effect. To analyze these dynamics we develop a highly tractable continuous-time overlapping generations model in which population is divided into three groups (young, working age, and old) and transitions between groups take place in a probabilistic fashion. We show that most highly developed countries have fertility below the rate that maximizes steady state consumption. Further, the dependency-minimizing response to increased longevity is to raise fertility. In the face of the high taxes required to support transfers to a growing aged population, we demonstrate that the actual response of fertility will likely be exactly the opposite, leading to increased population aging.
    JEL: E10 E21 H55 J11
    Date: 2006–04
  40. By: Simona GRASSI
    Abstract: We characterise the conditions for the existence of a mixed syste m of finance and provision of health-care by a social planner and a private market coexists. Private insurance/provision and publ ic health-care provision cannot be consumed together, each indivi dual has a certain probability of being sick or healthy, they hav e different incomes and the richer they are, the more health-care services they are willing to buy. Everybody contributes through a general linear income taxation to the finance of the public pro vision of health-care. Implicitly income is not observable by the social planner. The selection of users is endogenous. The quanti ty of health-care service supplied by the public sector suffers f rom congestion. We derive the conditions for existence of a mixed system and we characterise the impact of an increase or decrease of resources directed to the public system.
    Keywords: Public provision of private goods, health care
  41. By: Paolo Panteghini
    Abstract: This article studies the relationship between debt policies of multinational companies (MNCs) and governments' tax strategies. In the first part, it is shown that the ability to shift income from high to low-tax countries affects MNCs' financial choices. In the second part we show how MNCs' financial decisions can affect the tax strategies of two governments competing to attract income. Furthermore we show that, for reasonable levels of risk aversion, the use of an equally weighted portfolio is surprisingly consistent with an expected utility maximizing behavior.
  42. By: Richard Blundell (Institute for Fiscal Studies and University College London); Mike Brewer (Institute for Fiscal Studies); Marco Francesconi (Institute for Fiscal Studies and ISER, Essex University)
    Abstract: This paper uses the first twelve waves of the British Household Panel Survey covering the period 1991-2002 to investigate single women’s labour supply changes in response to three tax and benefit policy reforms that occurred in the 1990s. We find evidence of small labour supply effects for two of such reforms. A third reform in 1999 instead led to a significant increase in single mothers’ hours of work. This increase was primarily driven by women who changed job, suggesting that labour supply adjustments within a job are harder than across jobs. The presence of hours inflexibility within jobs and labour supply adjustments through job mobility are strongly confirmed when we look at hours changes by stated labour supply preferences. Finally, we find little overall effect on wages.
    Keywords: Job mobility; Hours flexibility; Labour supply preferences; Hours-wage trade-off; Monopsony
    JEL: C23 H31 I38 J12 J13 J22
    Date: 2005–10
  43. By: Michiel Evers (Erasmus Universiteit Rotterdam); Ruud A. de Mooij (CPB, The Hague, and Erasmus Universiteit Rotterdam); Daniel J. van Vuuren (CPB, The Hague, and Erasmus Universiteit Rotterdam)
    Abstract: This paper performs a meta-analysis of empirical estimates of uncompensated labour supply elasticities. We find that much of the variation in elasticities can be explained by the variation in gender, participation rates, and country fixed effects. Country differences appear to be small though. There is no systematic impact of the model specification or marital status on reported elasticities. The decision to participate is more responsive than is the decision regarding hours worked. Even at the intensive margin, we find that the elasticity for women exceeds that for men. For men and women in the Netherlands, we predict an uncompensated labour supply elasticity of 0.1 (or 0.2 if an alternative specification is preferred) and 0.5, respectively. These values are robust for alternative samples and specifications of the meta regression.
    Keywords: labour supply; meta analysis; uncompensated elasticity
    JEL: J22 H2
    Date: 2006–02–14
  44. By: Jerome Adda (Institute for Fiscal Studies and University College London); Francesca Corniglia
    Abstract: This paper evaluates the effect of excise taxes and bans on smoking in public places on the exposure to tobacco smoke of non-smokers. We use a novel way of quantifying passive smoking: we use data on cotinine concentration- a metabolite of nicotine- measured in a large population of non-smokers over time. Exploiting state and time variation across US states, we reach two important conclusions. First, excise taxes have a significant effect on passive smoking. Second, smoking bans have on average no effects on non smokers. While bans in public transportation or in schools decrease the exposure of non smokers, bans in recreational public places can in fact perversely increase their exposure by displacing smokers to private places where they contaminate non smokers, and in particular young children. Bans affect socioeconomic groups differently: we find that smoking bans increase the exposure of poorer individuals, while it decreases the exposure of richer individuals, leading to widening health disparities.
    Date: 2005–12
  45. By: Rosario G. Manasan (Philippine Institute for Development Studies); Eden C. Villanueva (Philippine Institute for Development Studies)
    Abstract: The paper reviews the gender-differentiated effect of macroeconomic policies by examining the impact of persistent revenue shortfalls on the part of the national government in 1997-2003 on the budget allocations for programs that support gender equality and women’s priority public services in selected departments - Department of Health (DOH), Department of Agriculture (DA), Department of Social Welfare and Development (DSWD), and Department of Education (DepEd). The analysis includes grouping the agencies’ programs, activities and projects (PAPs) into gender-relevant categories and tracking the impact of the overall contraction of national government expenditures on the expenditure obligations for these expenditure categories. At the same time, the study undertakes a gender-disaggregated benefit incidence analysis of the mainstream or untargeted expenditures of the selected departments. Lastly, the study emphasizes that budget analysis has to be better informed by gender analysis given that, even if there is no gender bias in the formal policies and procedures that govern the delivery of services of various government agencies, gender bias might result from the informal rules, attitudes and behavior not only of service providers but also that of the target clientele.
    Keywords: budget analysis, benefit incidence analysis, gender analysis
    JEL: J16 J18 H72
    Date: 2005–08
  46. By: Giacomo Pasini (Department of Economics, University Of Venice Cà Foscari; Economics and Organization, School for Advanced Studies in Venice)
    Abstract: A Quadratic Almost Ideal Demand System that allows for social interactions is described and then estimated on CEX data. Social interactions are introduced as mean budget shares and depend on peer membership and visibility. Peer identification is obtained by means of a similarity index which measures the probability of group membership. Reflection problem is tackled directly and therefore estimation is carried on with a Generalized Spatial 2SLS that deal with two types of endogeneity: the first due to contemporaneous choices of households, the second due to contemporaneous choice of goods. The results support the hypothesis that total expenditure allocation to budget shares depends both on social interaction and visibility.
    Keywords: Social Interactions, Demand System, Similarity, Endogeneity, Spatial Econometrics
    JEL: H31 C31 C49
    Date: 2006
  47. By: Philippe Jeanfils (National Bank of Belgium, Research Department); Philippe Delhez (National Bank of Belgium, Research Department); Luc Van Meensel (National Bank of Belgium, Research Department); Koen Burggraeve (National Bank of Belgium, Research Department); Kristel Buysse (National Bank of Belgium, Research Department); Philip Du Caju (National Bank of Belgium, Research Department); Yves Saks (National Bank of Belgium, Research Department); Kris Van Cauter (National Bank of Belgium, Research Department)
    Abstract: La Belgique est un des pays européens où le coin fiscal et parafiscal sur les revenus du travail est le plus élevé tandis que le taux d'emploi y est plus faible que la moyenne européenne. Elle est également caractérisée par le rôle prédominant exercé par les cotisations sociales dans le financement de la sécurité sociale. C'est pourquoi on peut imaginer d'étendre le financement alternatif pour peser moins sur le travail tout en préservant l'équilibre des comptes publics. Pour évaluer les mérites de diverses mesures susceptibles de participer à une telle réforme de la sécurité sociale, on simule à l'aide du nouveau modèle de la Banque des diminutions de cotisations patronales à la sécurité sociale et des mesures alternatives de financement: augmentation de la TVA, instauration d'une cotisation sur la valeur ajoutée et d'une cotisation sociale généralisée. Pour la cotisation sur la valeur ajoutée, l'incidence financière mécanique sur les différentes branches d'activité est examinée au travers de données des comptes nationaux. Une mesure de réduction des cotisations patronales a des effets favorables sur l'emploi car elle induit une substitution entre facteurs de production en faveur du travail et elle améliore la compétitivité des entreprises. Ces effets bénéfiques sont plus marqués si la réduction des charges se fait sans récupération dans les salaires bruts. Toutes les mesures compensatoires sont destructrices d'emploi mais rapportent aux finances publiques. Une augmentation de TVA a un effet très inflationniste et est négative pour la croissance, la position compétitive et l'emploi. Si la liaison entre l'accélération de l'inflation et des salaires est neutralisée, ces effets négatifs sur l'emploi mais également l'effet de retour sur les finances publiques sont fortement réduits. Une cotisation sur la valeur ajoutée détruit beaucoup d'emplois et affecte fortement la compétitivité et ce surtout au détriment des entreprises les plus intensives en capital. Une cotisation sociale généralisée a des effets relativement modérés à condition qu'elle ne donne pas lieu à des augmentations de salaires consécutives à l'agrandissement du coin fiscal qu'elle engendre.
    Keywords: Cotisations sociales, coûts salariaux, emploi.
    JEL: C53 H30 J38
    Date: 2006–03
  48. By: Tania Oliveira
    Abstract: We study a market where two universities, a public and a private one, compete for students by setting admission standards. Students differ in ability and receive a wage premium for participating in higher education. This wage increases with the quality of the university attended. The private university maximizes profits, the public university maximizes welfare. We show that there is no "same-standard" equilibrium. In a specific example we show that multiple equilibria can exist. In one equilibrium the private university sets a higher admission standard, and in the other equilibrium the public university sets a higher admission standard.
    Keywords: Competition between private and public universities; educational standards
    JEL: H42 H52 I22
    Date: 2006–04
  49. By: David A. Hennessy (Center for Agricultural and Rural Development (CARD))
    Abstract: We develop a dynamic capital valuation model in which each farm can take an action with farm-varying cost to increase the probability of not contracting a disease. In the presence of infection externalities, circumstances are identified under which multiple equilibria exist and where the one involving the most extensive set of action takers is socially optimal. It is suggested that costly capital markets are one factor in determining the extent of endemic disease in a region. The introduction of frictions, such as dealing with a cumbersome veterinary public health bureaucracy, can enhance social welfare by encouraging precautionary biosecurity actions. Some technical innovations can reduce social welfare. The model is also extended to study a voluntary herd depopulation scheme. Moral hazard in the biosecurity action will dampen the scheme's welfare effect.
    Keywords: biosecurity, continuous time, multiple equilibria, Nash behavior, reinfection.
    JEL: D20 H4 Q1
    Date: 2005–12
  50. By: David A. Hennessy (Center for Agricultural and Rural Development (CARD))
    Abstract: The spatial dimension of agricultural production is important when a communicable disease enters a region. This paper considers two sorts of biosecurity risk that producers can seek to protect against. One concerns the risk of spread: that neighboring producers do not take due care in protecting against being infected by a disease already in the region. In this case, producer efforts substitute with those of near neighbors. For representative spatial production structures, we characterize Nash equilibrium protection levels and show how spatial production structure matters. The other sort of risk concerns entry: that producers do not take due care in preventing the disease from entering the region. In this case, producer heterogeneity has subtle effects on welfare loss due to strategic behavior. Efforts by producers complement, suggesting that inter-farm communication will help to redress the problem.
    Keywords: circle and line topologies, complements and substitutes, epidemic, public good.
    JEL: D20 H4 Q1
    Date: 2005–11
  51. By: Rolf Aaberge, Ugo Colombino and Tom Wennemo (Statistics Norway)
    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) - 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-of-sample prediction performance.
    Keywords: Labour supply; discrete-choice models; quantity constraints; prediction performance
    JEL: C51 C52 H31 J22
  52. By: Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Barbara Buchner (Fondazione Eni Enrico Mattei)
    Abstract: The present stalemate in climate negotiations between the US and the other Annex I countries has led policy analysts and economists to explore the possible emergence of alternative climate regimes that may be applied after 2012. This paper explores the idea of replacing international cooperation on greenhouse gas emission control with international cooperation on climate-related technological innovation and diffusion. This idea – recently proposed among others by Barrett (2001) and Benedick (2001) – is based on the insight that incentives to free ride are much smaller in the case of technological cooperation than in the case of cooperation on emission control. This paper provides a first applied game theory analysis of a technology-based climate protocol by assessing: (i) the selfenforcingness (namely, the absence of incentives to free ride) of the coalition that would form when countries negotiate on climate-related technological cooperation; (ii) the environmental effectiveness of a technology-based climate protocol. The analysis is carried out by using a model in which endogenous and induced technical change are explicitly modelled. The results of our analysis partly support Barrett’s and Benedick’s conjecture. On the one hand, a self-enforcing agreement is more likely to emerge when countries cooperate on environmental technological innovation and diffusion than when they cooperate on emission abatement. However, technological cooperation – without any commitment to emission control – may not lead to a sufficient abatement of greenhouse gas concentrations.
    Keywords: Agreements, Climate, Incentives, Negotiations, Policy
    JEL: C72 H23 Q25 Q28
    Date: 2006
  53. By: Hoel, Michael (Department of Economics, University of Oslo); Sterner, Thomas (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Environmentalists are often upset at the effect of discounting costs of future environmental damage, e.g. due to climate change. An often overlooked message is that we should discount costs but also take into account the increase in the relative price of the ecosystem service endangered. The effect of discounting would thus be counteracted, and if the rate of price rise of the item was fast enough it might even be reversed. The scarcity that leads to rising relative prices for the environmental good will also have direct effects on the discount rate itself. The magnitude of these effects depends on properties of the economy’s technology and on social preferences. We develop a simple model of the economy that illustrates how changes in crucial technology and preference parameters may affect both the discount rate and the rate of change of values of environmental goods. The combined effect of discounting and the change of values of environmental goods is more likely to be low, or even negative, the lower is the growth rate of environmental quality (or the larger its decline rate) and the lower is the elasticity of substitution between environmental quality and produced goods. <p>
    Keywords: Discounting; future costs; scarcity; environment; climate change
    JEL: H43 Q32 Q54
    Date: 2006–03–16
  54. By: Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Valentina Bosetti (Fondazione Eni Enrico Mattei); Marzio Galeotti (Fondazione Eni Enrico Mattei)
    Abstract: T In recent years, a large number of papers have explored different attempts to endogenise technical change in climate models. This recent literature has emphasized that four factors – two inputs and two outputs – should play a major role when modelling technical change in climate models. The two inputs are R&D investments and Learning by Doing, the two outputs are energy-saving and fuel switching. Indeed, R&D investments and Learning by Doing are the main drivers of a climatefriendly technical change that eventually affect both energy intensity and fuel-mix. In this paper, we present and discuss an extension of the FEEM-RICE model in which these four factors are explicitly accounted for. In our new specification of endogenous technical change, an index of energy technical change depends on both Learning by Researching and Learning by Doing. This index enters the equations defining energy intensity (i.e. the amount of carbon energy required to produce one unit of output) and carbon intensity (i.e. the level of carbonization of primarily used fuels). This new specification is embodied in the RICE 99 integrated assessment climate model and then used to generate a baseline scenario and to analyze the relationship between climate policy and technical change. Sensitivity analysis is performed on different key parameters of the energy module in order to obtain crucial insights into the relative importance of the main channels through which technological changes affects the impact of human activities on climate.
    Keywords: Climate Policy, Environmental Modelling, Integrated Assessment, Technical Change
    JEL: H0 H2 H3
    Date: 2006
  55. By: Astrid Hopfensitz (University of Geneva); Ernesto Reuben (Department of Economics, University of Copenhagen)
    Abstract: This paper experimentally explores how the enforcement of cooperative behavior in a social dilemma is facilitated through institutional as well as emotional mechanisms. Recent studies emphasize the importance of anger and its role in motivating individuals to punish free riders. However, we find that anger also triggers retaliatory behavior by the punished individuals. This makes the enforcement of a cooperative norm more costly. We show that in addition to anger, ‘social’ emotions like guilt need to be present for punishment to be an effective deterrent of uncooperative actions. They play a key role by subduing the desire of punished individuals to retaliate and by motivating them to behave more cooperatively in the future.
    JEL: Z13 C92 D74 H41
    Date: 2005–07
  56. By: Stenberg, Anders (SOFI, Stockholms universitet)
    Abstract: The Adult Education Initiative (AEI) in Sweden was introduced in the autumn of 1997 and generated a massive expansion of subsidized adult comprehensive education. This paper uses data on a large sample of unemployed persons aged 25 to 55 to evaluate the effects of comprehensive upper secondary education as compared with the vocational part of Labour Market Training (LMT). Register data of annual wage earnings are available from 1991 to 2003. Fixed effects estimates indicate a weaker impact on wage earnings of comprehensive education relative to vocational training. However, for individuals aged 43-55 the parameters are insignificantly different from zero. Coefficient results close to zero are also obtained for females who prior to enrolment had two-year upper secondary school or resided in a municipality associated with a low average educational level.
    Keywords: Adult education; wage earnings
    JEL: H52 J68
    Date: 2005–10–03
  57. By: Samuel Berlinski (Institute for Fiscal Studies and University College, London); Sebastian Galiani; Paul Gertler
    Abstract: Although the theoretical case for universal pre-primary education is strong, the empirical foundation is weak. In this paper, we contribute to the empirical case by investigating the effect of a large expansion of universal pre-primary education on subsequent primary school performance in Argentina. We estimate that one year of preprimary school increases average third grade test scores by 8 percent of a mean or by 23 percent of the standard deviation of the distribution of test scores. We also find that preprimary school attendance positively affects student’s self-control in the third grade as measured by behaviors such as attention, effort, class participation, and discipline.
    Date: 2006–03
  58. By: Jan Gunnarsson (Department of Economics, University of Copenhagen)
    Abstract: Analyses of European governance usually bring the member states into the fore placing the citizens in the background. By means of economic analysis, this paper brings explanations of EU legitimacy down to the level of individuals. A method will be suggested that combines explanations based on individual interests and a sociological approach to identity. The paper investigates how work organizations become levers for a European outlook that may release legitimizing from its national context. The individual level analysis will be carried out for one particular occupational group (engineers) and the research questions are elucidated by a small number of interviews with Danish engineers concerning their experience of policies and actions with technological knowledge.
    Keywords: legitimacy; social capital; transaction costs; social identity; multi-level governance
    JEL: H70 L50

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